Ask the Expert: Securing your financial future via super, and establishing an inheritance
Question 1
- I am 64, a single mum of six and work part-time earning $50K a year and have $120K in super. I own my own house worth approximately $3 million and will inherit $1 million when my parents pass. What should I do to set myself for financial security and a good retirement?
A mum of six, that must be very satisfying!
You have a large part of your financial equity tied up in your home.
Some people see their home as an investment that they can tap into at some point, and others see it as purely a lifestyle asset that they want to enjoy. Of course, it can also be both.
Therefore, a lot will depend on whether you stay in your current home or downsize, I’m hoping that many of your six children will have left home already, or will be soon, so you perhaps downsizing is an option.
The unknowns
Another unknown is when your parents will pass away and leave you an inheritance.
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If they are both still alive and in good health, then this may be some time down the track still.
Let’s throw a couple more unknowns into the equation: How long are you prepared to work for and how much do you need to live on each year?
This is what we do know:
- At age 67 you will be eligible for the age pension
- If your current situation was similar to now (you haven’t downsized or received an inheritance, and you were still working and receiving circa $50k a year), you would still be eligible for more than $10,000 per year in age pension on top of your salary.
Forward planning
If you can afford to from your salary, or if you downsize or receive an inheritance, then look to contribute funds to super.
Once you fully retire this can then be turned into a tax free and flexible income stream.
You can continue to make after-tax contributions to super up until age 75.
A single home owner can have nearly $700,000 in assets (not including your home) before you would lose access to an age pension.
Therefore, having superannuation to replace or supplement the age pension is important and so is some forward planning.
Stay informed, daily
You have some major life events coming up, age pension age, retiring, inheritance and possible downsizing.
I would recommend seeking some financial advice once these events start to happen, if not before.
Question 2
- I own a house with no mortgage. Now I am in a nursing home because of old age and ill health. The question is how to avoid tax if I die and pass the house to my only daughter. She’s got her own house too, so she may have to sell my house. When should she sell the inherited house before the CGT sets in. Many thanks for your advice. Tom
Hi Tom,
From your question, I have implied that your home is still owned, but you no longer live in it, as you are in aged care.
Be careful if no one lives in your home as many insurance providers will stop insuring your home if it is left vacant for too long.
This is because vacant homes are more likely to be vandalised and if a fire breaks out, no one is home to put it out.
You should seek specific tax guidance from a registered tax agent to any CGT provisions on your home.
General advice
However, broadly speaking:
- If the home has always been your main residence, then the sale proceeds are CGT exempt. No CGT will apply on its sale, provided your daughter sells it within two years
- If you retain your home and rent it out, after moving into aged care, then it may still be elected to be treated as your main residence for a period of up to six years. There then may be CGT payable upon sale
- If retained and left vacant, the former home may be nominated for tax purposes as the main residence indefinitely, and no CGT tax payable.
Also be aware your aged-care fees, and any age pension if applicable, may be affected depending on what you do with your home.
Craig Sankey is a licensed financial adviser and head of Technical Services and Advice Enablement at Industry Fund Services.
