Maximise Your Retirement - Downsizing Strategies for Your Family Home

Making the decision to downsize from the family home often marks a significant milestone. Whether it’s the kids moving out, the upkeep of a large property becoming burdensome, or a longing to be closer to grandchildren, downsizing can involve a mix of emotional and practical considerations. However, for many, the primary motivator is financial—unlocking home equity to bolster retirement funds and reduce living expenses.

Over recent budgets, the federal government has provided incentives that make it more financially attractive for older Australians to downsize.

Boost to super through downsizing

For most, the primary home is the largest asset, followed by superannuation. If your income hasn’t allowed for substantial super contributions, boosting your super in later life can be limited due to contribution limits and the complete cut-off for voluntary contributions post-75. The downsizer super contribution offers a valuable opportunity.

The downsizer provision allows individuals aged 55 or older to make a contribution of up to $300,000 from selling their main residence that has been owned for more than 10 years. Provided all the eligibility criteria can be met, this contribution can be made into a superannuation accumulation account without being subject to the regular concessional and non-concessional caps, age restrictions, or total super balance tests, but does count towards your transfer balance cap.

If you are a couple, this means potentially being able to top up your super by up to $600,000 under this provision—even if only one spouse is on the property title. If you are then eligible to transfer your super to a retirement pension, this could provide additional tax-free income of $24,000 – $30,000 (based on minimum pension rates of 4-5 per cent) depending on your age (more if you’re over 75) – a potentially significant impact to your retirement lifestyle.

Property Prices and Surplus Cash Considerations

With soaring property prices, downsizing might not leave you with a lot of surplus cash, especially when you account for costs such as stamp duty, agent and legal fees. If, however, you have other savings, you could still use the downsizer rule to top up your super because it is the sale of the family home that triggers eligibility to make the contribution but the contribution itself does not need to be from the property sale proceeds.

Navigating The Impacts on Age Pension

Upon the sale of the family home, the proceeds will only be exempt from the assets test for 24 months. Importantly, during this time, the proceeds are still subject to the income test and deemed at a rate of 0.25 per cent. This could reduce – or even eliminate – your entitlement to an Age Pension or DVA service pension, so it is best to speak to a financial adviser before you start to downsize.

Beyond Finances: Quality of Life Considerations

Downsizing isn’t just a financial decision and can have a significant impact on your quality of life and living expenses in the future. As part of the decision-making process, consider factors such as access to healthcare and amenities, proximity to family and friends as well as whether this property will be part of a 10-year plan or something that will take you through to late retirement.

Making an Informed Decision

While the financial benefits of the downsizer contribution may be enticing, it is crucial to understand how it fits in with other strategies you may be considering, your broader financial situation, and your retirement income goals. Getting advice to navigate the complexities of a downsizing decision can help give you confidence and ensure you get the most out of this once-in-a-lifetime decision.