Downsizer Contributions

Downsizer Contributions

Downsizing in retirement

Decide whether downsizing your home is right for you

•  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

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

Pros

1.  Increased cash flow – Downsizing could free up money to pay off your mortgage, invest or spend.
2.  Easier to maintain – A smaller place takes less effort to clean and maintain.
3.  More convenient – You can choose a layout and fittings that better meet your needs, or a location closer to family, transport and services.
4.  Lower insurance and utility bills – In general, a smaller home costs less to insure and is cheaper to heat or cool.

Cons

1.  Less space – A smaller place means less space for things, so you may have to make some hard choices.
2.  Less flexibility – Your new place may have less privacy, fewer guest rooms, or less space for entertaining.
3.  New neighbourhood – It may take time to get used to new surroundings.
4.  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:

1.  assets test (value of your assets)
2.  income test (income you receive)

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.