Photo: Michael Mucci
Q My mother recently had a stroke and is now unable to live on her own. We are hoping to move her into our granny flat and sell her house, which is worth $430,000. She is on a full single pension. Will her pension be affected if we sell her house and move this money into her savings or super?
Do we need to consider our tax situation as well?
A If your mother moves into your granny flat, sells her former home and pays nothing for the right to live in the granny flat, she will be assessed as a non-homeowner. Non-homeowners can have assets of up to $339,250 and still receive the full pension. As your mother's house is valued at more than this, she could exceed the asset test limit and her pension would be reduced by $1.50 a fortnight for each $1000 she is in excess of the limit.
Homeowners and non-homeowners are both subject to the same income test.
The limit is $156 a fortnight - when your mother's income exceeds this, her pension is reduced by 50¢ for each dollar of income above the limit. Whichever test, asset or income, produces the lowest amount of pension is the amount she will be paid. As a non-homeowner your mother may be eligible for rent assistance.
Family arrangements involving granny flats can be complex, financially and emotionally. Your mother may want to consider a number of strategies, including how best to hold her savings, and whether or not she should invest more in her superannuation (if she is eligible). Keep in mind that any strategy will have consequences for her pension (including eligibility for rent assistance), cash flow, tax and estate planning, and these will need to be considered. You should seek advice from someone who specialises in this complex area.
Q My wife and I are both aged 28. I earn $75,000 a year and she earns $60,000 a year. We are totally focused on buying a home and are saving $1000 a week. We have saved $30,000 to date and are looking to buy a home for $650,000. Our biggest expense is rent, of $1890 a month.
We could buy now on 5 per cent deposit, but would be up for nearly $25,000 in mortgage insurance. Do you think we should buy now and pay the mortgage insurance or wait until we save 20 per cent?
A Unless prices are stagnant in the area where you intend to buy, you are probably better to buy sooner rather than later. Otherwise, you face the possibility that the increase in the value of the house you want to buy will outweigh any savings in mortgage insurance. Keep in mind that mortgage insurance can vary from lender to lender. It may be worthwhile consulting a good mortgage broker.
Q I am 65 and was made redundant last year. I own two properties debt free, which are worth $700,000 combined. I live in one and holiday let the other. I have very little super and live on a line of credit that cannot go on forever, so have placed the holiday house on the market. How would you suggest I invest the funds after the house is sold?
A First check with your accountant to find out if there is any capital gains tax payable on the sale of the property. If so, you will need to keep cash aside to pay it. If you can pass the work test, which involves working just 40 hours in 30 consecutive days, you may be able to reduce any CGT payable by making a tax-deductible contribution of $35,000 to superannuation from the proceeds of the sale. This is the time to be talking to a good adviser to agree on an asset mix that suits your goals and risk profile.
Q I am single, own my one-bedroom flat and am contemplating taking out a reverse mortgage next year when I turn 75. I am concerned about how this might affect my current age pension. My allocated pension is almost exhausted, so by the time I take out the reverse mortgage, I will have no significant assets other than household effects and a car.
The reverse mortgage would be arranged as a periodic draw-down of $600 a month to supplement my age pension. There may be an initial lump sum drawn-down of $15,000, which would be used immediately for renovations. The funds drawn would then be used for living expenses, strata levies and medical expenses.
A There should be no adverse Centrelink implications if you make small withdrawals as planned. Just try to draw it down as slowly as possible to minimise the compounding effect, which is going to happen, because you are not paying any interest on the reverse mortgage.
Noel Whittaker is the author of Making Money Made Simple and numerous other books on personal finance. His advice is general in nature. Readers should seek their own professional advice before making decisions. Email: firstname.lastname@example.org.