As the number of retirees grows and international travel becomes more problematic and expensive, there is a surge in the number of grey nomads travelling Australia.
After all, what could be simpler than taking your own caravan or recreational vehicle to drive around our wonderful country?
This reader told me they use their son's home as a base for mail and have rented out their home for three years to gain some income as they travel. But they have become concerned that their pension may be negatively affected.
They have heard that once they moved out of their home it would have become assessable under the assets test. Their home is worth $900,000, which together with their superannuation would be enough to wipe out their eligibility for the age pension.
It's not quite as bad as that, but it certainly needs thinking about if becoming a grey nomad is on your bucket list.
Centrelink tells me that you can be absent from your home for up to 12 months and still be considered a homeowner, which means your principal place of residence is exempt from the assets test.
If you are overseas and unable to return because of circumstances beyond your control, this period may be extended. However, except for this circumstance, once the 12 months has expired your house will be counted for the assets test. And this could well be enough to make you lose your pension.
If you resume occupancy of your home within 12 months, and later leave the home again, a new 12-month exemption period begins.
However, it's important to ensure that you actually live in the home; don't just drop in with the intention of establishing a brief period of residence to extend the exemption period.
You might get a one-year holiday from the assets test, but you could still be caught by the income test. If you are away from your home for a long period like a year it surely makes sense to rent it out. However, you need to remember that your superannuation is subject to deeming, which provides a notional income that must be added to the rent you get on your house.
Let's think about Jack and Jill, who have a recreational vehicle worth $150,000, $500,000 in super and have rented out their home for $800 a week.
The superannuation would be deemed to be earning $361 a fortnight. Added to their rental income of $1600 a fortnight, this takes their income for income test purposes to $1961 a fortnight.
Luckily the income test is fairly generous for a couple - they can earn up to $3313 a fortnight before they lose eligibility for any pension. So Jack and Jill can continue to receive a combined aged pension of $676 a fortnight, and all the concessions that go with it.
As you see, becoming a grey nomad need not mean you will lose your pension. It's really a matter of planning your affairs with care.
You'll need to arrange to re-occupy your home before the 12-months' grace period has expired. And figure out if it's worthwhile to rent your house out, or whether your deemed income from superannuation and rent combined will be enough to negate pension eligibility.
That's a matter for individuals to decide, but do remember that a house is better with good tenants in it than being left vacant to go to rack and ruin.
Noel answers your money questions
Question
Our group of retirees where discussing our situations recently and a question was raised that no one had a clear answer to. Is there a legislated age when a retired person is obligated to start making withdrawals from funds in an Accumulated Super Account?
Answer
Under current legislation there is no requirement to withdraw money from superannuation, unless you are in pension mode. People in pension mode are required to make the mandatory annual draw downs.
Question
Due to the allocation of Woodside shares from BHP classed as fully franked dividends I will go over the limit to be eligible for the Comm Seniors Card. Does this mean I must contact Centrelink and pay back all benefits I have received?
Answer
The CSHC is issued for a 12-month period and renewed in August each year (subject to the eligibility criteria being met). One of the eligibility criteria is meeting the CSHC income test. If you lose access to the CSHC, there is no requirement to repay benefits. The ALP made an election promise to increase the income thresholds - this is yet to be legislated, and if legislated, will assist you.
Question
We have an investment property worth $650,000 on which we owe $150,000. I am 67 and will be retiring at the end of this financial year. If i sell the property can i transfer the profits straight to my Super fund and avoid paying CGT.
Would you recommend accessing my super fund and paying off the balance of the loan. I ask this as my super fund has not performed at all well last year and I am worried it will deteriorate even further over the next 12 months.
Answer
From the emails I am receiving there is still much confusion about strategies to mitigate CGT by making contributions to superannuation. CGT is calculated by adding the net capital gain after discount if appropriate to your taxable income in the year the CGT event occurs.
If you are in a position to make tax deductible contributions to superannuation, it may be possible to get your taxable income into a lower tax bracket and pay a lower rate of CGT. Tax-deductible contributions which are known as concessional contributions are limited to $27,500 a year which includes the compulsory employer contribution.
However, in certain circumstances you may be eligible to make catch up concessional contributions which would increase the amount you can contribute to reduce your CGT. You really need to be taking expert advice. You need to talk to you advisor to find out why your superannuation fund has not performed well over the last year.
Most super funds have had a bad year and I would not like to see you quit a good superfund when the market is having one of us normal down times, to pay off a loan. Over the long haul the return from the super fund should exceed the interest rate on the loan.
Question
I am aged 25 on a salary of $117,000 a year. My only liability is my HECS debt of $29,400 on which the interest rate has just gone up to 3.9 per cent.
I'm not looking to buy a property for a few years and, thanks to the generosity of the bank of mum and dad, do not have to save an upfront deposit. Would it be wise to pay off all of the HECS debt? I'm worried it will keep growing and may affect my borrowing ability when I do eventually apply for a loan. The other option is to simply invest in the share market.
Answer
You are very well-placed for somebody of your age, and I think that getting rid of the debt as soon as possible would take an uncertainty out of your future, and put you on a sound foundation.
The HECS interest rate is indexed to inflation so may rise to 5 per cent in the short to medium term. If you do invest in shares in preference to the debt repayment, you could suffer a loss if the market falls, and be faced with capital gains tax if it goes up.
I think getting an effective tax free rate of 3.9 per cent by repaying the debt is a great way to go at the moment.
- Noel Whittaker is the author of Retirement Made Simple and many other books on personal finance. Email you money questions to noel@noelwhittaker.com.au
