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Transitioning to retirement

Discussion in 'General Property Chat' started by Tim & Chrissy, 20th Feb, 2016.

  1. Tim & Chrissy

    Tim & Chrissy Well-Known Member

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    We have a family member who is preparing for retirement. They have left planning quite late unfortunately which make things a little more difficult.

    Here are the specifics:

    Super - $80,000+
    Cash savings - $80,000
    Pensioner bonus scheme - $20,000 (they have worked a substantial number years past retirement age).
    PPOR - Complete ownership transferred to a family member about 1 year ago with no money exchanged, it will no longer be assessed by Centrelink as an asset in 4 years time. They are still living in this property (all the legal issues/risks of this transfer have been considered).
    Holiday House - Inherited 9 years ago, purchased in the 60's (possible future PPOR but unlikely unless there is a significant benefit to doing so).
    Future living arrangements - Will reside with other family members in years to come.
    Retirement - Of late their employment has become more volatile. They plan on working for another 2 - 4 years before moving in with the other family members.

    The PPOR was transferred to a family member following financial and separate legal advice as they would only be eligible for a very small aged pension owning the PPOR and Holiday House.

    The Holiday House will rent for approximatey $275 - $325 per week.
    There is scope to build a granny flat at the Holiday House and combined rent would be approximately $500-$550 per week. If this came at the cost of the aged pension (approx $430 p.w), it probably wouldn't be worth doing. They may also be paying rent of about $400 per week when they move in with family members.

    They are seeking further professional legal advice in the near future however would like to go in armed with a few possible strategies.
     
  2. Cactus

    Cactus Well-Known Member

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    Are they moving in with the same family member they gifted their house too? Seems a little rough to charge them rent if this is the case....
     
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  3. Tim & Chrissy

    Tim & Chrissy Well-Known Member

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    Yes they are, the charging of rent may be the difference between pension and no aged pension, they aren't sure about the rules and rent won't be charged if it doesn't benefit them e.g. paying $400 p.w. rent may allow them to earn $500 p.w. rent on the holiday house and aged pension not effected. If that $500 reduced their aged pension to $0 regardless of paying the $400 p.w. rent they either won't rent out the property or they will make it their PPOR.

    The end goal is to put the family member in the best financial position, the strategy chosen will be the one that puts more in their pocket for retirement.
     
  4. Cactus

    Cactus Well-Known Member

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    Ok I understand what you/they are trying to achieve.

    Whilst I'm not personally against trying to get the most one is entitled to and as people in glass houses shouldn't throw stones and all that stuff. I have to say that the whole way your structuring is on the premise of trying to defraud welfare.

    I wonder what financial circumstances they would find themselves in now if they spent this much effort focusing on generating wealth 10 years ago rather than minimising wealth now to get the pension.
     
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  5. Tim & Chrissy

    Tim & Chrissy Well-Known Member

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    It was only through inheritance they became ineligible for the aged pension. The person in question has spent their life working for charity hence wealth creation was never a priority for them. They have also spent a number of years caring for a terminally ill family member and themselves have been through serious cancer treatment.

    The suggestion they are attempting to defraud welfare is offensive. They are trying to maximise their quality of life in retirement, why would they have worked so far past retirement age if they were trying to cheat the system?

    I'm not seeking advice on how they can defraud, I'm seeking advice on how they can legally structure their retirement to give them the best financial outcome.
     
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  6. Cactus

    Cactus Well-Known Member

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    I'm sorry you took offence to my post was not my intention and I prefaced my comment by saying I have no problem with getting the most one is entitled too. The moral issue about wether or not they are entitled to is not mine to make I'm not the welfare police.

    Further though l, whilst I sympathise with there story it has no bearing on wether or not what they are doing is legal. It does go to their character if that was your intention.

    Edit: welfare is 'supposed' to be there for people who have no choice, it is means tested for a reason. The argument (not necessarily mine) being they can sell the inherited asset to live off. When this runs out then the govt will step in.
     
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  7. marty998

    marty998 Well-Known Member

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    I agree with Caltan on this. I find it very poor form to be rearranging finances just to get a bigger pension. Sure it's legal but that doesn't make it right.

    In my humble taxpayer opinion they should have sold the PPOR and rented it back, or reverse mortgaged it. Instead they've given it free to a family member, and the taxpayer is going to fund their retirement.

    Sorry, but no sympathy form me.

    This I do find offensive... they'd rather be on welfare than earn an income off their assets.
     
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  8. Tim & Chrissy

    Tim & Chrissy Well-Known Member

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    That is why I have posted this and they are seeking the advice of a solicitor - to ensure what they are doing is legal. The last thing they want to do is act outside the law and end up penalised.

    One of the main hurdles here is the inherited asset, it has been in the family for over 50 years and they want to pass it onto the 4th generation, in the 50 years it has been owned it has never generated an income and there is a great reluctance to rent it out.

    They are really between a rock and a hard place - rent out the inherited property and risk damage to something with a lot of sentimental value/sell and lose it forever/live in it and be away from family.

    I spent years trying to convince them to plan for retirement but they essentially carried the weight of everyone elses burdens for so many years they didn't pay enough attention to their own position.

    So you have a bit of an appreciation of the psychology here. The person is in their 70's, their spouse worked well into their 70's basically until they day they died (and as a result was never paid the pensioner bonus). This person would work forever if they could however ongoing health issues and work volatility is likely to force them into retirement.
     
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  9. Tim & Chrissy

    Tim & Chrissy Well-Known Member

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    So you don't minimise your tax by claiming deductions Marty?

    They are happy to earn an income from the assets, but if after expenses they have $200 p.w. left how will they survive? This is the issue.
     
  10. marty998

    marty998 Well-Known Member

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    Yes... I do claim my deductions. But I haven't given my house away so I can go on welfare.

    I have no issue with people claiming an age pension if they do genuinely need it. But you've just said they've already given the inheritance to family so they can get a bigger pension in a couple of years time.

    Have you totally missed the whole super / pension / budget discussion in recent months? The country cannot afford for people to be hoarding assets and passing them down generations on one hand whilst simultaneously claiming benefits on the other.
     
  11. thegreat

    thegreat Well-Known Member

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    On top of that claiming rental support from gubba...hmm...
     
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  12. Tim & Chrissy

    Tim & Chrissy Well-Known Member

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    Lets assume for a minute they didn't gift the property, after being a tax payer for 60 years they would receive $275-$325 per week rent before expenses and $150-$200 after expenses and fail the asset test i.e. receive $0 pension.

    How do they survive once Super and pension bonus runs out? The only option would have been a forced sale of the inherited asset, which as previously mentioned is of great sentimental value.
     
  13. Cactus

    Cactus Well-Known Member

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    Tend to agree with @marty998 and @dosonal2

    However I can appreciate the desire to keep the holiday house in the family. But maybe the best way to go is to make this the PPOR now and live rent free.
     
  14. Tim & Chrissy

    Tim & Chrissy Well-Known Member

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    Where has rental support been mentioned?

    Take off the money glasses for a minute. We aren't talking about the difference between living on a pension of $430 per week or attempting to be self sufficient on an amount that cannot be survived on.
     
  15. thegreat

    thegreat Well-Known Member

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    Any reason why they would not want to sell their holiday home instead?
     
  16. Tim & Chrissy

    Tim & Chrissy Well-Known Member

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    And thats exactly the sort of feedback being sort. If that's the only option, so be it.
     
  17. Nemo30

    Nemo30 Well-Known Member

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    I understand what you are trying to do, just wonder if you've done. The right thing with the PPOR.

    As far as I'm aware the PPOR is exempt from the pension asset test.

    Depending on the value of the holiday home they were probably eligible for the pension (or at least part) anyway. For a couple it's something like $900k or something, so if holiday home is worth more than this, maybe they Should have sold that and lived a comfortable life.

    I'm worried that heading into retirement they have given away their main asset. They haven't got much else. They've taken away the ability to downsize or sell off that asset down the track if they need to.
     
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  18. Tim & Chrissy

    Tim & Chrissy Well-Known Member

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    It was a second childhood home to them, then their children and grandchildren.

    Due to a recent boom in the area they now fail the assets test due to land value. The house is a 1.5 bedroom beach shack, hence the low rent.
     
    Last edited: 21st Feb, 2016
  19. Tim & Chrissy

    Tim & Chrissy Well-Known Member

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    The holiday house was worth $350-$400k. Recent sales now have it at $550k+

    Old PPOR is worth same amount as holiday house
     
  20. Nemo30

    Nemo30 Well-Known Member

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    Assets - Australian Government Department of Human Services

    Yep PPOR is exempt.

    The only benefit I can see in relation to what they've done with the PPOR is to the receiving party and maybe a warm feeling of being able to see the relative receive the asset while they are still alive. I can't see any positive side from a financial perspective as it is exempt.
     
    Last edited: 21st Feb, 2016