You've just inherited a substantial sum in retirement: now what?

It's an increasingly common scenario. With longevity rising, many Australians now inherit from their parents in their own 60s or 70s — the parent dies in their 90s, and the child, already retired, receives a meaningful sum, often a few hundred thousand dollars up to a million or more once a share of the family home is included. It's a significant financial event with no obvious "right" answer, bundled together with several interacting decisions: where to deploy the money (pay down debt, contribute to super, invest outside super, hold as cash, gift to children, or spend and enjoy); how it affects the Age Pension (the inheritance is assessable from the day it's received and may reduce or end a part-pension); the tax dimensions (the inheritance itself generally isn't taxable, but inherited assets carry capital gains tax implications and inherited super has its own rules); the timing (super contribution windows, particularly the age-75 cut-off); and the fact that the windfall usually arrives alongside grief for a parent — the worst possible state for major financial decisions.

This article frames the deployment decision: the options, the interactions, the timing, and the framework for deciding — starting with the single most important principle, which is not to rush. It is general information only, not personal advice.

What is the first principle: don't rush?

When a substantial inheritance arrives, the strong recommendation is to park it somewhere safe and liquid — a high-interest savings account or a short term deposit — and defer the major, irreversible decisions for six to twelve months. Grief impairs judgement, and the financial event can wait. Don't immediately gift large sums, buy property, make big investments, or commit to anything irreversible in the first months; those decisions are far better made once the grief has settled and the picture is clear. Clients, well-meaning family and product-sellers often feel pressure to "do something" with the money straight away — resist it. There are only a couple of genuinely time-sensitive exceptions: Centrelink reporting, which can't wait, and any super-contribution or capital-gains window that's closing, particularly the age-75 super cut-off for someone approaching that age. Everything else can, and should, wait.

Why can't Centrelink reporting be deferred?

The inheritance must be reported to Centrelink within 14 days of receiving it (Services Australia), and it's assessable as an asset (and deemed for income) from the date of receipt, regardless of what's eventually done with it. So while the retiree parks the money and defers the deployment decision, they still need to report the receipt promptly. The pension is reassessed on the new asset position, and if the funds are later deployed in ways that change that position — for example, into the exempt home — a further reassessment applies.

Deployment option one — should you pay down debt?

If the retiree still has a mortgage, personal loans, credit-card debt, or a reverse-mortgage balance, paying it down is often the first and cleanest use of inheritance funds. It removes a fixed outflow, eliminates the interest cost, and delivers a guaranteed, risk-free return equal to the interest rate. Where the debt is a loan against the exempt home, paying it off also improves the Centrelink position, because the cash was assessable while the home is exempt. It's almost always sensible where debt exists.

Deployment option two — should you contribute to super?

The inheritance is after-tax money, so it can go into super as a non-concessional contribution — up to $130,000 in a year, or $390,000 over three years under the bring-forward rule for those under 75 with room under their total super balance (ATO). That moves the money into the eventually 0%-tax pension environment and adds tax-free component, which helps the retiree's own estate by reducing the death-benefit tax their children would otherwise pay. The critical timing constraint is age: a fund can generally only accept non-concessional contributions up to 28 days after the end of the month in which the member turns 75, after which only mandated employer and downsizer contributions are accepted. For a retiree approaching 75 the window to get an inheritance into super is closing, so the "don't rush" counsel has to be balanced against not missing it. Non-concessional contributions also require a total super balance below the $2.1 million general transfer balance cap at the previous 30 June, so high-balance retirees may be shut out. For the right client — under 75, with room under the cap — super is the tax-effective home for the funds, with an estate-planning bonus.

Deployment option three — should you invest outside super?

Where a super contribution isn't available (over 75, or the balance cap is reached) or the retiree wants accessible, flexible funds, the inheritance can be invested in personal name through managed funds, shares or term deposits. For a couple, investing in the lower-tax spouse's name can be income-tax-efficient. The Centrelink treatment is the same as holding cash — assessable and deemed — so there's no Centrelink advantage over cash, but the investment generates returns the cash wouldn't.

Deployment option four — should you gift to children?

Some retirees who receive an inheritance feel they don't need it and want to pass part or all of it to their own children, "skipping a generation." The thing to watch is the Centrelink gifting free area of $10,000 in a financial year and $30,000 over five years (Services Australia): gifting a large inheritance to children at once would breach those limits, with the excess treated as a deprived asset for five years — though for a retiree not on, or not concerned about, the Age Pension, that may not matter. Where the pension does matter, structured gifting over time, or investment bonds or education funding for grandchildren, can pass wealth more efficiently. Crucially, the retiree's own security and future care needs come first — don't deploy the inheritance to children before considering whether it might be needed for the retiree's own aged-care funding.

Deployment option five — should you spend and enjoy it?

For a retiree with ample resources, part of the right answer may simply be to spend and enjoy the money — travel, home improvements, experiences, visibly helping family. It's particularly resonant given the inheritance came from a parent who would presumably have wanted the retiree to enjoy life, and an inheritance received in the active "go-go" years of the 60s and 70s can fund experiences while health allows. The "honour the parent by living well" framing is genuine, not frivolous: for the well-resourced retiree where the inheritance is surplus to needs, spending some of it on a good life is a legitimate and often emotionally healthy choice.

What is the Centrelink impact — and the reframe?

A substantial inheritance often reduces or ends a part-pension. A $400,000 inheritance could push an asset-tested part-pensioner over the cut-off, ending the pension entirely and the Pensioner Concession Card with it, and retirees can be genuinely distressed at "losing the pension." But the reframe matters: they're $400,000 richer, the net position is far better, and the lost concession card — real value, but modest against the inheritance — is a small offset. Losing the pension because you inherited $400,000 is a good problem to have. Deploying the inheritance into the exempt home (renovations, mortgage paydown) or within the gifting limits can reduce the assessable amount and preserve some pension, but for many the cleaner reality is simply transitioning to a wealthier, self-funded position.

What are the tax dimensions?

On the inheritance itself, Australia has no inheritance tax or estate duty, so receiving one is generally not a taxable event. Inherited assets are different: shares and property carry the deceased's cost base for post-CGT assets, or market value at death for pre-CGT assets, with CGT applying when the beneficiary later sells, and an inherited main residence can often be sold free of CGT within two years of death where the conditions are met (ATO). Inherited super has its own rules: a retiree inheriting super from a parent is a non-dependant adult child for tax purposes, so the taxable component carries death-benefit tax — 15% plus the 2% Medicare levy, an effective 17%, on the taxed element (ATO). And once the inheritance is invested, the income it earns is assessable to the retiree as normal.

What is the reflection prompt?

Receiving an inheritance often makes a retiree reflect on their own mortality and estate plan, which makes it a natural moment to review their own will, binding death benefit nomination, Enduring Power of Attorney and Enduring Guardianship. It's also worth weighing the inheritance as a potential buffer for the retiree's own future aged-care costs before deploying it all elsewhere, and where it came from the retiree's parents there may be family dynamics — other siblings, the parents' wishes about the money — worth being mindful of.

What do worked examples look like?

These two cases show the deployment decision in practice. They are illustrative only, not personal advice.

Gwendolyn, 72, widowed, receives a $420,000 inheritance when her mother dies (a share of the home plus savings). She currently gets a part Age Pension reduced by the assets test, has $190,000 in her own super pension, owns her home outright, and has a small remaining personal loan of $15,000, and she's grieving and unsure what to do. On these facts the don't-rush principle applies — park the $420,000 safely and defer the major decisions — but several items need attention. She should report the inheritance to Centrelink promptly, since her assets jump from a part-pension position to likely above the assets-test cut-off, so her pension will probably end; the reframe is that she's $420,000 richer, and losing the part-pension and concession card is a real but small offset against that. The time-sensitive item is the super window: at 72 she's under 75 and, with her own super at $190,000 (well under the $2.1 million cap), has plenty of room, so on these facts it is generally rational to contribute $330,000 of the inheritance as a non-concessional bring-forward (within the $390,000 three-year limit — ATO), moving it into the eventually-0%-tax pension environment and adding tax-free component that reduces the death-benefit tax her children would later pay. Paying off the $15,000 personal loan immediately is a clean, guaranteed return, and the remaining $75,000 or so sits as accessible funds for flexibility, with some earmarked for the trip she's always wanted to take her grandchildren on — a fitting use of her mother's money. The deeper moves can wait until she's through the worst of the grief, but the super window should be flagged so she doesn't miss it. She ends up self-funded, debt-free, with most of the inheritance in tax-effective super and permission to enjoy a meaningful portion — a better position than the part-pension she's leaving behind.

Hamish, 78, a comfortable self-funded retiree who has never been on the Age Pension, receives a $600,000 inheritance from his late sister. He has $1.3 million in his own super pension, owns his home, and genuinely doesn't need the money for his own retirement. On these facts the decision is dominated by what to do with money he doesn't need rather than securing his own position. Don't-rush still applies — park it, grieve, decide over months — but a super contribution isn't available, because at 78 he's past the cut-off for non-concessional contributions, and Centrelink is irrelevant since he's not on the pension. The real questions are about passing it on and enjoying it. He could gift to his children and grandchildren, and because the Age Pension doesn't matter to him the gifting limits are irrelevant, so he could gift substantial amounts directly (though for tax-effective grandchildren provision, investment bonds or education funding may be cleaner). On these facts it is also generally rational to earmark some of the inheritance as an aged-care buffer before gifting it all away — a future refundable accommodation deposit can run to several hundred thousand dollars — and, at 78 and in the slower-paced phase, to fund some experiences he and his family can share now. The inheritance increases his own estate, so it's a natural prompt to review his will and binding nomination and to think about the death-benefit tax his children will eventually pay on his super. The work for Hamish is essentially intergenerational and legacy planning: he's a conduit for wealth he doesn't need, and the decisions are about passing it on thoughtfully, reserving enough for his own care, and enjoying a portion while he can — a very different deployment from Gwendolyn's, driven by his already-comfortable position.

For retirees who receive a substantial inheritance, the deployment decision is significant, multi-dimensional, and arrives at an emotionally difficult time. The work is to counsel against rushed decisions (park it safely, defer the major moves for six to twelve months), handle the genuinely time-sensitive items promptly (Centrelink reporting, the age-75 super window, CGT timing on inherited assets), pay down any debt, consider a super contribution for those under 75 with room under the cap, model the Centrelink impact and reframe any pension loss as the net gain it is, consider gifting to the next generation where the retiree doesn't need the funds (own security and future care first), extend permission to enjoy for the well-resourced client, and use the inheritance as a prompt to review the retiree's own estate plan. The headline most clients need to hear is the first one: don't rush — the money will still be there in six months, and decisions made through grief are usually worse than decisions made with a clear head. Be alert, too, that a recently bereaved client with a fresh windfall is a target for inappropriate products and scams, so part of the "don't rush" counsel is protecting them from a bad deployment under emotional pressure. The figures move with policy, so verify the current contribution caps, gifting limits and thresholds before relying on them — but the shape of the decision is durable.

Sources

• ATO — Non-concessional contributions cap
• Services Australia — How much you can gift
• Services Australia — Change of circumstances when you get Age Pension
• ATO — Inherited property and CGT
• ATO — Paying superannuation death benefits