Take a holiday - it may lead to a comfortable retirement

Boy, have I got a holiday deal for you if you are in your 70s, single, own your home and have between $300,000 and $565,000 of other assets.

There is a good chance if you head off on a $10,000 overseas holiday today it will pretty well land you a $780 lifetime annual boost in income from the Federal Government.

Yes, that’s a lifetime reward of 7.8 per cent a year as a thank you from Treasurer Scott Morrison and his many successors you will hopefully live to see.

And I’ve got an arguably even more attractive deal if you’re a couple in your 70s who have between $450,000 and $856,999 of assets on top of your family home.

You could spend $20,000 on that dream cruise together and get a $1560 lifetime income boost from Scomo and Co. 

This lifetime annuity of 7.8 per cent is not some bizarre scheme cooked up by the Federal Government to win your vote at coming elections.

It is the result of Australia’s extremely perverse means testing system used by Centrelink to calculate the eligibility of senior Australians to receive the age pension. The most basic qualification is that you need to be 65 years and six months old to receive the pension.

Centrelink uses a mixture of rather gentle income means testing and harsh asset-based means testing to generally calculate the size of pensions for people.

Income testing generally determines the pension of people with more modest financial assets, meaning the system provides little incentive for the less well-off to go on an overseas holiday.

The reason is that the income takes about $162.50 for every $10,000 you have in savings and super above various testing thresholds.

A single pensioner with $240,000 of financial assets could spend $10,000 on an overseas cruise and see their pension rise from $856.09 fortnight to $862.34, a pretty measly reward. 

It would be a similar boost for a couple with $340,000 in savings going on a $20,000 holiday — it would see their pension rise $1329.76 a fortnight to $1342.26.

That’s a pretty measly lifetime return of 1.62 per cent, based on the current deemed interest rates of savings.

But things get really interesting for single people with assets above the $253,750 threshold at which the assets test kicks in to all assets, including the depreciated value of cars and furniture. Ditto for couples above the assets test threshold of $456,750.

A single person with $270,000 of assets might have their income pension determined by the income test or assets test, depending which gives the lower pension payment. 

The same applies to couples up to a rough figure of about $490,000.

Once the asset test kicks in, it cuts the pension out by $780 for every $10,000 of assets. It keeps cutting until the pension completely cuts off about $556,500 for singles and $837,000 for couples.

The big issue for people well above even the lower assets test threshold is that they often die not having spent anywhere near their amount of savings, particularly with the pension boosting savings and people spending less in their 80s.

There is a pretty good chance that a spendthrift single person in their 70s well clear of $300,000 or a thrifty couple well clear of $500,000 will not get into the income testing zone, where they gain just an extra $162.50 of pension for every $10,000 spent.

They will be stuck in a perverse situation where their frugality costs $782.50 of pension each year for every $10,000 left untouched. 

The cost will be much more if they are just above the $556,500 singles pension cut-off and the $837,000 cut-off threshold for couples.

If you are any of those people, there is a pretty good chance you can have a nice $10,000 holiday and receive $780 of lifetime annual compensation from the government.

The worst scenario, barring a massive change to the pension system, is that your compensation may fall to an annual boost of $162.50 based on the income test. 

For people above the upper thresholds there is access not only to pension supplements but also to the valuable Pensioner Concession Card.


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