Downsizing can offer plenty of benefits for seniors. The Australian Housing and Urban Research Institute (AHURI) found that of Australians who had moved when they turned 50, one in two had downsized. This was motivated by the idea of enjoying a low maintenance lifestyle while still able to access shops, restaurants, and medical facilities.
A change can be good and something we should expect and embrace when we retire. But when it comes to downsizing your home, it’s important to consider the pros and cons to make sure it is the right move.
Financial benefits of downsizing
While monetary gain seems to rank low on the priority list of seniors who downsize, this decision can have financial benefits mostly for downsizers who choose to move from the city to a rural location.
The Association of Superannuation Funds of Australia (ASFA) found that selling a home in Sydney and downsizing to a more affordable retiree area on the north coast of New South Wales could free up $650,000 in home equity. It’s also similar in other states. Downsizing from Melbourne could potentially free up $560,000 in home equity by making a move to the Echuca-Moama region.
The flipside of downsizing for city dwellers
On the other hand, not all seniors want to leave their community. But downsizing your home within the same place may not deliver as much financial gain after transaction costs.
In Sydney, the median home value can be $895,000. If you downsize, you could potentially face a stamp duty bill of around $35,000.
Possible impact on age pension entitlements
When funds are accessed by downsizing, it may come at the cost of age pension payments. The family home is exempt from the pension assets test, however, any equity release in your home by downsizing is not. This can be a significant drawback.
But since 1 July 2018, homeowners aged 65 and over can use the proceeds from downsizing to increase their superannuation by making an after-tax contribution of up to $300,000. Although seniors could become self-funded as they lose out on age pension payments.
Lack of suitable properties
The AHURI study also found the majority of senior downsizers had an easy experience with the process. Nonetheless, one in four ran into problems where it was challenging to look for a suitable property.
Senior downsizers still want a certain standard of living in retirement. They often prefer homes with two to three bedrooms, enough storage, area to entertain, and good security. If the ideal home isn’t available, downsizing your home for retirement may not be the right move for you.
ASAG Equity Release: An alternative to downsizing
Downsizing your home may result in extreme change and could interrupt your dream retirement. If you’re leaning towards equity release as an option for your funding needs, we may be able to help.
We offer the ASAG Equity Release to senior homeowners who are looking to unlock some equity in their home to access funds. It can aid you to achieve your goals and objectives in retirement by using the funds in various ways, such as Home Renovation.
Contact us on 1300 002 724 to talk to one of our staff members and learn more about our equity release solutions. For self-assessment on how much equity you have in your home, you can use our free tool to get started.