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Retirees hit a home run

The family property can play a vital role in financing that dream lifestyle

Your family home can play a big part in helping pay for the retirement of your dreams. It gives you options whether you are planning for life after work or are already living it. You can downsize to realise more funds, some of which you will be able to put into super as long as you sell after July 1 no matter what your age or work status.

But this will not suit everyone. Indeed some people may be better off upgrading their home. When Gloria (not her real name) saw her financial planner recently he suggested she use part of the funds he manages for her to buy a better home. Gloria was one of the 330,000 age pensioners who lost a part pension in the changes to asset thresholds introduced by the coalition government from January 1, 2017. Currently, home-owning singles can have up to $542,500 in assets before losing the pension (previously $793,750) and home-owning couples $837,000 (previously $1,178,500).

Gloria lives in a delightful but tiny apartment that is part of a grand old house. The repair bills are constant and growing Gloria could sell this property, which is in a regional town, for about $280,000. If she then upgraded to a modern, larger strata unit for about $480,000, her planner worked out she would be in a better position.

She would have just as much regular income to live on because her part pension would be restored as she would be using part of her investment nest egg to upgrade her home. Her overall position would be improved because the value of the newer property would increase more rapidly than the older one and would also need much less maintenance. And Gloria Would have a better asset to use if she later had to go into care.

Some other retirees have chosen to upgrade their existing family homes to get their assets below the thresholds for receiving a part pension and the other perks that go with it. As long as they renovate carefully they too should have a better asset to use later in their retirement if they need to move into a nursing home or release funds by taking out a reverse mortgage or entering into an equity release scheme.

Another couple, Bill and Jenny (not their real names), could have benefited from the new rules on contributing to super from selling their property if only they had been aware in advance that there would be changes from July 1, 2018. The new measure means people aged over 65 can sell their home as long as they have owned it for 10 years and park $300,000 each, or $600,000 in total, into their super fund at any age and without having to satisfy a work test. (See “The $300k dilemma” in Money’s April issue).

This couple in their late 70’s had only very small superannuation balances when they sold their farm last year and moved into a smart townhouse, realising about $500,000 from the change of their main residence. They’re not financially savvy people and the thought of finding an adviser they could trust is daunting, so their $500,000 sits in term deposits going backwards. If they had sold their farm after July 1 this year they could have put the $500,000 into their industry super fund and be earning a much better income from their investments to supplement their pension.

Under the new scheme there is no requirement to purchase another home, so it could also suit those who want to sell to live with family, perhaps in a granny flat, or those who want to travel for a period, perhaps renting a modest country property as a base. There is always the option of later withdrawing the money from super to buy a new family home.

Pam Walkley, founding editor of Money and former property editor with The Australian Financial Review, has hands-on experience of buying, building, renovating, subdividing and selling property.

Source: Walkley, P. (2018). Retirees hit a home run. Money, (212), 83.

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Tax Cuts – A Simple Lesson In Economics

Sometimes Politicians can exclaim; ‘It’ 5 just a tax cut for the rich”, and it is just accepted to be fact. But what does that really mean? Just In case you are not completely clear on this issue, we hope the following will help. This Is how the cookie crumbles. Please read it carefully.

Let’s put tax’ cuts in terms everyone can understand. Suppose that every day, ten men go out for dinner. The bill for all ten comes to $100.  If they paid their bill the way we pay our taxes, it would go something like this: The first four men (me poorest) would pay nothing

The fifth would pay $1.
The sixth would pay $3.
The seventh $7.
The eighth $12
The ninth $18
The tenth man (the richest) would pay $59.

So, that’s what they decided to do. The ten men ate dinner in the restaurant every day and seemed quite happy with the arrangement, until one day, the owner threw them a curve.

‘Since you are all such good customers,” he said, “I’m going to reduce the cost of your daily meal by $20.” So, now dinner for the ten only cost $80. The group still wanted to pay their bill the way we pay our taxes. So, the first four men were unaffected. They would still eat for free. But what about the other six, the paying customers”? How could they divvy up the $20 windfall so that everyone would get his ‘fair share’?

The six men realized that $20 divided by six is $3.33. But if they subtracted that from everybody’s share, then the fifth man and the sixth man would each end up being ‘PAID’ to eat their meal. So, the restaurant owner suggested that it would be fair to reduce each man’s bill by roughly the same amount, and he proceeded to work out the amounts each should pay.

And so:
The fifth man, like the first four, now paid nothing (100% savings) The sixth now paid $2 instead of $3 (33% savings)
The seventh now paid $5 instead of $7 (28% savings)
The eighth now paid $9 instead of $12 (25% savings)
The ninth now paid $14 instead of $18 (22% savings)
The tenth now paid $49 instead of $59 (16% savings)

Each of the six was better off than before. And the first four continued to eat for free. But once outside the restaurant, the men began to compare their savings.

‘I only got a dollar out of the $20,” declared the sixth man. He pointed to the tenth man “but he got $10!”

‘Yeah, that’s right,” exclaimed the fifth man. ‘I only saved a dollar, too. It’s unfair that he got ten times more than me!’

“That’s true!!’ shouted the seventh man. ‘Why should he get $10 back when I got only $2? The wealthy get all the breaks!’.

“Wait a minute,’ yelled the first four men in unison. ‘We didn’t get anything at all. The system exploits the poor!” The nine men surrounded the tenth and beat him up.

The next night the tenth man didn’t show up for dinner, so the nine sat down and ate without him. But when it came time to pay the bill, they discovered something important. They didn’t have enough money between all of them for even half of the bill!

And that, boys and girls, journalists and college professors, is how our tax system works. The people who pay the highest taxes get the most benefit from a tax reduction. Tax them too much, attack them for being wealthy, and they just may not at show up at the table anymore. There are lots of good restaurants in Burma and the Caribbean

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