Ask Noel: windfalls, mortgages and more

IF a disability pensioner receives a windfall of $600,000, do they lose their disability entitlement? I have an elderly relative intending to give this considerable monetary amount to a young family member. This pensioner has now got a large family and the amount he receives from the government is considerable. His disability pension was obtained while in his teen years and it seems, was never reviewed. He has no intention of working and realises in the long term he is financially better off staying on government money and benefits. Would he lose the pension?

The government spends billions of dollars every year on welfare for pensioners. But, all parties agree that this should go to the needy and not the greedy. If a single pensioner homeowner receives a windfall of $600,000 he will lose his pension. Yes, he could give it away, in which case it will be treated as a deprived asset for the next five years after which, under the current rules it will cease to exist for Centrelink purposes allowing him to return to welfare.

A better option for everybody may be for him to use the money to buy a place of his own, or pay off his mortgage. He could then retain the full pension, and have a substantial asset to leave to his family upon his death.

I have a $200,000 mortgage. I am 60, not working nor receiving any government support! I have $170,000 in super. Currently it pays my mortgage via a transition-to-retirement but I am considering using my unemployment status to withdraw my super and pay it off my home loan. Do you think this is the way to go or should I just enjoy the 10.5 per cent growth and leave it alone for now?

I think you need to take expert advice. As you point out, a good superannuation fund should generate better long-term returns than you would be paying in interest on the housing loan, so I don’t think you should rush to withdraw it.

Because your superannuation is in pension mode due to your transition-to- retirement pension it is counted for Centrelink purposes and may well be precluding you from of any government benefits. The best strategy may be to move your superannuation back to accumulation, and just to make withdrawals as necessary – maybe every six months to cover your mortgage payments.

Is it possible to arrange your finances so they are all gone when you die?

The problem with planning for retirement is that none of us know how long we’ll live, or what the state of our health will be, or how the government may change the rules, or what disasters we may encounter if we invest badly. This is why it’s dangerous not to plan for retirement, or to spend recklessly in the belief that you won’t need it when you get older.

A woman I know solved the problem perfectly – at the age of 90 she took out an indexed life annuity for $200,000, which provided her with income for the rest of her life, and gave the rest of her money to charity. This gave her a guaranteed income for life combined with the pleasure of watching her money being spent in worthwhile ways.

I read in a recent article about capital gains tax that the relevant date is the date the ‘‘sales contract’’ is signed. Would you mind clarifying whether the sales contract is the contract you sign with the selling estate agent to put the property on the market or is it the actual ‘‘contract of sale’’ that is signed by vendors and purchasers when an agreed price has been reached.

My understanding it was the latter – it’s important to know. The date in question is the date the contract for the sale is executed – not the date you signed the listing agreement. So your understanding is correct.

Hypothetically, if I had a line of credit with my home loan, or an offset account with another home loan, which strategy would pay the home loan down the quickest over 10 years all other factors being equal?

An offset account enables the interest “earned” on the money in it to be offset against the interest charged on your loan account. If both rates are the same it should make no difference as to which account you use. I prefer offset accounts for flexibility.

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. Twitter: @noelwhittaker

This story Ask Noel: windfalls, mortgages and more first appeared on Newcastle Herald.