Term deposits can be a good option for those unaccustomed to the perks and pitfalls of coming into money, writes George Cochrane.
I AM an 80-year-old who has recently received a $1 million inheritance. I don't know what to do with all this money. I am physically and intellectually active. I own my home and my children have stable marriages, good jobs and are well on the way to owning their homes. I have been a pensioner (single parent and age) for the past 35 years and am unused to exercises in big spending. At present the money is in a term deposit with the CBA for one year at 6.1 per cent. An investment adviser has suggested life and term annuities but I am reluctant. Should I just stash it all under the mattress for the time being? M.K.
I agree that term deposits with banks are an excellent way to invest money for someone who is not accustomed to handling money and who is not overly concerned with catching any potential rise in the sharemarket.
Why not spread your money around all four banks, with a spread of term deposits over, say, one, two and three years to cover yourself in case rates fall further, as they are expected to.
Small gifts to the children might be in order, to be put towards their remaining mortgages.
And, no, mattresses don't provide good security for investments, despite the historical anecdote of Malcolm Fraser's 1983 warning that "If Labor wins, your money would be safer under the bed!" and Bob Hawke's retort, "No point, the Reds are there!"
Age pension confusionI turn 65 soon and plan to apply for a Centrelink pension. My wife turned 62 in August and has $250,000 in savings earning $8800 a year, $10,000 in super and a $480,000 investment property that pays her $10,397 a year in rent. I have $95,000 in savings, $190,000 in an allocated pension paying $494 a month and receive a $993.52 fortnightly pension from ComSuper. Should my wife put her savings of $250,000 into super? A.W.
Your wife will not become eligible for the age pension until she turns 65 in 2014. Until then, her superannuation is not counted by Centrelink's means tests. However, your application will still be judged on the other, combined, income and assets and you will then receive half of any married age pension granted.
The assets test cuts out the age pension for married home owners when it counts assets of up to $1,018,000.
Nevertheless, if you use the current rules and get your wife to place her $250,000 in cash into her super fund, it will not be counted until she turns 65, thus reducing your countable assets from $1,025,000 to $775,000.
This should result in an age pension of about $180 a fortnight until your wife turns 65. If you are lucky, indexation might have increased the thresholds far enough by then so you might then still get a small age pension.
Keep Centrelink out of itI am considering obtaining a loan to reconstruct and repair my ailing residence. Will this loan affect my Centrelink pension? Loan amount, $300,000. Loan source is a close relative (interest free). I am 69 and not employed, own my home and have council approval. My income consists of an allocated pension of $350,000 ($300 a week) Centrelink payments of $200 a week and a term investment of $90,000 ($100 a week). With regard to repayment, I will increase my allocated pension payment or part-time work, or repay on sale of the residence. J.W.
If you receive money as a gift, Centrelink wants you to advise it within 14 days. If it is spent within that time, it is not counted and has no effect on your pension.
If your relative is paying for your repairs, it might be easiest if you simply pass the builder's invoices on to him or her, in which case, Centrelink will never become involved.
Tax declarationsI am 59 and receive a smallish indexed defined benefit pension along with a flexi-pension, usually 4 per cent of the current balance plus dividends from various companies and income from occasional short-term casual work. After I turn 60, does the money I receive from the two pensions have to be included in my income tax return? H.B.
No, superannuation proceeds do not need to be disclosed on your tax return, provided the pension stems from a "taxed" super fund.
An example of where you might be required to include your defined benefit pension in a return is if you are a former public servant receiving a Commonwealth Super Scheme pension, which derives from a defined benefit but stems from an untaxed super fund.
In other words, the CSS pension is calculated on your final average salary but paid from the government's consolidated revenue and not from a taxed super fund.
You will then be taxed on the full employer's portion of the pension but receive a 10 per cent tax offset.
If you have a question for George Cochrane, send it to Personal Investment, PO Box 3001, Tamarama, NSW, 2026. Helplines: Banking Ombudsman, 1300 780 808 pensions, 13 23 00.
Frequently Asked Questions about this Article…
I’ve just inherited a large sum — are term deposits a good option for sudden wealth?
Yes. For investors unused to handling a big lump sum, bank term deposits are a simple, low‑risk option. They provide predictable interest (the article cites a one‑year CBA term deposit at 6.1%) and avoid sharemarket volatility. The piece also suggests considering small gifts to family and avoiding risky storage like keeping cash at home.
Should I spread my term deposits across different banks and stagger the terms?
Yes. The article recommends spreading funds across the four major banks and laddering terms (for example one, two and three years) so you’re covered if interest rates fall. Staggering maturities balances securing current rates with flexibility to reinvest later.
An adviser suggested life or term annuities — should I take an annuity?
The article notes annuities were suggested to the reader but acknowledges reluctance. It presents term deposits as an excellent alternative for those who don’t want to worry about managing money or chasing sharemarket gains. The right choice depends on your comfort with locking away capital versus guaranteed income — the article doesn’t push a firm recommendation.
Is it ever a good idea to keep my inheritance under the mattress?
No. The article explicitly advises against keeping money at home for security reasons. While it recounts historical political jokes about money under the bed, it makes clear mattresses do not provide good security for investments.
How can moving money into superannuation affect my age pension eligibility?
If your spouse is under the pension age, placing cash into her super can reduce your couple’s countable assets for Centrelink means testing. The article gives an example: moving $250,000 into super reduced countable assets from $1,025,000 to $775,000 and could produce an age pension of about $180 a fortnight until she turns 65. The article also notes the assets test can cut out the age pension for married homeowners when it counts assets up to $1,018,000.
Do I have to tell Centrelink about gifts or loans I receive from family?
Yes — if you receive money as a gift, Centrelink expects to be notified within 14 days. If the gifted money is spent within that 14‑day period it is not counted and won’t affect your pension. The article suggests, when possible, having a relative pay builder invoices directly so Centrelink is never involved.
Will taking an interest‑free loan from a relative to pay for house repairs affect my Centrelink pension?
The article advises handling this carefully. If a relative effectively pays your builder’s invoices (rather than you receiving and holding the cash), Centrelink won’t become involved. If the transfer is treated as a gift, you must notify Centrelink within 14 days; if it’s spent within that time it won’t count against your pension. The article doesn’t provide other legal or tax outcomes, so follow Centrelink rules and seek specific advice if unsure.
Do I need to declare superannuation pension payments on my tax return after age 60?
Generally no for pensions paid from a ‘taxed’ super fund — superannuation proceeds from a taxed fund do not need to be included on your tax return. The article highlights an exception: some defined benefit pensions that come from an untaxed source (for example certain Commonwealth Super Scheme pensions) must be included and are taxed on the employer’s portion, though a 10% tax offset may apply.
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