‘If we sell our farm and buy something smaller in town, how does that affect our pensions?’

Question: I am 77 on a part pension. My husband works full time but is thinking of retiring & possibly downsizing. He will be 70 this month. If we sell our farm & buy something smaller in town, how does that affect our pensions?

Answer: It’s not the size of the house you buy or where it is located that matters it is all about what you sell your farm for and what you pay for your new home. You see when you sell your home you are selling an exempt asset, and likewise when you buy your new one you are buying an exempt asset. Normally people are buying a cheaper home than the one they are selling and that’s what causes the move to impact on their pension.

The amount of pension you can get will be based on the outcome of two tests: an assets test and an income test, whichever produces the lowest amount of pension is the one they apply.

The Asset Test

As a homeowner couple you can have up to $451,500 of assets (which doesn’t include the value of your home) without affecting your pension. Beyond this your pension will reduce by $7,800 per year for each $100,000 of assets and once your assets exceed $1,003,000 your pension would be zero.

The Income Test

Under the income test you can have up to $360 per fortnight (not including the work bonus) of income combined before your pension starts to reduce. Once your income goes above this threshold your pension reduces at 50 cents per dollar of income. If your income reaches $3,667 per fortnight then your pension would be reduced to zero.

Crunch the Numbers

Understanding how downsizing is going to affect your pension before you make the move is important, losing your pension is not just about the fortnightly income you are losing but also the concessions that go with it. If you are downsizing to a retirement community then losing the pension can also mean you don’t get access to Rent Assistance. Speaking to a financial adviser who can help you understand the implications and provide you with strategies to make it more affordable is a good investment.

Rachel Lane is author of Downsizing Made Simple with fellow finance expert Noel Whittaker, the new edition is now available to pre-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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