Bruining Q+A: How to keep your pension and supersize your retirement savings from inherited house sale
My wife and I are both 70 and retired. We each receive a fortnightly Centrelink pension of $456 and I also receive a UK pension of $9900 a year. We have $120,000 in cash and $410,000 in superannuation. I have just inherited a house and plan to sell it for $900,000.
If we bought another house to live in for about $1.5 million and then sold our current home for around $900,000 we would end up with cash, super and personal assets of about $850,000.
Would we will still be eligible for some pension and what should we do with the $850,000 to get a reasonable return?
With the information you have provided, it appears that Centrelink may be working off incorrect information. I estimate that your current pension should be about $631 each a fortnight under the income means-test and not the $456 you presently receive.
You should obtain a copy of your Centrelink income and asset records and cross-check those with what you actually have. Note that you will not be entitled to any back-pay from Centrelink if the records are inaccurate.
Once you become entitled to the inherited property, you must notify Centrelink within 14 days. My calculations show that at this point, your Centrelink benefit will be cancelled because your total assets will exceed the homeowners upper asset test limit of $901,500.
Your suggested strategy of purchasing a new home will work because the value of your dwelling, no matter how much it is worth, is completely exempt from means testing. While you haven’t explained how the change-over is to be funded, I will assume that you may intend to borrow the money. There is an alternate strategy which may be more effective because the amount you may need to borrow would be much less.
You could purchase your new home by using the proceeds of the inherited home and combining it with your superannuation money and the bank savings. Once you sell your family home, you could make use of the super-downsizer contribution rules to replenish the super and to add to it. Under those rules, if you have lived in your home for 10 years or more and deposit the money into super within 90 days of settlement, each of you can contribute $300,000.
That money could then be converted back into an account-based pension and appropriately invested. The benefit of this approach is that all of the money in the pension fund is tax-free and any money withdrawn from the fund is also tax-free.
Once all is finalised and with your estimated amount you will be asset-tested by Centrelink and your reinstated pension should be about $75 each a fortnight.
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Nick Bruining is an independent financial adviser
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