Question
I’m reading your new book Retirement Made Simple and I’m hoping it can clear up something that’s confusing me. I thought that regardless of whether they are subject to an income or asset test, they could only earn $300 a fortnight as a retired couple. We will do an asset test and I have calculated using your retirement calculators that I will probably have around $600,000 in retirement. Given these circumstances, we can earn more than $300 a fortnight without our partial pension being affected.
reply
You have highlighted an issue that confuses many people. The pension eligibility tests work on an asset test and an income test and the one that produces the lowest pension is the one used by Centrelink. As of July 1, 2020, a couple can earn a combined $316 per fortnight and still be eligible for the full pension based on the income test. once income exceeds this level, the pension is reduced by $0.50 for each additional dollar earned. tests are out of order: the lower limit for a couple of owners for the asset test is $401,500, after which the rate is reduced by $1.50 every fortnight for every $1,000 of assets above that threshold.
Assuming your taxable assets are $640,000, which includes your financial assets and items such as vehicles and furniture, you would be eligible for a pension of $708 per fortnight combined. you could earn a combined income of $1,800 per fortnight, and still be assessed under the assets test. In short, the income test is not relevant to anyone who has an asset test.
question
I’m 51 years old, single and make $200,000 gross a year. I currently lease and lease my interstate home, which is worth $500,000 with a $200,000 mortgage. i am considering selling this house and buying a condo on the gold coast for my retirement in 5-10 years. I have $300,000 in cash and $300,000 of home equity available for investment.
I want to invest in stocks through index funds, but I’m concerned about changes in government super laws and the integrity of my DB super fund. Should I invest in stocks outside of Super with a capital loan and/or make additional after-tax cash contributions to Super? my pension is worth $500,000 and I make the maximum contributions on favorable terms. should i consider an smsf or fund not associated with my employer?
reply
I suggest you use the best of both worlds. Continue to sacrifice your salary to the max, but continue to increase your net worth by taking out loans for assets in your own name to keep them out of the retirement system. There are advantages and disadvantages to having your own fund – these are discussed in detail on the ASIC Money Smart website. An SMSF could be helpful if you intend to be an active do-it-yourself stock investor.
question
I’m 60 years old and I work full time. my super balance is $460,000 we have sold an investment property for $950,000. the purchase price was $130,000. How do I reduce my capital gains tax bill using retirement?
reply
this is a warning for anyone to take advice before signing a contract in which a substantial amount of tbc can be paid. The only way to use retirement to reduce capital gains tax is to make concessional contributions to reduce your taxable income in the year the sales contract was signed. the problem is that total concessional contributions from all sources cannot exceed $25,000 per person per year. you use the term “we”, so I’m assuming the house was in joint names. therefore, the gain will be calculated by subtracting the base cost from the net selling price. Based on the figures provided, your total profit may be around $780,000 which will be split in half by applying the 50% discount. This means that $195,000 will be added to the taxable income of both parties to calculate the CGT. I assume your employer is making mandatory contributions for you. if it’s $10,000 a year, you only have $15,000 left to make a concessional contribution on your own behalf; possibly the co-owner could contribute $25,000 if he had no other retirement. Obviously, tax-deductible contributions won’t lower your TGC too much.
question
If I sacrifice my salary for a large sum of money, can I use this as a lump sum when I retire? Does the money my employer puts into the pension have to be used as an account-based pension? once I have sacrificed money for super, is it out of my control or could I apply for a large one-time sum, for example, the cost of a new car, above the agreed allotted pension sum in a year?
reply
Under current rules, you can take your entire pension as a lump sum once you reach your conservation age and/or meet a release condition if you’re under 65. add withdrawals as needed when the time comes.