Ask Paul: Should I give up my pension to inherit $1 million?

With Lana's husband on a lot of medication, she is worried about losing the age pension. Photo: Paul Clitheroe, Getty Images.

With no savings and rising medical costs, this couple must decide whether a $1 million inheritance is worth giving up their age pension safety net.

Reader question

Hi Paul, my husband and I are on the age pension. I am 75 and he is 76. We own our own home but have no savings and we're struggling a bit.

My husband is not well and is on a lot of medication.

I have a chance to inherit $1 million. Would it be wise to go with the inheritance and give up the pension?

I do not know which way to go. - Lana

Paul's response

Wise? Goodness, Lana, it would be crazy not to go with a $1 million inheritance!

You have already told me your husband is unwell and you are struggling a bit.

Let's ignore the entire issue of investing the money, although it would be pretty silly not to at least invest in safe bank term deposits earning, say, 4.5% and generating $45,000 a year.

Split between you and your husband, this would come to you tax free and is close to the full age pension for a homeowning couple, but this does not include any supplements.

Now I do realise you are thinking about other benefits such as health, house rates and so on. But don't forget you can still get a part pension with assets of up to $1,085,000.

Under the income test you can earn $104,020.80 before a part pension cuts out.

There is no real debate here. The $1 million is yours.

You can easily fund a lot of healthcare for a million dollars. Let me be silly, because I think it will help. Let's say you don't even bother investing the money (which would be a bad idea) and spend $100,000 a year doing things you may have always wanted to do.

How about a luxury cruise, with excellent health services onboard for your husband?

In a bit over six years, you could spend about $600,000. This then puts you below the assets test, which is $481,500. This cut-off level will increase with inflation.

So, you've had a far better life, with no need to struggle, for six years. Then you are where you are now, with full pension and some $400,000 that you can use as you wish.

Lana, I respect people who value our not perfect, but world-class pension system. But I cannot be any clearer, it would be a bad idea not to take the million dollars.

I'm going to repeat myself. You will get part pension anyway with $1 million. Give yourself and your husband a break from struggling, improve your house if you wish, pay for the best medical care you can, pay for nursing support at home if you want, and have fun!

Worst-case scenario is that you spend the money down to the assets test level, regain your full pension and still have some $481,000 plus dollars to improve your lifestyle beyond the age pension. I do hope this makes sense, Lana. Take the inheritance.

I wish you and your husband all the best. Please send us here at Money a photo of you on a cruise or doing something you enjoy!

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