Retirement brings with itself a raft of challenges, one of which is whether downsizing is good at all. To some it may be a chance to scale back, but to others, questions are raised whether downsizing is worth the hassle.
Types of downsizing
Downsizing is normally categorised into two forms, with a house sale as the common denominator:
- Physical downsizing. This option is focused on a couple selling their existing property to buy a smaller property instead. The scenario may be possible if their loved ones have moved out and there are no plans if ever to put the existing empty spaces to let. Some experts think that a downsize is a way to ease the onset of empty nest syndrome.
- Financial downsizing. The option involves selling the property to move to a more affordable property of possibly similar size. Some seniors’ living experts state that one such example of this is to sell the current property and move to an area where properties are more or less the same acreage, but are much cheaper, like an outlying district with minimal commercial development.
Challenges
There are some hurdles to overcome when a downsize is in the cards for retirement, which may include:
- Roadmap. Retirees-to-be should lay out a general outline of how their lifestyle and financial plans would look like when they retire. The details should tackle any financial goals and what has to be done to achieve them, where you intend to settle, and a communication framework with your loved ones.
- Realistic property evaluation. If the time comes to sell the property, the seller should be properly guided on its actual value. It is recommended to consult a property agent and property valuer operating in your area to have an honest analysis of your home; this way, you avoid conflated values based on sentimental attachment. Be aware of the possible implications the sale could bring to your Age Pension eligibility; the ATO’s assets test already certifies a primary residence as exempt assets, but household content will be evaluated at market prices.
- Unloading stuff. Downsizing brings with it the impetus of letting some of your stuff go. Consider running an inventory check on all your household items and selling what you no longer need. The earnings from those sales can be additional pocket money for your living expenses in the new location. Any items that you can’t sell but don’t want to dispose of may be donated or given to loved ones as keepsakes.
- Super injections. Any proceeds from a property sale may be added to an existing superfund. Under a government scheme in effect since 1 July 2022, sellers at least 60 years old can allot up to $300,000 of the proceeds to their superfund; these will not count as regular super contributions. The key requirements include the sellers must have owned the property for at least ten years before the sale, can be valid for selling one home only, and the money should be in the super account within 90 days of the sale.
Stepping back
Circumstances can be fickle and will play havoc with any retirement plans, especially those concerning downsizing. Here are some potential factors that may scupper everything:
- Loved ones moving back in. There’s often the possibility that a loved one could come back home to you for some reason, and needs a place to stay. If your downsizing plans are not yet in full swing, you may consider putting them back in their old room.
- Resurgent sense of community. People who may want to transfer to another location as part of downsizing may suddenly feel nostalgic about the community they may be leaving behind. Some observers state that building new relationships in another community tends to be hard late in life, especially when you do not know anybody there. This can bring up a need to take another look at your community.
- Sentimental value. If the property has been in your family for many years, it can build up a huge deal of sentimental value that may be too hard to let go under a downsizing plan. While some may say that some things have to be let go for new things to arise, there’s often the danger of longing to go back after you’ve resettled.
- Nowhere else to go? When considering downsizing and relocating to a new place, a thorough evaluation of the property markets may reveal factors such as the price of your ideal property costing more in the long run, potential competition from other buyers snapping up property in that area, and the timetable from buying a property, selling the existing property to finally moving into the new place. As such, you may eventually decide to stay put.
The ASAG Reverse Mortgage can help with your downsizing plan
The above being considered, it is ultimately your choice if you want to downsize in your later years. Downsizing your home may have significant changes in your retirement, for better or worse. If you’re leaning towards equity release as an option for your funding needs, we may be able to help.
We offer the ASAG Reverse Mortgage 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.
Our team at ASAG can assist you with more information on how our reverse mortgage works. Consult us for your options at 1300 002 724 or email at inquiry@asagfirst.com.au.
To get started, feel free to use our tool below to assess your available equity.