Considerations when downsizing your home
If you're thinking of downsizing your home before or during retirement, there are a number of things to consider, from super contributions to Age Pension entitlements.
Retirement can be an exciting new chapter, offering you the chance to fulfil those travel dreams or focus on a hobby. If you’re one of the Aussies who owns their home outright, you might be thinking of downsizing your property – selling the family home and buying a cheaper, or smaller place – to help those dreams become a reality.
But downsizing isn’t simply a matter of packing up and moving house. Here are a few things to consider when deciding whether it’s right for you.
Motivations for downsizing
A recent survey from the Australian Housing and Urban Research Institute shows that 26% of Australians aged 55 and older have downsized their homes, and 29% have thought about doing it. This has been motivated by both lifestyle and financial reasons1.
- The property may be worth a lot of money and downsizing releases some of this, to free up cash for other things.
- A smaller space can be less to maintain and insure, rewarding downsizers with extra money, time, and resources.
- A smaller home could also better suit changing needs.
There may be implications for your Age Pension entitlements2 , if you sell your home, so it’s a good idea to check with a financial adviser to understand your eligibility requirements.
Downsizer contributions into superannuation
Depending on your financial situation and goals, some of the money from the sale of your property could be added to your super. If you’ve owned your property for 10 years or more and are 60 years or older, you may be able to contribute up to $300,000 from the sale of your family home into your super3, without having to satisfy the usual work test requirements and without affecting your annual contribution caps.
For couples, both spouses can make the most of the downsizer contribution opportunity, which means up to $600,000 per couple can be contributed toward super.
Don't forget about the costs of moving
While downsizing can free up capital, some of the cash you receive from the sale of your property may be needed for the cost of moving, so you’ll need to factor in legal and real estate agent fees and removalists. Another important consideration is stamp duty (the tax on the total value of the property you buy). This varies from state to state. AMP’s stamp duty calculator can help.
Lifestyle considerations before you downsize
Apart from the financial considerations, there are lifestyle factors that could affect your decision to downsize:
- Flexibility: Moving to a smaller property may mean less maintenance, but it could also give you less flexibility in terms of family being able to stay or storage space.
- Proximity to family and friends: Your existing home may be close to family and friends, so if you’re planning to change location it may affect your day-to-day life.
- Emotional ties: Leaving a family home behind can be emotionally challenging as it’s likely to have been a place with many special memories.
Other options for retirement living
Purchasing another, smaller home isn’t the only option for retirees. You may be considering moving to a retirement village or even aged care, depending on your needs. These will have different costs or fees compared with purchasing a standard property. Before you make a decision, there are a number of key things to consider about different retirement living options.
Ask the experts
Downsizing during or leading up to retirement isn’t always straightforward, so, if possible, speak to your financial adviser about the best options for you. If you don’t have a financial one, you can contact us on 131 267 or find an adviser online.
1 Australian Housing and Urban Research Institute, The University of Sydney (2020): The Downsizing Patterns and Preferences of Australians Over 55.
2 Australian Government Department of Veterans’ Affairs : How owning a home can affect pensions and payments
3 Australian Taxation Office: Downsizing contributions into superannuation
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Any advice and information is provided by AWM Services Pty Ltd ABN 15 139 353 496, AFSL No. 366121 (AWM Services) and is general in nature. It hasn’t taken your financial or personal circumstances into account. Taxation issues are complex. You should seek professional advice before deciding to act on any information in this article.
It’s important to consider your particular circumstances and read the relevant Product Disclosure Statement, Target Market Determination or Terms and Conditions, available from AMP at amp.com.au, or by calling 131 267, before deciding what’s right for you.
The retirement health check is a general advice conversation only. It is provided by AWM Services Limited (AWM Services) ABN 15 139 353 496, AFS Licence No. 366121 (AWMS) to eligible members of the AMP Super Fund. AWM Services is a wholly-owned subsidiary of AMP.
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