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.