Tax. It’s an unavoidable aspect of working.
Most people pay a lot of tax in their working life and don’t receive much assistance from the government in return.
So, when it comes time to collect the Age Pension it may feel like it’s your time to finally ‘get something back’.
Sadly, the amount most people are eligible for is underwhelming, largely in part due to the ‘assets test’ (which is becoming more stringent each year).
So how can you receive as much Age Pension as possible?
It’s important to remember you have the choice between having ‘too much money’ and not getting Centrelink or having minimal retirement savings and getting the full Age Pension.
Personally, I’d choose the former.
With that said, let’s assume you’re already retired and just want to look at your options.
The three common ways to legally defend your money from Centrelink are:
Your home is not considered an asset for Centrelink purposes. Given this, in some situations it makes sense to retain your own home if you are likely to be on the borderline of the assets test.
The home can still be sold down in future as other assets run out. The major downside of this strategy is you’ll have a fair chunk of your retirement savings tied up in an asset not producing a return.
‘Gifting’ money is generally fairly limited in scope and comes with a few cons to be aware of. The main being you don’t want to give money away!
A limit of $10,000 can be gifted each year but no more than a total of $30,000 over a rolling five-year period.
Do these figures represent the total combined amount a couple can give away or just an individual?.
Anything above that is included under your Centrelink assets test.
For example, if you gave away $100,000, you’d still have to include $70,000 as an asset for the next five years.
A strategy we see a fair bit is people ‘gifting’ money to their children but kept in a separate bank account or investment in which both parties still see it as the parents’ money.
If they run out, they withdraw what they need to top up their bank account and if they pass away the money was going to their children anyway.
Along with the obvious drawbacks of ‘gifting’ your savings, this strategy may also carry implications for your recipients relating to tax or stamp duty fees.
Contributing money to your spouse’s superannuation fund is another approach, however this is only useful if your spouse hasn’t already met a condition of release.
This is because only superannuation that is not able to be accessed is discounted as a financial asset.
For example, when you reach the age of 65 your super is accessible in full at any time. However, if your spouse is aged 54, they would not be able to access their super. Given this, you could possibly transfer a lump sum of $300,000 from your super to theirs so it would no longer be treated as an asset for Centrelink purposes.
This is only the case until they reach an age at which they become eligible to access their super.
There are tax implications to be aware of, as well as several different criteria that would need to be met for this to be suitable. But for a select few people, this can be a very profitable strategy.
It is important to remember there are no one size fits all solutions with these strategies, and each option has trade-offs that need to be carefully considered.
All of these strategies have downsides, for example owning a home is likely to mean lower returns, compared to investing the money.
Contributing to a spouse’s super account would likely increase their tax payable.
And giving money away carries significant risk.
Make sure you calculate what strategy or plan is going to assist with your overall goal: to make sure you don’t run out of money.
Written by Dallas Davison.
Dallas Davison, Michael Hogue and Ali Hogue.