Do you have an expensive house but not enough in the kitty to see you through a comfortable retirement? Or is the nest finally empty and you’re tired of spending big bucks maintaining a place that’s much bigger than you want or need?
The 2014 Financial Health Barometer research found that 1-in-2 Baby Boomers who expect to retire with a mortgage expect to use their super to pay off their mortgage. Trading in the family home for something smaller, cheaper and lower maintenance can be an effective way of topping up the coffers as you prepare to exit the world of full-time work.
It’s a decision thousands of Australians are making each year. According to ABS research published in 2010, 17 per cent of older households without children were recent movers, with downsizing prompting around a quarter of the moves.
So what are the secrets to maximising the financial benefits and minimising the stress of a downsizing operation?
Professional financial advice may be useful to determine how surplus funds from your sale are best managed, and it can make sense to seek it before making a move. The family home, known as the principal place of residence, is currently exempt from the Centrelink assets test, which means money tied up in it does not affect your entitlement to a pension or part pension. Personal investments and superannuation do, so it may pay to crunch some numbers before calling the real estate agent.
Centrelink’s Financial Information Service offers free retirement-planning seminars and an information service, while a private financial advisor should be able to provide a range of scenarios based around your individual circumstances.
“Stashing the sale proceeds in a high interest savings account and renting for a few months may provide the breathing room”
Slow and steady
Should you decide downsizing does make personal and financial sense, taking your time re-entering the property market once the ‘Sold’ sign has gone up can reduce the likelihood of diving into a new residence that may not suit you long term.
Stashing the sale proceeds in a high interest savings account or term deposit and renting for a few months may provide the breathing room you need to check out the market thoroughly and find a new home that meets your long-term needs and budget.
With transfer costs – stamp duty on the purchase of a new home, commission on the sale of the old, advertising fees and moving costs – sometimes running north of $50,000 for capital city moves, your bottom line will look better if you shift once, not several times.
Saving and spending
A dash of self-discipline may be required to resist the urge to splurge once cash that was previously tied up in the family home is unlocked. Consider cordoning off a sum for that once-in-a-lifetime holiday or new set of wheels – if the budget allows – and have an investment plan for the balance before it lands in your account.