I understand that as from January 1, 2017, a home-owning couple with $375,000 in assets can receive a full pension. If this couple were to gift say $350,000 of their assets to children, I understand they would continue to receive the full pension. If (perhaps two years down the track) they downsized their home and built their assets back up to $375,000, would the deeming then kick back in and hence reduce their pension? What if their downsizing occurred five years after the gifting?
What you say is only partly true – you need to understand the interrelation between the assets test and the income test. Yes, from next January a couple with $375,000 of assessable assets could receive the full pension under the assets test but if $350,000 of those assets were financial assets and subject to deeming, the deemed income would be $390 a fortnight. At that level, from next January, the couple would be assessed under the income test and receive $1268 a fortnight, not the full pension.
![It's important to get to grips with the interrelation between the assets test and the income test. Illustration: Simon Letch](/web/20160920125344im_/http://www.smh.com.au/content/dam/images/g/q/q/y/l/q/image.related.articleLeadwide.620x349.gqqymo.png/1471345032574.jpg)
If $350,000 was given away, it would still be subject to deeming for five years, so for pension purposes the pension should be unchanged as the $350,000 is being counted now. At the end of that five years it would cease to exist for Centrelink purposes. Deeming also applies to any financial assets they may realise from downsizing – these assets would also be taken into account for the assets test.
There are now calculators on my website that enable anybody to model present and future pension scenarios. Just go to www.noelwhittaker.com.au.
I am 62, married, and retired with a property worth about $1.4 million. I also have $500,000 in a self-managed super fund, which at the moment is sitting in term deposits generating little interest. Other assets (cars and a boat) total around $180,000. I am nervous about investing in shares, and have looked at closing my SMSF and investing in a retirement portfolio, which apparently is structured around providing a retirement income, but decided against this some months ago also due to volatility in the sharemarket, as typically 60 per cent of money is invested is shares.
I realise that my cash super is insufficient to live on for more than about seven years given current interest rates and spending. So inevitably it seems we will need to sell our home, despite the fact we love the lifestyle it provides. I appreciate there are many people in a worse situation than us, but many also have the same basic concerns about how to invest what they have in retirement superannuation to try to gain some additional income. Given our specific situation, what options do you see for us to maximise the time we can live in our waterfront home?
Unfortunately, you are paying the price of not being prepared to invest in growth assets such as shares. As a result you are locked into cash where returns are dropping and, in my view, will continue to drop. I also wonder what is the point of running your own superannuation fund when it is wholly invested in cash. You really need to sit down with a good adviser and consider dipping your toe in the water by investing at least a small part of your assets in share-based investments. A good place to start may be the Investors Mutual Equity Income fund. It is producing good returns with low volatility.
I'm thinking of buying a franchise. A good or bad investment?
Buying a franchise is a bit like getting married – a wonderful experience if it works but a disaster if it doesn't. The benefits of going into a good franchise business are that you have access to established procedures, buying power, proven marketing methods, support from head office when you need it and, in many cases, the wisdom gained by other franchisees. This should give you a huge advantage over somebody who is new to the business and is battling away at trying to learn these things from experience. Unfortunately, it is also true that many people have lost large sums of money by buying franchises in the wrong areas, or because they had no business acumen or because head office let them down. Make sure you do your homework thoroughly before you embark on a franchise business and take the time to talk to speak to other franchisees in the business of your choice.
When readers ask for advice where to place funds into a relatively safe haven, you often recommend managed funds.
I wonder why you do not recommend LICs (listed investment companies) or ETFs (exchange-traded funds) as they are usually much cheaper than managed funds? Thanks for so many interesting financial answers over many years.
That's a great question, but there is no simple answer. Certainly, fees are important, but I would not like to be buying a listed investment company when it was selling for a higher price than its net tangible assets. Also, many ETFs are simply index trackers which is fine if you want an index fund but there are plenty of actively managed funds that beat the index. It's really a matter of finding a product that suits your goals and your risk profile.