Helping Out My Mum

Scott,

At the age of just 30, I am VERY aware of the importance of super. Here’s why. My mum is two years off the pension and has $8,000 in super. Yep, not a typo. I am going to ‘gift’ her $200,000 or so from the sale of my house (I have another, so will not be homeless), and she will be able to buy a house on which she will owe nothing. I have two questions for you. How might this ‘gift’ affect us? And how can Mum, who works full time earning $40,000 a year, maximise her super in the two years of work she has left?

Tracy

Hi Tracy

I hope my daughter looks after me as well as you do for your mum!

First up, let’s look at what you’re trying to achieve: you want to put a stable roof over your mum’s head so she has a sense of security and doesn’t have to worry about moving.

If I were in your shoes, I wouldn’t just give her the cash.

Instead, I’d consider buying an investment property in your name and renting it out to her.

There are three advantages to this:

First, when she goes on the age pension she’ll get rent assistance ‒ the maximum payment is $134.80 per fortnight.

Second, as long as it’s an arms-length transaction, you’ll be able to claim the interest and related expenses of the property against your tax, like any other investor can.

Third, it makes things a lot simpler. You should have a written tenancy agreement that sets out who pays for what, and what upkeep she’s expected to do, just like you would for any other tenant. That’s not only going to help you prove this is an arm’s-length transaction, but also manage everyone’s expectations. Also, in the event of her passing, the property is yours and is separate to her estate.

Now, as far as how your mum should manage her money over the next few years before she retires, here’s what I’d suggest if it was my mum:

When she retires she’s going to live on $23,597 per annum (the maximum pension for a single person, not including rent assistance and the health care card, worth at least $1,500 a year).

I’d encourage her to be a ‘practice pensioner’ – by living off that figure now and saving the rest of her wage.

Her aim should be twofold:

First, to have a goal of at least $100,000 in super when she finishes full-time work in five years (not two!).

Second, to never retire … keep working part time at least a day or so a week, and supplement her pension by up to an additional $6,500 a year (which, thanks to the Budget, will increase to $7,800 on 1 July 2019).

The upshot is that you’ll have an investment property with a great tenant. Your mum will have the security of a home, plus $100,000 in super to draw on, and she’ll be earning more in retirement (after tax) than she is right now!

Of course, you should run this past your accountant and financial advisor, but that’s how I’d do it.

Scott