Firstly, I wanted to start this video with the biggest thank you to every single viewer of my channel.
Last video of mine was, well, a bit emotional on my part, but the amount of support, beautiful encouraging words from you,
the number of emails I've received as well as personal phone calls, well, it was almost overwhelming and most certainly unexpected, but so very much appreciated.
I feel blessed and overjoyed with the incredible support, and as much as I was trying to respond to every single message, if I missed yours, please don't take it against me,
this is just humanly impossible to respond to everyone, and this is why I want to say my sincere thank you here, right now.
Not only it shows that this channel somehow created a small community of people that want to learn and create the best lives for retirement
and actually, this community is not so small any longer, but we are also like-minded when it comes to treatment of another person.
We agree that we can have different opinions, come from different backgrounds, but can discuss issues in a friendly manner
with understanding and appreciation of another person's point of view.
So again, thank you so very much for the incredible support and I promise that I will continue creating my videos on this channel for as long as I can.
And as much as I am talking constantly about retirement, I have no intention to retire myself anytime soon.
I just love what I do, and I enjoy every single aspect of my work, so I think you will have to put up with me for a little while longer.
And today I thought I would touch on a topic of Inheritance and the impact it might have on your retirement, including your Age Pension entitlement.
I received number of messages requesting explanation of this topic. And as usual, I will give you couple of examples.
My name is Katherine Isbrandt from About Retirement, I am Certified Financial Planner
and you are watching About Retirement TV, the channel that I've created with the view to help people to be well prepared for retirement
in another 5 - 10 years or for those who have already retired, and how to introduce financial improvements to your retirement income,
capital or governments benefits such as Age Pension if possible.
"Wisdom with an inheritance is good, but wisdom without an inheritance is better than an inheritance without wisdom." - Anne Bradstreet
It took me a second to figure out what Anne Bradstreet, an English poet, had in mind when she created that quote.
I believe the idea is that if you are lucky enough to be receiving any inheritance, first cherish it with appreciation, but also know what to do with it.
Wisdom and knowledge are power.
So let's learn what to do if you receive a nice inheritance while on Age Pension.
1. Centrelink will only start counting the inheritance under Income and Assets test once distributed from the deceased estate to you as a beneficiary.
Centrelink knows well that sometimes the probate might takes longer than few weeks, so they give you 12 months to sort out the estate issues,
but if there is a challenge or other major problem, as long as you update Centrelink accordingly,
they will not consider those assets as yours until the estate has been finalised.
However, once you receive your share of the inheritance, you have a duty to notify Centrelink, which is part of your normal reporting obligation
2. When you receive the inheritance, it is not treated as an income. I receive this question very often.
Inheritance is a lump sum payment you receive, and it is treated like any other asset you own, it is subject to Assets Test or an Income Test under deeming rules or both,
just like most other assets you might have.
So, I repeat again, inheritance is not treated as an income, but rather increase of value of your assets and increase of your deemed income.
3. The best thing you can do is to prepare yourself for receiving your inheritance, as those will become your extra financial assets.
Plan in advance what you are going to do with those assets, especially if the inheritance is going to reduce your Age Pension entitlement or remove it altogether.
For example pay off your mortgage, if you have any loan outstanding against your family home - my video "Good debt, bad debt for retirement and Age Pension"
might help you with, give you some ideas as what to do with extra funds, you've just received as inheritance.
use some funds for home maintenance, or home upgrades.
Have a great holiday - for more great ideas, check out my most watched video: "9 ways to legally hide money from Centrelink Age Pension"
Use gifting - another great video to watch that explains gifting rules: "Gifting to improve your Age Pension"
buy income producing investments or contribute to a super if you can to create an additional pension income.
I explain this type of income in my video: ”Account Based Pensions – good & bad – explained”
Invest into annuities - this is a fantastic way to create an income stream for life for yourself that could also assist with Age Pension,
but please get the full advice, as you really need to find the "sweet-spot" of this type of investment and how to mix it
with other forms of income for the best outcome for you.
For more details, watch those two videos: "Annuities and your Retirement" and "Lifetime Annuities and Aged Care Annuities".
At the end of the day, there is no right or wrong here, it all depends on your financial and personal situation.
And this is why financial advice is crucial in this situation.
You really need to know how to deal with those extra assets, and how they will impact your entitlement even before you receive your inheritance.
If you receive an inheritance in the form of an asset such as for example, an expensive piano, paintings or other item of value.
Centrelink will treat them as non-financial assets for example like your car or your home contents,
that are counted under Assets Test, but not under Income Test.
So let's have a look at some real examples of what happens in this situation when you receive an inheritance:
Mary. Mary is a single lady receiving the full Age Pension.
She lives in her family home, however, she really struggles financially, as she still has an outstanding home-loan of $150,000.
She always had a problem deciding if she should pay off the mortgage by using her superannuation that is valued at $200,000.
Although her income is quite low due to ongoing home-loan repayments, she feels that if she paid it off, she would be left only with $50,000 back up,
which is not all that much for the reminder of your retirement.
Suddenly Mary received an inheritance. Her best friend passed away and she included Mary in her will for the amount of $350,000.
We spend quite some time with Mary going over different scenarios of what to do with the money,
as the Age Pension was reduced immediately down to $147 per fortnight, which is only $3,838 per anum.
So we had to do some proper planning and the financial decision was as follows:
Pay off the mortgage of $150,000 - Mary was thrilled that she finally owned her little cottage she loved so much.
Mary decided to give away $10,000 to a charity of her choice.
For years Mary has been a member of the photography club, but she could have never afforded
a decent camera, not to mention the beautiful trips her club was organising.
She always wanted to go to Antarctica, which appeared to be a dream, but now became a reality.
So we organised the plan:
$150,000 to pay off the mortgage - and please remember, if you keep money in a bank account, while having a mortgage secured by your home,
your cash will be counted under Income and Assets Test, while your mortgage and repayments will be disregarded.
This is why I constantly underline, please pay off your mortgage. Please watch this video mentioned before "Good debt, bad debt for retirement and Age Pension"
Then $10,000 funds she contributed toward charity.
and $50,000 to pay for the trip and buy a beautiful new camera.
Total funds spent $210,000, total funds remaining $140,000.
Her Age Pension is still reduced by $5,460pa.
So then we invested $120,000 into a super fund to create a new income stream and $200,000 was invested in an annuity.
By doing that Mary's income increased dramatically up to $42,898 with Age Pension reduced only by $30.00pf.
What a huge difference from the previous Age Pension payment of $147pf.
Sue and Mark
Let's meet Sue and Mark both retired on full Age Pension with extra $300,000 in an Account Based Pension, $10,000 in the bank for emergencies
and $15,000 in-home contents and value of the car.
So their total income is Age Pension of $38,709 plus ABP of $15,000, therefore, total income of $53,709.
Most people would call it a pretty comfortable living.
Sue's mother passed away leaving them $400,000.
Once money went to their bank account, the Age Pension dropped immediately down to $14,841, which is a reduction of close to $24,000.
When I spoke with Sue and Mark, they said that they would like to help their daughter with some money for home deposit,
they would like to upgrade the car as it is a little bit aged,
and also renovate their kitchen at home, and they always wanted to experience the Rocky Mountaineer Rail Vacations in Canada.
So we organised the plan as follows:
$30,000 given as a gift to their daughter
$35,000 spent to purchase a new car
$40,000 spent for new kitchen
and $30,000 for a Canadian trip.
Total money spent $135,000, but please remember that money spent to purchase a new car although longer counted as a financial asset,
therefore not subject to deeming rates, but it is still counted under the Assets Test.
Then, to ensure that they also have security of income for life, just like when they had with full Age Pension before, I also suggested a lifetime annuity for $200,000.
And now their Age Pension amounts to $29,271, which is an increase of $14,430pa for both.
Additionally, they continue receiving their ABP income of $15,000pa and extra income from annuities of around $11,000.
So now their overall income is $55,271 and they have a beautiful new kitchen at home, and fantastic memories from Canada.
As you can see, a good planning really pays off, but you have to be able to figure out what can be changed and how funds can be utilised
for the benefit of the remainder of your retirement.
If you found this video of benefit, please LIKE it and SUBSCRIBE to my channel not to miss my next video.
And don't forget to visit my website, AboutRetirement.com.au to read even more information about retirement.
And while you are there, feel free to sign up to my Newsletter to be kept up to date with all changes in Australia that might impact your retirement.
And now, I would like to invite you to watch those previously
mentioned videos with the first
"Good debt, bad debt for retirement and Age Pension".
The second recommendation is the video:
"Annuities and your Retirement", a great product that
can supplement your income while possibly assisting with Age Pension.
I will talk to you in my next video, bye for now.