How the ‘grey nomad’ dream can unwittingly jeopardise your Centrelink pension
The retirement dream of hitting the road in a motorhome can have a sting in the tail. One wrong move can cost thousands in lost pension payments.
Everyone has a different idea of what the perfect retirement looks like. For some the dream is to sell the family home, buy a caravan or motorhome and escape the rat race by hitting the road as a grey nomad traversing the country in style.
Others opt for a part-time nomadic lifestyle, retaining their home and travelling for periods of time before returning home to regroup and recover, then heading off on another adventure.
With more than 900,000 caravans on the road in Australia, there are thousands of retirees who enjoy this lifestyle. But be careful, if you are on the Centrelink age pension you may inadvertently have your payments reduced or cancelled depending on your travel arrangements.
If you sell your home and buy a caravan, campervan, motorhome or boat to live in, you are not automatically classified as a non-home owner by Centrelink. There needs to be clarity on what is known as “security of tenure”. Centrelink will ask if you have a lease in place for a site at a holiday park. If so, you are likely to be classified as a homeowner.
Although this means that you can claim rental assistance of up to $215 per fortnight on the site fees, the downside is that you have a lower assets test threshold. As such, if you are single and have more than $321,500 in assets (excluding the RV), your age pension entitlement will be affected.
In contrast, a single non-homeowner who keeps moving from place to place gets a higher assets test threshold of $579,500 before their full age pension is affected. But keep in mind the value of the RV is included in the assets test for the non-homeowner.
It is not just people who live in their RV who need to be careful. If you own a home and have an RV, you need to be careful not to travel too long away from your home. The key date is 12 months. If you travel in an RV for a continuous period of more than that, Centrelink will treat the RV as your primary residence and your physical permanent residence is now an assessable asset.
Be careful if you plan to use part of your super to buy a motorhome and travel the country for a once-in-a-lifetime trip. If you are single and your home is worth more than $714,500, or if you are a couple and your home is worth more than $1,074,000, your age pension will be cut off completely after 12 months of travelling in an RV.
In what should be a simple decision, taking an extended RV trip or moving into an RV requires a headache-inducing level of understanding on the financial matrix of consequences depending on what pathway you take – keep your home or sell your home; stay in one site or keep moving from site to site; how much to spend on the RV; relationship status and age pension thresholds.
But if you get it right, living the nomadic lifestyle can work out brilliantly from a financial perspective. Here’s one example based on a single person who has $100,000 in super and sells their home for $800,000. If they spent $200,000 on a motorhome and accessories, they will be left with $700,000 in combined super and cash assets, which just sneaks them below the full threshold for a full age pension of $972,500 as a non-homeowner after adding the RV value to the assets test as long as they keep moving from place to place.
The person will be paid $30,646 a year in full age pension plus could earn a further $28,000 if the $700,000 was invested in a high-interest cash account earning 4 per cent interest. Total estimated retirement income would be $58,646 a year which should be more than enough to cover casual site fees, fuel and general living expenses of living on the road. And for couples, the combined age pension is $46,202, meaning that total retirement income becomes $74,202 after the interest on cash is added on top.
So if you ever pull up to a retiree at a fuel bowser who is happily filling up their late-model 4WD towing a flash looking caravan with premium unleaded fuel, chances are that this retiree has cracked the code and unlocked the best combination of age pension income and self-funded retirement income available under the nomadic lifestyle.
James Gerrard is principal and director of financial planning firm www.financialadvisor.com.au
To join the conversation, please log in. Don't have an account? Register
Join the conversation, you are commenting as Logout