This may be your current reality or a quickly approaching one, your kids have all flown the coop and you suddenly find that your dream family home seems a lot larger than it used to. Busy areas are now quiet ones, gathering dust with whole spaces now going unused for weeks on end.
The effort it takes to maintain all the rooms – no longer repay you with a feeling of having them filled – not to mention the front lawn and backyard.
This is when you start to ponder the question of downsizing but is it right for you?
Downsizing sounds straightforward enough: sell the family house and buy a smaller, cheaper property, saving money in the process.
Easy, right?
Not so…in fact did you know that the 2017 McGrath report found that the combination of stamp duty and agents’ fees can be around $55,000 for an average-priced Sydney home, yup and that was 2017! As you can see, it’s not as simple as subtracting the cost of your new home from the sale of your current home.
Since 1 July 2018, those aged 65 and over have been able to use the proceeds from the sale of their home to make a non-tax-deductible contribution of up to $300,000 each (up to $600,000 per couple) into superannuation. This is known as a downsizer contribution. From 1 July 2022, the minimum age to be able to make a downsizer contribution reduced to age 60. This measure is aimed at providing retirees with greater flexibility around selling the family home and moving some of the proceeds into super in order to boost retirement savings.
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 adjust to a new area or to find new health care and other professional services.
Emotional connection — Your family home may be full of memories, which can make it difficult to let go.
Some of the finer details are:
- No work test or age limits apply; however, the person must be over age 60 from 1 July 2022.
- The home (excluding houseboats, caravans, and mobile homes) must have been owned by the person or their spouse for 10 years or more prior to disposing of it. In addition, all or part of any gain or loss from the sale must have qualified (or would have qualified) for the main residence capital gains tax (CGT) exemption.
- The contribution must be made within 90 days of the date of the disposal (e.g. date of settlement); however, an extension may be granted in certain circumstances.
As always you should seek financial advice before deciding on things like whether you downsize or not, feel free to run this option past your financial professional or contact Shane directly on 08 6222 7909 or book a meeting directly via his booking page to discuss your retirement goals.
Written by Director & Senior Adviser Shane Mitchell.
