6 costly mistakes that will slash your Age Pension payment

Australians aged 67 years old (or over) might be eligible to receive the Age Pension payment.

The fortnightly sum, of up to $1,237.70 for individuals and up to $933 per person for couples, is designed to help cover basic retirement costs. 

Your eligibility depends on where you fall under the income and asset tests. You’ll also need to be an Australian resident who has lived here for at least 10 years, with at least five of those years in a single continuous period.

The problem is, the rules are strict. And one small error could see your payment reduced dramatically, or even be eliminated entirely.

Here are six expensive mistakes that Australian retirees often make when it comes to the Age Pension, and how to avoid them.

1. Procrastinating

Many Aussies wait until they turn 67 before they start doing their paperwork. It’s logical, given that this is the age when you meet eligibility requirements. But did you know that you can actually apply 13 weeks earlier?

This ensures the application is completed before you reach the eligibility age, so you can start receiving payments the day you turn 67. Procrastination means you’ll miss out on weeks of income because Centrelink does not backdate payments prior to your successful lodgement date.

2. Overlooking your income limits

To receive the full Age Pension, single Australians can earn up to $226 per fortnight. Meanwhile, couples can earn up to $396 per fortnight.

For every dollar earned over the free area, a single person’s pension reduces by 50 cents, and a couple’s pension reduces by 25 cents each (combined).

If you earn over the threshold, you could end up with a much lower payment rate, if anything at all. It’s important that you’re aware of the income levels before you apply for your Age Pension.

3. Failing to declare all your assets

The Age Pension asset test includes everything you own, whether it’s in full, in part, or you have an interest in. This excludes the home you live in, but includes any stocks, like S&P/ASX 200 Index (ASX: XJO) shares, property, superannuation, an SMSF, or any possessions you own locally or outside Australia. Failing to declare your assets correctly will result in you failing the asset test.

In order to receive the full Age Pension, single homeowners can now own assets (including superannuation) up to a value of $333,000, and non-homeowners can own assets up to $600,000 in retirement.

A couple combined can own up to $499,000 in total if they own a property, or $766,000 if they don’t.

If you’re over these limits, a part payment is assessed on a sliding scale.

4. Double reporting

It can be difficult to understand the rules around where to declare your superannuation balance. The mistake many Aussies make is that they end up accidentally reporting it twice, as an asset and the pension drawdown as an income. This can delay your payment, reduce your entitlement, or mean you’re not eligible for anything at all.

Instead, you should list your superannuation balance as a financial asset. Centrelink will then apply its own deeming rates. 

5. Gifting money or assets to family or friends

It can be tempting to give a portion of your assets to close friends or family if you’re approaching the Age Pension age and are worried you’ll be over the thresholds. 

But Centrelink has rules against this. If you give away your income or assets, they may still count towards your income and asset tests. This also applies if you sell them for less than they’re worth.

You can choose to give away any amount and as many gifts as you like. If the total value of your gifts is more than the value of the gifting-free area, your Age Pension payment may be affected.

You can gift up to $10,000 in one financial year and $30,000 over five financial years. The $30,000 can’t include more than $10,000 in a single financial year. 

6. Downsizing your home

Similarly, it can be tempting to downsize your home to free up some cash, but this can be a bad idea too. 

The property you live in is generally not included as part of the Age Pension asset test. But if you decide to downsize to something smaller and either invest or bank the rest, it could push you over the asset thresholds. 

For example, if you sell your $2 million home and downsize to a $500,000 property, that $1.5 million difference then becomes an assessable asset under Age Pension rules.

The post 6 costly mistakes that will slash your Age Pension payment appeared first on The Motley Fool Australia.

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Motley Fool contributor Samantha Menzies has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.