Case Study 2 – Selling Your Home on the Aged Pension
Current Situation
Bianca* wanted to sell her home and keep the aged pension, Bianca’s situation was:
- Single
- In her early 70’s
- a home owner with the property worth $900,000 (with no debt)
- received the full age pension of $1,904 per month, with no other income or assets
Sadly her her husband recently passed away and after a couple years she needed higher care because she could no longer drive on her own and wanted to be closer to her family.
Bianca’s Daughter lived in a nearby suburb and offered to build a granny flat in the back yard as long as Bianca could maintain her physical independence and cover her own costs. Everyone was happy with the arrangement and Bianca agreed to the arrangement.
The Problem
The problem in doing this is once Bianca sells or even moves out of her house it would be tested as an Asset for Centrelink purposes and she would lose the entire aged pension because her asset base would be tested on $900,000.
We told Bianca that this is not such a big problem because the rental income she would receive from the property would outweigh any Centrelink income she would be entitled to.
With Bianca needing higher care, unable to drive and never managing property or assets in the past, she did not want to be bothered with managing tenants, worrying about house repairs and maintenance and the possibility of nightmare tenants.
She wanted to keep her life simple, live with her daughter and use the age pension until she needed higher care (such as aged care later on).
The Solution
This was a classic case of a retiree who wanted to have their cake and eat it with all the trimmings.
We informed Bianca and her daughter that a she could live with her daughter and receive the age pension but it may not be at the full rate.
This wasn’t a problem for us because we knew we could increase her income using other investments and leave her better off and with more income compared to what she was receiving (remember it was $1,904 per month).
Bianca contributed $300,000 towards her daughters home improvement costs and went on title as a 30% owner. The daughter added an extra 4 squares of living space to the property that included purpose built amenities for Bianca to live in so she could maintain her own privacy and living independence.
What we recommended:
- To pre-purchase a funeral bond for $12,500
- Gift $10,000 to her two children
- Invest $200,000 into a lifetime income product that would pay Bianca $850 per month for the rest of her life
- Commence another tax-effective income stream product that would pay an additional $1,000 per month
- Invest into another property based income product that would pay Bianca $500 per month
- Keep $42,000 in cash as a emergency savings account
After implementing all of the above advice Bianca’s income has now increased to $2,723 per month which is $819 MORE that what she was previously earning and most of this income would be running on auto pilot and her retirement planning advisor would check in every 6 months to ensure Bianca’s situation is all running like a well oiled machine.
Based on the above scenario, Bianca is only asset tested on $497,500 instead of the entire $900,000 if she just sold her home on the aged pension and did nothing else.
So by getting the right retirement advice from a specialist retirement adviser Bianca increased her yearly income by $9,828, she sold her home and managed to keep most of the aged pension and her income will continue to roll in for her life expectancy, subject to normal market conditions.
What is most important in situations like these is for Australian retirees to use the ongoing review service offered by your retirement advisor because they can provide you with much needed guidance and stability when the markets get volatile and most importantly they can keep your income defensive and provide you with advice and strategies as the laws and rules change with Centrelink and other legislation’s.
Want to Know More?
If you are considering selling your home on the aged pension and want help, more information or answers on selling your home while on the aged pension then fill out the Contact Form below and a Centrelink planning specialist will contact you to discuss your unique situation and answer your questions.
Look up the Centrelink Assets Test on this website
Read the Case Study on the Homepage
*Name has been changed for privacy reasons