Nick Bruining Q+A: Splurging on a new car doesn’t have to mean sacrificing your home care

Question

About three years ago, I sold my house and used most of the money to buy a place in a retirement village, leaving me with $150,000.

The money has been invested in term deposits and I have been withdrawing the interest at maturity to spend on “treats”.

My only income is the age pension and a small account-based pension, which has almost run out. At the moment, I receive about $5000 per year in addition to the pension. I’m managing but I would love to change my car over to a smaller car at a cost of about $12,000.

That would require me to use some of the term deposit money. Given that I’m now 84, my main worry is that at a later stage I may need to pay for home care. What do you think I should do?

Answer

These types of questions are challenging because with relatively modest amounts of money, making the most of what we have becomes critical.

At 84, there are still ongoing needs such as your new car or even a holiday. The key is to ensure that your lifestyle is not compromised now or in the future. Of immediate interest is what happens when the ABP is exhausted.

The full age pension is now $29,874 a year, which will increase in September due to indexation. If we assume that you’re currently spending about $35,000 a year, then each year there is a $5000 shortfall that needs to be made up.

It might be wise to effectively set aside that amount for, say, the next 10 years. It’s also probable that your cost of living, in real terms, will decline by the time you reach 94.

Rounded up, we could allocate $55,000 to meet the shortfall over the next 10 years or so. Over that period, you should continue to chase the best interest rate possible for term deposits of one year or less.

If we then also allow for unexpected outlays over the next few years, we might set aside a further $40,000. Finally, if your final move ends up being into an aged care facility, we might allow a further $40,000 to cover the accommodation costs for the period it might take to sell your village unit.

Being on a full pension means it is unlikely you will be asked to pay any means-tested fees towards a home-care package. Equally, if you move into aged care, the age pension is likely to cover the care costs.

The basic daily care fee is capped at 85 per cent of the full single rate of pension, so the amount left over could go towards extra services.

When the unit is sold, that money could be contributed towards your accommodation costs. Under this scenario, it leaves you with about $15,000 to spend on your new car. Incidentally, red cars are no faster than the white ones.

Question

I am a sub-contractor in my mid-twenties, employed as a labourer on various home construction sites around rural WA.

The builder I work for pays me a decent wage and says that is to cover all of my expenses. He got me to obtain an Australian business number and says that is all that is required. My mum has told me that I should be receiving superannuation payments and suggested I write to you. What’s your view?

Answer

Your question raises a very important issue about unpaid super obligations. Both Fair Work Australia and the Australian Tax Office are engaged in a campaign to ensure that all compulsory superannuation entitlements are being paid.

From what you have described, it is likely that the builder is in breach of the law. Working as a sub-contractor and holding an ABN does not negate your entitlements.

Where a person essentially works for the same employer, at hours they specify with tools and materials provided by that employer, compulsory super is payable.

Nick Bruining is an independent financial adviser and a member of the Certified Independent Financial Advisers Association