Once the kids have moved out of the family home for good, many older Australians may think about whether it’s time to downsize.
There are several potential benefits as well as some possible downfalls with downsizing. It’s a good idea to consider how downsizing could affect you not just financially but also socially, emotionally, practically and from a lifestyle point of view.
Potential benefits of downsizing
1. Get rid of debt
If you haven’t paid off your home loan, downsizing to a smaller (and cheaper) place may help you do this.
2. Reduce ongoing costs
A smaller home usually requires less maintenance (both inside the home and around the garden) and costs less to heat and cool down. If you are buying a more modern home, it may also have more efficient heating and cooling options such as solar panels, water tanks, more modern appliances and a more efficient design.
If you have been in your home for decades, it can be the perfect opportunity to get rid of some clutter; big homes can easily accumulate a lot of redundant and out-of-date items!
4. Find a more suitable home
If you are older and have a house with difficult steps or an inconvenient layout, downsizing may allow you to choose something that better suits your current needs. Additionally, you may want or need easier access to services such as health care, entertainment and transport.
5. Release some equity to enjoy in your retirement
There are myriad possibilities you may want to use your equity for. If you don’t have any immediate needs or wants, you could consider investing the extra money into an income-producing asset such as shares or an investment property to help fund your retirement. Alternatively, you may want to use the money to take that long-awaited holiday or purchase the new car you’ve always dreamed of. You could also put some money away for in-home support down the line, which could help you stay in your home longer.
If you have owned your home for over 10 years, are over 65 years old, and meet other eligibility requirements, you may be able to put up to $300,000 from the proceeds of the sale of your home into your superannuation. This means couples may be able to contribute up to $600,000. This is a ‘non-concessional contribution’ so it will not count towards your contribution caps; however, be sure to check on all rules and requirements.
7. Access to support
Depending on where you live now, moving may allow you to move closer to friends or family. Having trusted people nearby as you age can be a considerable benefit.
Considerations when downsizing
These benefits need to be weighed up against some of the potential negative elements of downsizing, in order to come to a sensible decision. Here are a few things to consider:
1. The costs of moving
Moving house isn’t cheap, so you’ll need to factor in a number of costs. Selling comes with real estate agent fees and commission, as well as – particularly if your home hasn’t been on display in a while – possibly some maintenance and stylist fees to get your home in sale condition. There are also considerable purchase costs such as stamp duty and other government fees, legal fees, building and pest inspections and moving costs (such as packing and removalist’s fees).
2. The sentimental and emotional strain
If your children have grown up in your home and it holds many memories for you, are you ready to sell? Will you be happier in a new place?
3. The physical strain
The physical work involved in packing up a large home that’s been lived in for many years is significant. If you don’t think you are up to the task, consider whether you have the option of help from children, grandchildren or trusted friends. From a physical point of view, downsizing can be easier sooner rather than later.
4. The social aspects
Do you have a lot of friends and neighbours nearby? How will it impact these relationships if you move?
Think about what you want from the area where you will live over the next 20 years – does it have the facilities, amenities and lifestyle options that you need considering your stage of life?
6. Reduced space
Downsizing often means getting rid of things – furniture, collections, souvenirs and other items that may have sentimental meaning. This can mean making some hard choices.
7. Finding the right place
If you are planning on moving to a new area, can you trial living there to make sure it’s the right move? Perhaps you could consider a house swap or renting a property in the area you want to buy, before committing to it.
How likely is it that children, grandchildren or friends will want to come and visit? Will there be room in your new place to accommodate overnight stays or entertaining?
9. Eligibility for the Age Pension
Your home is not included in the assets test, and when you sell your home, the proceeds are exempt for up to 12 months if you are planning on using this money to buy, build or renovate. However, the proceeds of the sale may be assessed as part of your income. Make sure you are across all the rules if this may apply to you.
Alternatives to downsizing
If your primary reason for downsizing is financial, there are other ways to access money if you don’t really want to sell your home. Some alternatives include renting out part of your house to a boarder, converting your home to dual occupancy and renting out or selling the other half, or a home equity release. Your Smartline Adviser can discuss in detail what this involves and what it would mean for you.
Downsizing can feel like a very big decision, but you are not alone in going through the motions of working out whether it’s the right one. Chatting to other retirees about their choices and how they felt about them afterwards might give you even more of a feel for what is going to work best for you.
DISCLAIMER: The information contained in this article is correct at the time of publishing and is subject to change. It is intended to be of a general nature only. It has been prepared without taking into account any person’s objectives, financial situation or needs. Before acting on this information, Smartline recommends that you consider whether it is appropriate for your circumstances. Smartline recommends that you seek independent legal, financial, and taxation advice before acting on any information in this article.