Want some help? Call 1300 527 727

What do we mean by downsizing

Downsizing typically refers to selling your home to live somewhere smaller and potentially cheaper. Many retirees will be faced with a decision as to whether this course of action will be best for them and we often talk to customers that are in this position.  So is downsizing right for you?

Firstly consider all the pros and cons

There isn’t a single right or wrong answer as everyone’s circumstances are different.  Here are some things that should be considered.

Pros

  • You could free up additional money which you could use to invest or pay off debt.  For example, you might have a mortgage currently but could be mortgage free or reduce the size of your mortgage if you downsize.
  • Smaller homes are typically easier to maintain
  • Utility bills will typically – but not always – be lower
  • You might be able to afford a smaller home that is more conveniently located to important services and or friends and family

Cons

  • Relocation can be an emotional wrench as there are lots of memories in your home
  • You might have a lot less space so you could be downsizing your possessions as well as your home
  • It might be harder to accommodate visiting friends and family
  • You have to become familiar with a new environment.

Other things to watch out for

Your home is not included in the assets test for the Age Pension but when you sell it there are some things to be aware of:

  • When you sell your home the proceeds will be exempt from the assets test for up to 12 months if you plan to use those proceeds to buy, build or renovate your new home.

However:

  • The proceeds will be deemed to be earning income for the purposes of the income test.  So while you are waiting to build or buy your next home the income you are deemed to be receiving could affect the amount of your entitlements
  • There are also lots of additional costs to watch out for when you downsize.   Your current home might be worth more than your proposed new home but you will incur selling costs such as real estate commissions, stamp duty on the new house; legal fees and removal costs.  These can all add up and need to be factored in.

Are there alternatives to downsizing?

Depending on why you are downsizing to supplement your income there could be alternatives for you to consider including .

  • Rent out some space
  • Convert to dual occupancy and rent or sell one half
  • Consider a reverse mortgage, the pension loan scheme or some other form of equity release

All of the above could have implications for your entitlements and possibly your tax so make sure you get financial advice before pursuing any of them.

Have you downsized or are thinking of doing so?  How are you feeling about it?.  You can comment below.

This article is provided by Retirement Essentials Representative Number: 001260855.  We are an authorised representative of SuperEd Pty Ltd ABN 88 118 480 907 AFSL #468859.  This information is not intended as financial product advice, legal advice or taxation advice. It does not take into account your personal situation, goals or needs and you should assess your own financial situation, consider if the information is suitable for you and ensure you read  any relevant Product Disclosure Statement (PDS) if you choose to make any changes to your financial situation. It is always advisable to consult a financial adviser before making financial decisions.