Downsizing in retirement

If you’re thinking about selling your home and downsizing, consider the pros and cons. Check if selling your home affects your government benefits.

Consider the costs and your needs before you downsize

Take time to consider your needs. Make sure your new home suits your lifestyle, budget and level of independence.

Some of the costs to consider include:

  • buying and selling in the same market

  • real estate agent fees

  • stamp duty

  • legal fees

  • furniture removal

See buying a house for more information.

Pros and cons of downsizing your home

Weigh up the pros and cons to decide if downsizing is right for you.

Pros

  • Increased cash flow — Downsizing could free up money to pay off your mortgage, invest or spend.

  • Easier to maintain — A smaller place takes less effort to clean and maintain.

  • More convenient — You can choose a layout and fittings that better meet your needs, or a location closer to family, transport and services.

  • Lower insurance and utility bills — In general, a smaller home costs less to insure and is cheaper to heat or cool.

Cons

  • Less space — A smaller place means less space for things, so you may have to make some hard choices.

  • Less flexibility — Your new place may have less privacy, fewer guest rooms, or less space for entertaining.

  • New neighbourhood — It may take time to get used to new surroundings.

  • Emotional connection — Your family home may be full of memories, which can make it difficult to let go.

Alternatives to downsizing your home

If you decide to stay in your home, alternatives to downsizing include:

  • Renting out space — Consider renting out a room or taking in a boarder.

  • Converting to dual occupancy — See if you can convert your home so that you live in one half and rent or sell the other half.

  • Considering equity release — Explore whether a reverse mortgage or home reversion may suit. There is risk involved and a long-term financial impact, so get independent financial advice first.

Before going ahead with any of these options, check the tax impact and whether it will affect your government benefits.

Impact on Age Pension or government benefits

Your eligibility for the Age Pension depends on the:

Your home is not included in the assets test. When you sell your home, the proceeds are exempt for up to 12 months if you plan to use them to buy, build or renovate another home.

The proceeds are ‘deemed’ in the income test — they are assessed as income from financial assets. This may affect the amount of government benefits you get.

See Age Pension and government benefits for more information.

What to do after you downsize

After you’ve sold your home:

  • Try renting for a while — If you’re having trouble deciding where to live, rent in a new area to see how you like it.

  • Invest the proceeds — Consider investing any extra money into an income-producing adsset. See how to invest to explore your options.

  • Get help if you need it — Government services like the Commonwealth Home Support Programme can help you to live independently and assist with daily tasks like shopping, cleaning, personal care or home maintenance. See aged care for more options.

You may be able to contribute up to $300,000 from the sale of your home to your super. See downsizing contributions into superannuation on the Australian Taxation Office (ATO) website.

Get independent advice before you go ahead

Before you downsize:

  • Consult a legal professional to review sale contracts and oversee settlement.

  • Get independent advice from a financial adviser about options for investing your sale proceeds.

  • Ask the Services Australia Financial Information Service how it will affect your pension or government benefits.

To learn more, contact us today on Phone 07 3340 5169. 

Source: Moneysmart.gov.au
Reproduced with the permission of ASIC’s MoneySmart Team. This article was originally published at https://moneysmart.gov.au/retirement-income/downsizing-in-retirement

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