Kevin* is considering selling the family home but has concerns about the repercussions for his part Age Pension and his retirement income when he has to rent. He asks retirement income specialist Noel Whittaker for guidance.
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Q. Kevin
If we sold our home and decided to stay ‘liquid’ and place the funds from the house sale into a managed fund, then our assets increase. We would then reduce our part Age Pension and, of course, need to pay rent. We would need a return of better than six per cent per annum to offset the rent and the reduced pension combined of about $7000 per annum. What would you advise?
A. If you are assessed under the assets test, there are different rules for homeowners as opposed to non-homeowners. However, if you are assessed under the income test, there is no difference in Centrelink treatment.
The only practical way to achieve an income of six per cent per annum is to buy high yielding Australian shares that are 100 per cent franked, or simply buy an index fund such as VAS, which is currently paying a running yield of four per cent plus franking.
However, you must keep in mind that you should not invest in shares unless you have at least a five-year timeframe in mind to enable you to ride out the inevitable market fluctuations.
I suggest you talk to a good financial adviser to try to achieve an outcome that suits both your goals and your risk profile.
Do you have a question you’d like Noel to tackle? Email us at newsletters@yourlifechoices.com.au
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.
*Not his real name
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