Downsizing

5 min read

By the time you retire, you have probably collected a considerable amount of home equity and downsizing can be a way to tap into that valuable cash.

Downsize your lifestyle – not your life

When your kids left home you probably had big plans for those unoccupied bedrooms – like the art studio you’ve always wanted, a sewing room or a play room for the grandkids. 

But it’s a fair bet those rooms have barely changed and now you may be wondering if you really need all the extra space.

Downsizing can be a way to harness the home equity you have built up. But it’s a big decision and you need to be sure it is the right choice that helps you scale back your life without scaling back your lifestyle.

Let’s look at some factors to consider.

1 Where would you like to move to?

When you’re not in the workforce, your choice of location is no longer dictated by proximity to work. You’re free to explore a change of scenery or even relocate overseas.

This opens exciting possibilities, although you may want to remain close to family or friends. This certainly makes a long distance relocation something to think through carefully. If you’re heading off to a new location, investigate whether the area has clubs and organisations to help you make new friends and become part of the community.

2 What sort of property are you looking for?

Along with the location, plans to downsize should cover the type of property that is right for your needs – both now and in the future.

Some of the factors you may want to look at are the ease of maintenance of the property, how many stairs it features and whether doorways are wide enough to accommodate aids such as a walking frame. Single level living is often a plus for seniors.

3 Does it stack up financially?

On paper at least, downsizing can seem like a great way to free up extra cash. But you will need to pay for a new home and this brings a range of buying and selling costs which can eat into the sale proceeds of your current home.

There are ongoing costs to consider too. Moving from a house into an apartment can mean a lower maintenance style of living. Be sure to look into strata levies though. The more facilities an apartment complex offers, the higher the levies you are likely to face.

4 Have you considered your emotional needs?

There’s a lot of family history tied up in our homes and you shouldn’t discount the emotional attachment to your place. Think through the decision to move very carefully and discuss it with your family. The last thing you need is to make a decision you’ll regret.

Investing the proceeds from the sale of your property

Give some thought to how you will use the funds remaining from the sale of your old place once you have purchased a new home. 

One possible strategy is to use the money to make a non-concessional (after tax) contribution to your super fund. 

The non-concessional contributions cap for the 2016/2017 year is $180,000. If you are aged under 65, you may be able to contribute up to $540,000 in a single year as long as you make no additional after tax contributions for the remaining two years. This is called the ‘bring forward’ rule.

If you’re aged 65 or over, you must satisfy a work test to be able to make a non-concessional super contribution and you cannot take advantage of the bring-forward rules.

While investing the proceeds from the sale of your property into your super is one potential strategy for you to consider, your financial adviser can discuss other strategies that are tailored towards your situation and goals.

Need help understanding if downsizing could be the right choice for you? Contact us to arrange to speak to a BT adviser
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This information is current as at 15/08/2016.

This information has been prepared without taking account of your objectives, financial situation or needs. Because of this you should, before acting on this information, consider its appropriateness, having regard to your objectives, financial situation and needs. 

This information provides an overview or summary only and it should not be considered a comprehensive statement on any matter or relied upon as such.

The Government has set caps on the amount of money you can add to superannuation each year on a concessionally taxed basis. Currently the cap is $30,000 per person pa for the 2016/17 financial year. If you are aged 49 or over on 30 June 2016, the annual cap is $35,000.

In addition, the government has set a non-concessional contributions cap. The cap is $180,000 per person pa. Those under age 65 can ‘bring forward’ two years’ worth of personal contributions, allowing them to contribute up to $540,000 per person over a three year period. However, in the Federal Budget announced on 3 May 2016, the government proposed to introduce a lifetime cap of $500,000 on non-concessional contributions, which would include non-concessional made since 1 July 2007. For more detail, speak with a financial adviser or visit the ATO website.

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