YOUR QUESTIONS

PRE-RETIREMENT PERILS

PRE-RETIREMENT PERILS

I turn 60 in January and have been unemployed for three years. I went through a messy divorce some 30 years ago, which left me ruined financially. However, I pressed on and took out another mortgage, on a rundown townhouse, which has been paid off. I am on Newstart Allowance of $489.70 per fortnight, which obviously is insufficient to live on. My superannuation has a balance of $70,000. At this rate, I'll be left with pretty much nothing when I reach retirement age of 65? in six years' time! Should I withdraw super now and suffer tax consequences, or should I wait until

I turn 60? Or should I withdraw, say, $10,000 now just to make ends meet? N.M.

If you can claim retirement after age 55, you can withdraw a lump sum, or cumulative small lump sums, up to the "low cap rate amount" of $165,000 of the "taxable component" in 2011-12, rising to $175,000 in 2012-13, without paying tax.

There is a bit of a sting to this exemption since, while superannuation withdrawals after age 60 are described as "non-assessable", and thus need not be reported on a tax return, withdrawals within the low cap rate amount, when aged 55 to 59, are taxed but at a zero tax rate.

In other words, it qualifies as assessable income, even though no tax is payable. As such, it counts towards various benefits that depend on assessable income, such as the government superannuation co-contribution, low-income earners' tax offset, superannuation spouse offset, family tax benefits, and Medicare levy exemption. Most of these may not affect you and, if your total income consists of only your Newstart Allowance, then minor withdrawals from your super that are used to pay bills will not affect it.

Accordingly, I suggest you continue to simply withdraw small amounts as needed. In the meantime, be sure that your money is invested in the cash or term-deposit option of your super fund and that you are in a low-fee fund, or roll over your benefit into one.

Meanwhile, your greatest asset is your rundown townhouse. Be sure to keep it waterproof as once buildings start to fall apart, they become increasingly expensive to fix. Work to ensure that your home is weatherproof and in the best shape possible.

HOME IS WHERE THE NEWSTART IS

My son is on Newstart Allowance with Centrelink as he has been unemployed for the past year. I have thought of putting his name on a title for an investment property. I will be the one putting down the 20 per cent deposit for the unit. I will also be responsible for paying the monthly mortgages until he is employed again. Will this sort of one-off gift affect his Newstart Allowance? D.N.

Yes. Once he is the registered owner of a property then it is counted as an asset, unless he is actually living in it and using it as his principal residence. Moreover, if you are paying off any mortgage on the property, then it is treated as income to be counted by the income test.

If you have a question for George Cochrane, send it to Personal Investment, PO Box 3001, Tamarama, NSW, 2026. Helplines: Financial Ombudsman, 1300 780 808 pensions, 13 23 00.

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