11 things to consider when downsizing your home for retirement
Contemplating downsizing to a smaller property? Here are some key things to think about to make an informed decision about downsizing.
Thinking of downsizing your home? You’re not alone. Thanks to strong property prices, work and lifestyle changes in the wake of pandemic, and new government legislation and financial incentives, downsizing is likely to be something more Australians consider.
As more and more Baby Boomers turn 65 and cost of living pressures grow, that family-sized home on a quarter-acre block might increasingly look like a lot of hard work. Downsizing can be the gateway to a less stressed and more financially-sustainable lifestyle, and better align with lifestyle changes stemming from the pandemic.
Downsizing is not without its challenges. However, today, services like Homesuite can support Australians in making informed downsizing decisions, including understanding what’s possible, and helping to prepare for the transition into a smaller property.
What to think about when downsizing
1. The stress of selling
Selling a house can be one of life’s most stressful experiences – and costly too. David Ginnane, chief executive of Agent Select, an online agent comparison platform and RACV partner, says typical agent fees are around $20,000. “Selling a home is one of the most complex and stress-inducing transactions people will ever do,” says Ginnane. “And we find it’s the 55 to 65-year-old downsizers that find it particularly stressful.”
Choose a real estate agent who knows the market in your area and whom you trust can mitigate the angst. Agent Select helps remove guesswork by using a performance algorithm to assess all agents in an area before reaching out to a shortlist of the top two or three. They are then invited to make their pitch to the vendor with a simple one-page breakdown of fees and charges, including photography and advertising. “By virtue of guiding and supporting people we can help them take that first step,” says Ginnane.
2. Unexpected expenses and savings
“Every investment decision has a cost,” says financial guru Noel Whittaker, co-author with Rachel Lane of Downsizing Made Simple. “If you downsize from, say, a million-dollar house to a $600,000 house, it’s probably going to cost you 60 grand and that’s a big loss of capital.” Stamp duty alone is a significant impost on buying a house. Currently, if you were buying a $600,000 property, stamp duty would total more than $31,000, according to the State Revenue Office Victoria.
When contemplating the costs involved in downsizing, don’t forget the incidentals can make a difference to your ledger over time. For instance, it costs much less to heat and cool a smaller home. Liberation from garden maintenance and cleaning a large house can represent a small fiscal fortune as well. Council rates are also likely to represent a healthy saving. Newer properties may also feature solar panels or a solar battery to reduce energy bills, or even electric vehicle charging.
If you’re considering downsizing to an apartment, make sure you check the body corporate fees, which will be considerably higher if the complex includes amenities such as a swimming pool and a lift.
3. Tax and pension implications
After you’ve sold your home, you may have a few investment options to consider. According to the ATO, a primary residence is an exempt asset for age pension purposes but selling it to release cash may reduce or eliminate eligibility for the age pension.
A federal government tax incentive allows some downsizers to top up their superannuation by releasing equity from the family home, and there may be some other ways to lessen the hit, including an investment known as a life income stream.
The bottom line is that unless you’re financially savvy, it’s important to get professional advice from a licensed investment adviser or accountant to guide you through this complex area.