Question: I am looking at downsizing into a retirement village. I am 70 and on a full Age pension. What am I able to do with the residual of money to keep my pension? I have been living in my home for 8 years and own it and am hoping to buy a two bedroom unit close by.

Answer: Firstly it’s important to know that as a homeowner you can have up to $301,750 of assets outside your home before your pension starts to reduce. Under the income test you can earn up to $204 per fortnight (not including the work bonus) before your pension reduces under the income test. Centrelink will assess your pension under both tests, applying the one that creates the lowest pension payment.

If the amount you are going to receive is going to push you over one (or both) of these tests then it is worth seeking advice about how best to structure your assets and income. Some of the strategies you may want to consider include:

• If the retirement village has a payment option to allow you to pay your exit fee upfront (for a discount) or to pay a higher purchase price with no exit fee, one of these may be worth considering as it can mean a double benefit – less fees to the village and more pension along the way.
• Purchasing a lifetime income stream that has a 40% asset test exemption until age 85 (after which the asset test exemption increases to 70%). The income stream has a 40% income test exemption for as long as you receive it.
• Prepaying your funeral expenses is another way in which you can reduce your assessable assets and income for pension purposes. There is no limit to the amount you can spend on a prepaid funeral and a substantial benefit is the stress it saves your loved ones. If you choose instead to purchase a funeral bond there is a limit of $15,000.
• Gifting within the allowed limits of $10,000 per financial year (with no more than $30,000 in 5 years)

There is no silver bullet, in fact the best option for you may utilize a combination of these strategies with others, that’s why it’s important to seek advice.

Rachel Lane is author of Downsizing Made Simple with fellow finance expert Noel Whittaker, the new edition is now available to order online. The companion website is there to guide your downsizing journey with great information, tools and easy-to-use resources.

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