27th Jul 2018
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How does Harry gauge whether he should downsize?
Should I downsize?

The new downsizing legislation has been with us for almost a month and Harry thinks he understands the pros and cons, but he asks finance expert Noel Whittaker for his opinion.

•••



Q. Harry
I think I understand the new downsizing legislation that came into effect on 1 July, but I would love to get your take on it. Also, I keep reading about the disadvantage involved in downsizing and putting extra money in super and how that might affect eligibility for the Age Pension. I am 62, my wife is 58 and we are both working part-time. How do I gauge whether it’s a good idea to downsize?

A: Any money in superannuation is not currently assessed by Centrelink until the holder reaches pensionable age. Therefore, placing money in superannuation in your wife’s name may give you an extra few years on the Age Pension if the rules are unchanged at the time you get to the pensionable age. Just keep in mind that downsizing means you are converting an exempt asset, namely your home, into an assessable asset such as cash. I appreciate that you are still some years away from getting the Age Pension but it’s best to get advice sooner rather than later.

Do you have a question you’d like Noel to tackle? Email us at newsletters@yourlifechoices.com.au

Visit Noel’s website here.

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    Noel Whittaker is the author of Making Money Made Simple and numerous other books on personal finance. His advice is general in nature, and readers should seek their own professional advice before making any financial decisions.





    COMMENTS

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    MICK
    27th Jul 2018
    10:30am
    Please explain WHY anybody should downsize either than unique/adverse conditions forcing them to do so?
    This whole con from the current rich man's government is designed to make the family home assessable for the pension by default. Dirty politics from the top end of town!
    My suggestion is for people to stay put unless they are unhappy or need to sell. YOU DESERVE YOUR PENSION so don't give it up for this government....which will not only deny some downsizers a pension but will also force them to pay tax on interest earned after their home is sold. This is what people without a soul do!
    Captain
    27th Jul 2018
    10:45am
    Mick, you are correct in your assessment of the new rules. Unfortunately many will swallow the Govt B/S and sell then find they have been conned. Treasurer Hockey pulled the wool over the unwitting in the 2014 budget and people who are retiring now are finding out the extent of the dunderhead's trickery.

    Do not trust any of the current politicians (Govt or Opposition, include Greens as well.). What are the moral standards of people who give themselves a huge pay rise and at the same time take away the part pension of 92,000 retirees and reduce the pension entitlement (yes entitlement not welfare) of another 360,000 pensioners!!!!!!

    Those retiring now are finding out that what they should have received as a pension is now becoming less than anticipated.

    Lovely people politicans.
    MICK
    27th Jul 2018
    10:58am
    Agreed. That's why people have to spend some money and get sound unbiased advice.
    For the record Greens and Labor would not have done this to retirees. Having said that we'll see if they wind back the attack of the rich man's Party if Labor gets in. Given the media is already playing the man to get its own in not sure how that is going to play out.
    Yes politicians are bastards. No ethics. Some much worse than others but all tarred with the brush of dishonesty.
    Cowboy Jim
    27th Jul 2018
    11:58am
    Nothing is ever wound back, Mick. Remember roll back of GST. Did not happen. Rudd bringing in retirement at 67, did not change when the Libs came in. Libs decreased pension eligibility last year, Labor will not alter that one either. Any party bringing in 70 as a retiring age, the other mob will leave it as is. That is a guarantee, Mick, that is the reason for the great disillusionment of Aussie politics. You can vote till you are blue in the face and the master's fingers are going deeper into your pockets.
    Sundays
    27th Jul 2018
    2:27pm
    Sorry Mick, but you are wrong about the Greens. They were the ones who sided with the Liberals to reduce the Asset Test for pensioners. At the time, I thought that they did not understand the ramifications. Without Support from the Greens the legislation would never have passed. At the time, they said they would insist on a review of the OAP, but that never happened!
    Old Man
    27th Jul 2018
    2:48pm
    MICK, we live on the standard 1/4 acre block which is high maintenance in the warmer weather. My health is not as good as it was when we moved here and it is getting harder to maintain the gardens. We live some distance from public transport and my driving licence is not a guaranteed document. We may have to downsize to a smaller place, closer to public transport and low maintenance but that will be our decision, not the government.

    Your preposterous statement that any government would include the family home is scaremongering and Shorten would love to have you as a Labor tactician. There has never been any statement by any government that would even suggest that your comment holds water. Sure, every time any government asks the public servants to come up with a way to save money, the idea of including the family home as an asset is raised and each and every time the government of the day emphatically denies that it will happen.

    Your claim that this government is forcing people to downsize is false, in fact, what it has done is to give a window of opportunity to people to pay into their super funds when previously they could not. If by doing so it will exclude them from a full or part pension then so be it. The same thing would apply if those excess funds were held anywhere, whether interest bearing or not.
    Cowboy Jim
    27th Jul 2018
    2:55pm
    @Old Man - Mick has a point about the family home becoming part of an asset test in future. Just wait till home ownership in Australia goes below 50% and then Mick will see it happen. If more than half the population is renting they will be in favor of pulling the owners down. The way we are going it won't be long.
    MICK
    27th Jul 2018
    2:58pm
    OM - come off the grass mate! Have you forgotten Morrison repeatedly leaking the inclusion of the family home in the assets test? This is stage II of pushing Australians OFF THE PENSION and if this lot get back in with a majority on both houses then hold onto your hat as even employees will be attacked. Count on it before you post right wing nonsense. None of us are safe unless our bank account is > $5 million in which case we'll be in the club.
    Old Man
    27th Jul 2018
    3:09pm
    MICK, Stage I of getting off the pension was legislated in 1991 by the Labor government. The original concept was to ensure that all workers had a comfortable retirement and it was accepted that the then current asset and income tests associated with the age pension would not be altered. Apart from your memory, have you documented proof that Morrison wants to include the family home in the asset test?
    Rae
    27th Jul 2018
    3:36pm
    Yes Captain which is why they had to get Hockey out of the Country quick smart. He did the deed for them and was rewarded. Washington is a great city to be an ambassador in.
    Noodles
    28th Jul 2018
    10:03am
    The idea of compulsory super is that people will use the super and a part pension.
    Rae
    30th Jul 2018
    8:32am
    Yes Noodle that was the idea. Changing the mix to taxing at the beginning because they wanted the money now and taxing returns sort of stuffed Keating's idea up. Then all those other changes.
    The GFC took a wad of losses and has taken years to earn that money back.

    You'd be better borrowing $50 000, at age 20, and putting it in the markets and leaving it alone while you wrote off the loan from tax and paid it off when you are working, Then leave it alone for 40 to 50 years.In my opinion.
    Stagnant wages and lack of sharing productivity gains means at least the bottom 60% will never have much at the end. A couple of hundred thousand they paid near 10% of wages into and lots of fees and charges along the way.

    It would be better spent paying the mortgage and then saving up a bit for retirement hobbies and such with the aged pension being paid in any case for those earning lower incomes.

    $3000 to $4000 less taxes, fees, charges, insurance etc, saved each year, isn't going to add up to much now is it?

    Whatever the idea was about Superannuation it was not terribly wise. A tax minimisation for high income earners.

    Keating should have realised it could be turned into just another means of using other people's money to make profits for yourself.
    Mindy
    27th Jul 2018
    11:10am
    Mick: 'YOU DESERVE YOUR PENSION so don't give it up for this government.' Are you for real? Nobody deserves anything in this world. You should only get what you have earned yourself.

    I for one refuse to accept the pension - I will live on what I have saved!
    libsareliars
    27th Jul 2018
    11:36am
    Well bully for you Mindy, do you want a medal?
    Cowboy Jim
    27th Jul 2018
    11:44am
    Mindy is hoping for a State funeral maybe? For the saved pension money they could hire a brass band.
    ozirules
    27th Jul 2018
    11:51am
    I for one agree with Mick and Captain. Mindy, if you have saved enough to be in a position to refuse the pension enjoy and hats off to you. However should you, due to circumstances beyond your control, ever need to seek financial help to survive, it must be comforting to know that you can climb off your high horse and seek the assistance every Australian is entitled to.
    AutumnOz
    27th Jul 2018
    1:27pm
    Mindy I don't understand your reason for refusing the pension unless you have been brainwashed by the various folk telling you it is welfare and you should not accept it. If you have ever worked in Australia you have already paid for your pension, your savings should provide a few luxuries in old age not a life of poverty.
    As we all paid 7.5% of our earnings over our working life to fund our aged pension, and those now working are still paying the same amount which supposedly will fund their pension when they reach retirement age, it is their right and it is not welfare.
    I do not qualify for a full pension as I have a private income but I do get a very small part pension which I greatly appreciate. The pension card also gives me the benefit of being able to afford my life saving medications and also to call an ambulance if it is urgently needed.
    Sundays
    27th Jul 2018
    2:44pm
    Well Mindy, as long as pride isn’t stopping you from having a more comfortable old age.
    MICK
    27th Jul 2018
    3:01pm
    Mindy - We get not $1 from the government. Not even a Health Care Card. This is how miserable this lot is.
    Having said that I am not grumbling but just pointing out what the end game of this government is. If we get their then voters who believed this lot will have what they deserve and should not bother complaining because the horse has bolted and shutting the gate ain't a gonna be real easy from that time on.
    Rae
    27th Jul 2018
    3:39pm
    The system is inequitable and favours some over others.
    tams
    27th Jul 2018
    11:18am
    The most likely consequence of downsizing is part of the leftover funds into super will have some consequences upon age pension entitlements.

    Also it is important to realise that larger properties will have greater growth value, when compared to units, flats and apartments.

    Saw an article yesterday suggesting it's a great idea to move into a retirement village when downsizing, That's really good advice when, not only may age pension entitlements be affected, but you may be also faced with a 30-40% exit fee on departure
    Lark Force
    27th Jul 2018
    11:46am
    Yes TAMS and don't forget the Monthly Management fees in most Villages. Hire a gardener or handyman to maintain your valuable asset(your home) you'll be better off in the long run.. Hold onto your independence, your asset and the children's inheritance ( if that's your way). And the Govt's wealth release scheme may be of great assistance to pay for in home care, at only 5% interest it's better than a blood sucking retirement village!
    sunnyOz
    27th Jul 2018
    1:09pm
    My aunt is moving in to a nursing home. Has to buy in, plus maintenance fees, PLUS pays for meals! She has no children, and will have little left when she does pass. Like her, I too am single, and don't give a damn about leaving an inheritance for an only child. But I too will never go into a nursing home. I too don't for a minute believe in this 'down size and put money into super' rubbish, already know people who have been bitten and lost allot of pension.
    Noodles
    28th Jul 2018
    10:12am
    We have done the sums and we come out about the same now living in a not for profit village(paying monthly fees) as we did owning a four bedroom home on a large block of land

    No more worrying about house maintenance,no gardens, no fertilisers, no paying someone to mow the gardens every fortnight, no insurance or council rates to pay (only household insurance). Our electricity for 12 months was under $350 (yes, you read right $350).
    Gas so far has been aboutg $80 for yer.

    We do not pay supply charges which are the biggest part of utility bills.

    $16.50 a month pays for all local and interstate phone calls, (including mobiles) and also the emergency call system.

    It is very comforting to know that 3 or 4 times a night a security firm patrols the estate.

    We can walk out the door and go on an extended holiday safe in the knowledge that the house will be as we left it.

    The social aspect is there if you wish it and I now know the names of all residents in my street (12). Do you know the names of all the people in your street?

    It is no different to living in a unit in any street and privacy is well respected by residents.
    johnp
    27th Jul 2018
    11:30am
    Why does Noel only partly answer the question, thats bad. I think its about $380K before pension is affected ??
    Cowboy Jim
    27th Jul 2018
    11:50am
    That still depends on your personal circumstances, $380K in savings bring in deemed income, mostly at 3.25% Then you have to consider assets, gold coins, shares, art works, car, caravan. Try to tell them you have no assets and they check your insurance policy.
    Stay put as some stated above, unless you have to move for other reasons like no longer be able to use stairs easily, yard too large or a need to be closer to facilities like medical ones.
    Rae
    27th Jul 2018
    3:49pm
    They can change deeming too.

    For example a senior matron might retire on a defined $80 000 pension from a lump sum of $780 000 paid with 48% non concessional portion of unit purchase.

    She is deemed to have $1.6 million now by the Government putting her in big trouble if she adds anything to say a second accumulation account.

    Her non concessional amount is made redundant.

    Hockey's changes in the 2015 budget were extremely unfair.

    So deeming can be whatever they desire. It's quite dangerous to have Capital in these sorts of risky funds now.

    If you did downsize putting the money into super with fees and charges makes no sense. An independent advisor can put it in funds outside super with no taxes due and much cheaper fees and without the sovereign risk superannuation presents.
    Swinging voter
    27th Jul 2018
    12:36pm
    Today's retired people's taxes paid the pensions of their seniors' pensions. Today's young are also paying their seniors' pensions, but they are also trying to boost up their superannuation so they won't need to rely on a pension which feels like our young are copping a double whammy. I believe everyone should get a basic pension regardless of their financial situation. That would rub out a massive, costly bureaucracy and that alone would probably fund a basic pension for everyone. Some people feel like they are forced to beg for a pension/part pension.

    What you are not being told is that downsizing then putting the excess funds into superannuation only applies to persons who resided in their current home for 10 years. This rule discriminates against persons who moved with the intention of life continuing as is, only to lose a husband or wife, become less able etc. etc. but they do not qualify until their 10 year home occupation period expires.
    Old Geezer
    27th Jul 2018
    1:23pm
    Only way to win with this downsizing is to buy a more expensive house and put the money into super as a tax free environment. Yes it is designed for the wealthy no one else.
    Rae
    27th Jul 2018
    3:52pm
    Yes you'd need to be very wealthy for $300 000 to create tax now.

    Superannuation as a tax minimising instrument has lost it's gloss when costs outweigh gains or taxes.

    27th Jul 2018
    1:44pm
    I don’t understand why anyone would want to live in a multimillion dollar home and live so far beneath their means on a full or part pension
    What a miserable thieving mindset to have
    Fliss
    27th Jul 2018
    2:30pm
    Got to agree with you olbaid.
    Old Geezer
    27th Jul 2018
    2:34pm
    I agree. Sure I live in such a house but I am not on the OAP either.
    MICK
    27th Jul 2018
    3:04pm
    You miss the point olbaid that a pension is a right in all other jurisdictions whilst in Australia it has become something Australians are being demonised for expecting. Welcome to this bad LNP government....but of course we can afford tax cuts for the mega wealthy.
    Old Geezer
    27th Jul 2018
    3:16pm
    Mick you might think it is a right but that aint the way it now happens.
    Old Man
    27th Jul 2018
    3:35pm
    There is something you may not have thought of olbaid and that is that some of those multi million dollar homes were once in working class suburbs in capital cities. Things have changed and some modest 3BR, fibro homes are in the high bracket of real estate. For some of those people to move may mean that they leave behind friendships formed over decades, their medical support systems or legal connections. This is why it is not feasible to include the family home as an asset for age pension eligibility because a modest home in one area may be worth less than $100,000 but the same home in another area may attract over $1M.
    Farside
    27th Jul 2018
    3:45pm
    well said olbaid.

    After following this forum for a while now I have found two popular explanations as to the "why".

    First, the a sense of entitlement to an aged pension without it being characterised as welfare. This is often compounded by the belief they contributed 7.5% towards it back in the Menzies days.

    Second, many have the desire to maximise personal savings so they can leave a larger inheritance to their kids. They reject the notion that lifetime savings are for retirement spending.
    Rae
    27th Jul 2018
    4:03pm
    Old man that is not going to be taken into account as a reason.

    If they can do it they will. Force people to sell their houses and live on the equity.

    They need those houses where the jobs are for workers.

    If I had a two or three bedroom home in the Inner city I'd board a couple of workers and that would be better than selling out.

    Farside you are right but there are easy solutions. Simply spend instead of saving and go to brunches, travel a lot, do all the fun things while young and have a great young life. That way you get the OAP.

    Also gift lavishly to kids, private schools, extra sports and activities, holidays, home deposits and you then get the pension and don't have to worry as the inheritance is already done.

    It wasn't welfare when I was working but a bribe for not striking for what we were worth to society. If we'd gone out for three weeks we'd have had our salaries doubled and that is exactly what we should have done instead of trusting the Government at all.
    OnlyGenuineRainey
    27th Jul 2018
    5:34pm
    Yes, Farside… I DO reject the idea that my savings are to substitute for pension income and therefore all my sacrificing ONLY benefits other taxpayers who had a higher living standard than I did, and I get NOTHING for all that going without. In effect, I'm being taxed over and over and over on money I already paid tax on when it was earned.

    If I chose to gamble, cruise, have a multi-million-dollar house, party endlessly, etc., I would be subsidised by the taxpayer. If I could afford the risk of gifting my money to my kids 5 years before pension age, I would be subsidised by the taxpayer. Why the hell should I be denied benefits because I saved. Why shouldn't I leave my money to my kids if that's my choice?

    Where does this bigoted nonsense come from that it's okay to support big spenders with taxpayer funds, but not to give equally to those who prefer to save to leave something behind for children or grandchildren? It's unfair. It's immoral. And it's economically harmful because it encourages unwise lifestyle choices and denies the next generation an enhanced lifestyle.

    If you assess taxation correctly, the net tax you pay over a lifetime is the tax you pay MINUS the benefits/pension you receive. So Mr Big Spender paid, say, $400,000 tax over a lifetime, and gets $1 million in pension. He's paid -$600,000 tax over his lifetime. He leaves his $1 million house to his kids and laughs at the taxpayer who funded his good life and his kids' inheritance.

    Mr Big Saver paid $400,000 tax over a lifetime and gets $0 in pension because he saved $850,000, partly by settling for a $450,000 home. He pays a net tax of $400,000 - $1 million more than Mr Big Spender - and his kids inherit only $450,000 instead of $1 million. Now only a self-serving MORON would call that fair! And only an idiot would call it sound economic policy.
    Cowboy Jim
    27th Jul 2018
    7:14pm
    Rae - full marks, you are spot on. Set up your kids (if they deserve it, of course) have a good time, do some travelling and have enough left to give you a comfortable life with the age pension. If they tighten the asset test, go round the world again and send the PM a post card. That is the way to do it. Do not forget the brunches and little wine tastings and occasionally a spot of glamping over a long weekend.
    Noodles
    29th Jul 2018
    9:24am
    I am puzzled, if it is so hard to live on the pension why are people advocating to spend all their savings and go on the OAP. I would have thought it made more sense to spend your own super/savings and to have a part pension no matter how small.

    As for how it used to be...things have move on since the Menzies era.. all dont get the pension (so it is NOT) an entitlement. If you pass the income/assets tests you will get one...if not...look after yourslef. that is how it is...nothing said on here will change that.

    As for someone rattling around in a million dollar plus home...know of a couple who did this purely to get the aged pension....he died 12 months after retirement..she could not stand living in home on her own. Ended up selling and buying a flash unit on the gold coast. The intention was to pass on the million dollar home to children.

    There are other situations where Mum and Dad have ploughed all their money into a huge home and the kids cough up towards the outgoings in the knowledge that further down the road they will inherit.
    Sundays
    27th Jul 2018
    2:42pm
    This Scheme is only viable for those who don’t get the OAP. Then you can downsize and move your money into a low tax environment. If you are receiving a pension, you could be much worse off, and another way for governments getting you to tap into the capital in your home to fund your own retirement
    Sundays
    27th Jul 2018
    2:49pm
    What was Noel’s clever tip? Moving cash into your younger spouses superannuation, when you apply for the OAP is a recommended strategy for any spare assets not just when you downsize
    Cowboy Jim
    27th Jul 2018
    3:01pm
    Often thought about that strategy, Sundays. How would it work out if the bloke shifts his super into the spouse's account and then the Govt in its ever changing ways decides that the preservation age goes to 70. Bloke might be 75 and still cannot access it. Think about it.
    Old Geezer
    27th Jul 2018
    3:15pm
    That scheme has been around for yonks now.
    Sundays
    27th Jul 2018
    5:57pm
    CJ, you do it just before you apply for the OAP to ensure you get it. I agree no need to move money in advance. Of course it depends on the age of the spouse. A few years difference no problem, but if he is 67 and she is 39 it might be different story
    Fair Dinkum
    27th Jul 2018
    8:50pm
    For those who think labor is for the battler think again they want to wipe the franking credits on us self funded retirees so we have to pay more tax
    OnlyGenuineRainey
    28th Jul 2018
    7:20am
    Labor is not for anyone but politicians and their rich mates - same as LNP. They are a tag team, working together for the same goals. They agree which will implement which changes and which will be seen to oppose them, but in the end the changes happen and neither winds back what they claimed to oppose, do they? Tag team - both on the same side. Neither care a damn about the nation or its people.
    Eddy
    29th Jul 2018
    1:10am
    No Fair Dinkum, they want to end this rort where non-taxpayers get a tax refund for taxes paid by another entity ie a company in which they own shares. It seems a perfectly reasonable policy to me. Similarly I do not see why any person receiving an income in excess of the threshold income (currently about $18000 pa) from any source, including a superannuation fund, can receive that income tax and medicare levy free.
    Noodles
    29th Jul 2018
    9:27am
    Labor will drop capital gains tax from 50% to 25% if they get into office.

    Not fiction, fact.
    Noodles
    29th Jul 2018
    6:29pm
    Biggest laugh I have had in the last 24 hours Shorten saying "it is not about us it is about you"...pull the other leg Bill...it is ALL about politicians keeping their cushy jobs.
    simo
    28th Jul 2018
    7:59am
    You down size to also creat less work for yourself and less expense. Is that rocket science .
    Noodles
    30th Jul 2018
    2:15pm
    Spot on. Never ceases to amaze me (and I know of one such woman) who rattle round in a huge home..lonely as hell, relying solely on family to regularly travel 70kms or so to take her to medical, dental,hospital appointments. This particular family are fed up with it but she will not downsize at all. Is on a walking frame and the day is fast coming when she will lose her licence.

    Family members have lives too and they want to enjoy their retirement but are being tied down by all this. No way would we do this to our family and that is one reason why we moved so as to relieve this burden from them.
    Blondie
    29th Jul 2018
    12:32am
    I totally agree with Mick! The LNP in changing the downsizing rules,is trying to con retirees into believing they’re ‘ doing us a favour’! You hit the nail squarely on the head, Mick.....thanks!These Liberal lovers continually saying the pension is welfare, ARE WRONG!!
    After my husband died 2 years ago, after 51 years of a happy marriage, I had to think about whether or not I wanted to sell up or stay in my home......sense prevailed and I’m staying!
    It is two story, in a very desired suburb, so....with help from an OT ( occupational therapist) I’ve begun to ‘future proof ‘ my home. 15 steep stairs to the second floor? Have had a marvellous state of the art chairlift installed.....don’t always use it, but handy for sending heavy items downstairs, such as packed suitcase for travel, books, linen....I just love it! New, latest toilets....there is a list of jobs, but I’ll gradually get around to it! Marvellous neighbours, also! WHY would I move?!
    ex PS
    30th Jul 2018
    9:57am
    The only reason to down size is because you either want to or need to, either way it is your decision and no one else's business.
    It far more sensible to spend money on the place you love in order to make it more liveable than to uproot yourself and move away from friends and support.
    Noodles
    1st Aug 2018
    6:42pm
    We now live 3 mins from our old home and are in the same suburb.
    Should have done this 10 years ago.
    mausey
    22nd Oct 2018
    12:21pm
    Some good points made below, we are looking at downsizing because of health reasons we have to, selling house is a daunting prospect after 30 +.
    yrs in the same home, i believe you have to pay government fees when you sell (is this correct?) would anyone know how much it costs eg does it work on the value of the home.
    We are on part pension and super, i don't feel guilty about being on part pension we both worked over the pension age, and our children and grandchildren work , we all paid or pay our taxes and were productive members of society, also agree some people who own Million dollar homes years ago bought them for much less then today and this is their family home, we grew up in Leichhardt Sydney. we sold our parents home for $220,000 25yrs ago, now its worth 2 million (darn should have kept it)


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