With record low interest rates many retirees may have felt very comfortable carrying a mortgage into retirement. The monthly repayments are as low as they’ve been for decades and it means that keeping a higher amount in super or cash deposits ensures ready access for discretionary spending. But this strategy ignores a key plank of Age Pension eligibility. As you know your primary residence is not assessable for the Age Pension. This is the case if the house is encumbered with a mortgage or not.
Simple sums
Let’s consider the case of Jenny who just missed out on Age Pension qualification – as a single home owner her assets were above the limit of $593,000. Part of her assets included $145,000 in a term deposit. This money was earning interest of 1.5% per annum. Taking advice, Jenny decided to use $100,000 to pay off her remaining mortgage. This had three effects. Firstly she forewent the $1500 per annum interest earned from the cash account. But it saved her $3250 per annum in mortgage interest – net gain $1750. Most importantly, she then qualified for a modest part Age Pension ($300 per fortnight, or $7800 per annum, including supplements) and the Pensioners Concession Card, worth an extra $2-3000 per annum. Jenny’s income is well ahead of where she was before paying off her mortgage. But taking the decision to pay down a mortgage is always a trade-off as you can lose access to the ready cash in your bank account. A qualified financial adviser can run the sums for you so you can compare scenarios and reach your own best decision.
The first step to maximising your entitlements is to check you are getting all of yours. You can get started by using our free calculator.
This article is provided by Retirement Essentials Representative Number: 001260855. We are an authorised representative of SuperEd Pty Ltd ABN 88 118 480 907 AFSL #468859. This information is not intended as financial product advice, legal advice or taxation advice. It does not take into account your personal situation, goals or needs and you should assess your own financial situation, consider if the information is suitable for you and ensure you read the relevant Product Disclosure Statement (PDS) if you choose to make any changes to your financial situation. It is always advisable to consult a financial adviser before making financial decisions.
