Selling your home? Here's what you need to know about how it affects your Age Pension
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Retirement is an important milestone for many Australians. After a lifetime of work and enjoying life, it can be time for us to finally reap the benefits of our labours.
For some, the difficult decision of whether or not to sell their family home is something that needs to be made when they draw closer to retirement. If done right, selling can be a great way to unlock the funds and set yourself up with a few extra dollars to enjoy your retirement.
However, for those who receive the Age Pension, selling their homes can also significantly impact their entitlements. That's why it's important to be well informed on the financial implications and seek professional advice if you're considering such a decision.
In this article, we're going to investigate further just how selling your home can affect your pension benefits and what you should consider before making this important decision.
Exploring the potential impacts of selling your home on your Age Pension payments
The Age Pension is an essential financial lifeline for many Australians, and it's essential to understand how it works. One thing to keep in mind is that, under the asset test, the family home is typically excluded. This means that the value of your family home is not considered when determining your eligibility for the pension.
However, it's crucial to remember that if you decide to sell your family home, any additional funds you receive from the sale will be counted under the asset test. This means that these funds could affect your pension payments, and it's important to plan accordingly.
What's included in the assets test?
In general, most real estate that you own will be considered in the test, except for your principal home. Real estate assets that will be included in the assets test include properties that you rent out, leave vacant, or allow someone else to live in for free. Even a property that you only live in part-time will be considered.
However, your principal home – the home you live in as your main residence – is not included in the assets test. The first 2 hectares of land it sits on are also excluded.
It's worth noting that if you use a part of your principal home for business purposes, such as a home office, this part may be included in the assets test. This could be in the form of land or buildings.
What happens if I sell or move out of my principal home?
Selling or moving out of your principal home can have a significant impact on your pension payments, and it's essential to understand the rules and regulations around it.
If you do sell your principal home, the good news is that the sale proceeds may be exempt from the assets test, but ONLY if you plan to use them to buy, build, rebuild, repair, or renovate a new principal home.
To put it simply, let's say you sold your home for $1 million, but the new home you plan to buy costs $800,000. In that case, only $200,000 of the excess funds will be counted in your assets test. This means that you can still receive the full amount of pension payments you are entitled to without the sale changing your eligibility.
The same rule applies if you use the funds to repair or renovate your new principal home. This is great news for those looking to downsize or make changes to their living arrangements.
From 1 January 2023, the asset exemption period is up to 24 months, with the potential for a further exemption of up to 12 months, depending on your circumstances. The maximum assets test exemption period is 36 months.
However, any additional sale proceeds that you hold in a financial asset will be subject to the regular deeming rates.
It's worth noting that if you're building a new home, the land may also be exempt from the assets test for up to 24 months. This exemption only applies if the land's value is less than the amount you received from the sale of your home.
If you sold your home before 1 January 2023, the asset exemption period is up to 12 months, with the potential for a further exemption of up to 12 months, depending on your situation. The maximum asset exemption period is 24 months. Any proceeds from the sale held in a financial asset will be subject to the regular deeming rates.
Deeming rules are used to calculate income from your financial assets. Centrelink will add this income to any other income you have and apply the income test to determine your payment rate.
To better understand selling your family home and how it can affect your pension entitlements, check out the video below. It provides valuable insights and information that can help you make informed decisions about your retirement planning.
Credit: Services Australia.
What if I want to leave my principal home and enter into an aged care facility instead?
Thinking about moving into an aged care facility can be a difficult decision, and there are financial considerations to keep in mind. If you're planning to leave your principal home to go into aged care, it's important to be aware of how it may affect your assets test.
If you leave your principal home due to illness and enter a care situation, your home may be exempt from the assets test for up to two years from the date you enter care. However, once the two-year period is up, your home will be assessed as an asset, and you may be assessed as a non-homeowner.
If you leave your home temporarily or your partner continues to live there, it won't be counted as an asset. However, if you rent out your former principal home, any rent you receive will be considered income and may affect your payment rate.
How to make the right call
Selling your family home can be a very complex decision, particularly if you receive the Age Pension. As a result, if you're considering this avenue, we strongly advise that you seek professional financial advice beforehand in order to understand the potential impacts on your entitlements.
Chris Carlin, a financial expert from Master Your Money, has this to share: 'It's important to reiterate with the high cost of living that if you cannot live on the Age Pension yet on your own home, don't be afraid to sell your home and/or downsize to unlock equity/cash to meet your living expenses.'
Selling your home can be a great opportunity to set yourself up for a comfortable retirement, but it's best to make sure you go about it the smart way and make an informed decision that best suits your circumstances.
We hope this article has helped give you the advice you need to make the right call! Members, have you recently considered selling your family home? Or have you been weighing up the pros and cons of downsizing? What factors did you consider in your decision-making process?
Share your thoughts and experiences in the comments below to help others in a similar situation. Remember, a little bit of expert advice can go a long way!
For some, the difficult decision of whether or not to sell their family home is something that needs to be made when they draw closer to retirement. If done right, selling can be a great way to unlock the funds and set yourself up with a few extra dollars to enjoy your retirement.
However, for those who receive the Age Pension, selling their homes can also significantly impact their entitlements. That's why it's important to be well informed on the financial implications and seek professional advice if you're considering such a decision.
In this article, we're going to investigate further just how selling your home can affect your pension benefits and what you should consider before making this important decision.
Retirees may benefit financially from selling their family home, but they should assess its impact on their Age Pension before deciding. Credit: Unsplash/joyce huis.
Exploring the potential impacts of selling your home on your Age Pension payments
The Age Pension is an essential financial lifeline for many Australians, and it's essential to understand how it works. One thing to keep in mind is that, under the asset test, the family home is typically excluded. This means that the value of your family home is not considered when determining your eligibility for the pension.
However, it's crucial to remember that if you decide to sell your family home, any additional funds you receive from the sale will be counted under the asset test. This means that these funds could affect your pension payments, and it's important to plan accordingly.
What's included in the assets test?
In general, most real estate that you own will be considered in the test, except for your principal home. Real estate assets that will be included in the assets test include properties that you rent out, leave vacant, or allow someone else to live in for free. Even a property that you only live in part-time will be considered.
However, your principal home – the home you live in as your main residence – is not included in the assets test. The first 2 hectares of land it sits on are also excluded.
It's worth noting that if you use a part of your principal home for business purposes, such as a home office, this part may be included in the assets test. This could be in the form of land or buildings.
What happens if I sell or move out of my principal home?
Selling or moving out of your principal home can have a significant impact on your pension payments, and it's essential to understand the rules and regulations around it.
If you do sell your principal home, the good news is that the sale proceeds may be exempt from the assets test, but ONLY if you plan to use them to buy, build, rebuild, repair, or renovate a new principal home.
To put it simply, let's say you sold your home for $1 million, but the new home you plan to buy costs $800,000. In that case, only $200,000 of the excess funds will be counted in your assets test. This means that you can still receive the full amount of pension payments you are entitled to without the sale changing your eligibility.
The same rule applies if you use the funds to repair or renovate your new principal home. This is great news for those looking to downsize or make changes to their living arrangements.
From 1 January 2023, the asset exemption period is up to 24 months, with the potential for a further exemption of up to 12 months, depending on your circumstances. The maximum assets test exemption period is 36 months.
However, any additional sale proceeds that you hold in a financial asset will be subject to the regular deeming rates.
It's worth noting that if you're building a new home, the land may also be exempt from the assets test for up to 24 months. This exemption only applies if the land's value is less than the amount you received from the sale of your home.
If you sold your home before 1 January 2023, the asset exemption period is up to 12 months, with the potential for a further exemption of up to 12 months, depending on your situation. The maximum asset exemption period is 24 months. Any proceeds from the sale held in a financial asset will be subject to the regular deeming rates.
Deeming rules are used to calculate income from your financial assets. Centrelink will add this income to any other income you have and apply the income test to determine your payment rate.
To better understand selling your family home and how it can affect your pension entitlements, check out the video below. It provides valuable insights and information that can help you make informed decisions about your retirement planning.
Credit: Services Australia.
What if I want to leave my principal home and enter into an aged care facility instead?
Thinking about moving into an aged care facility can be a difficult decision, and there are financial considerations to keep in mind. If you're planning to leave your principal home to go into aged care, it's important to be aware of how it may affect your assets test.
If you leave your principal home due to illness and enter a care situation, your home may be exempt from the assets test for up to two years from the date you enter care. However, once the two-year period is up, your home will be assessed as an asset, and you may be assessed as a non-homeowner.
If you leave your home temporarily or your partner continues to live there, it won't be counted as an asset. However, if you rent out your former principal home, any rent you receive will be considered income and may affect your payment rate.
How to make the right call
Selling your family home can be a very complex decision, particularly if you receive the Age Pension. As a result, if you're considering this avenue, we strongly advise that you seek professional financial advice beforehand in order to understand the potential impacts on your entitlements.
Chris Carlin, a financial expert from Master Your Money, has this to share: 'It's important to reiterate with the high cost of living that if you cannot live on the Age Pension yet on your own home, don't be afraid to sell your home and/or downsize to unlock equity/cash to meet your living expenses.'
Selling your home can be a great opportunity to set yourself up for a comfortable retirement, but it's best to make sure you go about it the smart way and make an informed decision that best suits your circumstances.
We hope this article has helped give you the advice you need to make the right call! Members, have you recently considered selling your family home? Or have you been weighing up the pros and cons of downsizing? What factors did you consider in your decision-making process?
Share your thoughts and experiences in the comments below to help others in a similar situation. Remember, a little bit of expert advice can go a long way!
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