When most people hear the word “downsize” they think of a smaller home with a cheaper price tag.
But this is just one of the reasons why I am on a mission to re-label “downsizing” to “rightsizing”.
Sure, sometimes the home and the garden (or at least the bit you need to look after) are smaller, but sometimes they’re not. Sometimes you still have 3 bedrooms, 2 bathrooms and a double garage.
And sometimes the price tag isn’t necessarily less.
Like most property transactions it will depend on the location, the home you choose, any upgrades like benchtops and appliances or extras like boat/caravan or wine storage.
And here’s the thing, while lots of people see the main benefit of downsizing as putting more money into their investments if you’re getting an Age Pension you could find that the bigger home, the better location, with the upgrades (or even all 3 of those things) could actually be more affordable.
You see, when calculating your pension entitlement, your home is an exempt asset, so money you free up from your current home is turning an exempt asset into an assessable one.
- DOWNLOAD THIS CASE STUDY TO SEE HOW ONE CUSTOMER CONSIDERED PENSION AND OTHER ISSUES IN HER DOWNSIZING MOVE
Of course, there is a level of assets and income you can have and still get all (or some) of the pension.
As a single homeowner to receive the full age pension of $25,155/year you need to have assets below $270,500 and income (excluding pension and work bonus) below $4,680/year.
As a general rule your assets are included at the market value, with the exception of your home, and a prepaid funeral or funeral bond (up to certain limits).
If your assets or income (or both) go over these thresholds then you can still claim a part-pension provided your assets don’t exceed $593,00 and your income doesn’t exceed $54,990/year.
If you are a homeowner couple the full age pension is $18,962/year per person, so up to $37,924/year combined.
To receive the full amount your combined assets need to be below $405,000 (if your spouse is under age pension age then in addition to the assets above their superannuation can be exempt too) and your combined income needs to be below $8,320/year.
You can claim a part-pension until your assets exceed $891,500 or your incomes exceeds $84,167/year.
When it comes to income it’s important to realise that your financial investments like bank accounts, term deposits, superannuation and shares are simply deemed to earn income, regardless of what they actually earn.
The current deeming rates are 0.25%p.a on the first $53,600 if you’re a single or the first $89,000 if you’re a couple, investments above this are deemed to earn 2.25%p.a.
Let’s say you are a couple with $200,000 in a combination of bank accounts and shares, the deemed income would be $2,720/year being $89,000 at 0.25% ($222.50) + $111,000 at 2.25% ($2,497.50).
Hanging on to some of your pension can make good financial sense.
Firstly, there’s the question of what you can earn on the extra money invested.
When you go over the asset threshold your pension reduces by $3 for every thousand of assets per fortnight.
When you hear it like that it doesn’t sound too bad but it means that for every $100,000 over the threshold you lose $7,800/year of pension - which can be tough to replace.
And then there’s the other benefits that can come from getting some pension like rent assistance (which can boost your pension by up to $3,713/year) and the Pensioner Concession Card which gives a wide range of discounts on health care, medicines, rates, utilities, car registration and public transport.
FIND OUT MORE
- Download this case study to see how a Village Guru report helped one customer to move into an Ingenia Lifestyle community in Victoria
- Learn about Village Guru and its Essentials Report which can help you crunch the numbers on village costs, age pension, rent assistance and home care package fees
The information contained in this article and in the Village Essentials Report is general in nature and does not take into account any person’s individual objectives, financial situation or needs. It is not intended to imply any recommendation, opinion or advice. You should seek advice from a qualified professional about your particular financial situation, needs and objectives.