Downsizing for Retirement: Financial Benefits & Considerations
Downsizing after retirement is as much an Australian tradition as shouting ‘hip hip hooray’ at the end of Happy Birthday or buying a snag at Bunnings. Before you start browsing downsizing homes for sale, there are some financial benefits and considerations to take into account.
What is Home Downsizing?
Downsizing is when you sell your home and use some of the equity to purchase a smaller property with fewer bedrooms, often to reduce living expenses and maintenance, or for a change in lifestyle.
Feeling like you can’t spend time on the weekends doing the things you love because the pool needs cleaning, gardening needs tending, the dusting of the spare rooms needs to be done, and the kitchen is never fully clean?
Your family home is your castle; it’s where you’ve celebrated milestones, laughed with loved ones, and watched children grow. But as you enter your golden years, many homeowners find their houses have become more of a burden than a joy.
Downsizing from your large home is an opportunity to free yourself and enjoy your golden years in a home architecturally designed for over 50s living. There’s no need to compromise on space or quality when you choose a Hometown Australia home.
Designs include modern and functional kitchens, spacious master bedrooms, guest bedrooms, and in some designs, an additional multi-purpose room — plus alfresco areas, and low-maintenance gardens.
What are the Financial Benefits of Downsizing?
Hometown Australia is proud to have communities located in the best places to retire in Australia, perfect for a seachange or treechange. The communities offer a resort-like lifestyle with pools, clubhouses and gyms available. Beyond the stunning locations and amenities, there are many financial reasons to downsize after retirement.
Stamp Duty
Many seniors put off downsizing due to stamp duty. Depending on the price of your new home, stamp duty could be as much as $72,000 — which is a big hit to both your home-buying budget and your retirement fund.
Some states, like Victoria, offer discounts on stamp duty for pensioners downsizing. However, with no discounted stamp duty for pensioners downsizing in NSW or Queensland, it can be prohibitively expensive to purchase a smaller home in these highly sought-after regions.
That’s where Hometown Australia’s Land Lease Living communities are different. There is zero stamp duty payable when you purchase a Hometown Australia home. This hefty boost to your purchasing budget unlocks desirable locations and gives you more money to spend on the lifestyle you seek.
Council Rates
Land Lease Living is precisely what it sounds like: purchasing a home and leasing the land it sits on. As a result, when you buy a Hometown Australia home you aren’t responsible for council rates. By eliminating this yearly expense, you’re left with more money to spend on entertainment, dining, travel, and more.
Rental Assistance
While you do own your home when you buy from Hometown Australia, the fact that you’re leasing the land means the government still considers you a ‘renter’. If you’re receiving a full or part government pension, this means you may be eligible for rental assistance, which may be paid towards the cost of your site fees.
Hometown Australia Land Lease Living vs Traditional Homeownership
You can downsize through traditional homeownership, but you’ll likely spend more for fewer amenities. Let’s compare the two downsizing options:
| Financial Consideration | Hometown Australia Land Leasing Communities | Traditional Homeownership |
|---|---|---|
| Stamp Duty | Zero Fee | $20,000 – $72,000, depending on property price and state |
| Council Rates | Zero Fee | Averaging $700 – $1,800 per year, depending on the council and house value |
| Rental Assistance | Available for eligible pensioners | Not available |
| Retain Capital Gains | Retain 100% of all capital gains | Retain 100% of all capital gains |
| Exit Fees | None | None |
| Amenities | Included access to community amenities (e.g. pools, gyms) | Not usually included outside of luxury apartment complexes |
| Strata Levies | None | Common in apartments and blocks of units/villas |
Government Incentives for Seniors Downsizing
Have you heard about the government seniors downsizing grant? Known as a ‘Downsizer Super Contribution‘, this program allows you to put $300k from the sale of your home into your super fund. This contribution is non-concessional, meaning it comes out of your after-tax income and won’t be taxed again once it’s added to your super fund.
One of the key benefits of this scheme is that the downsizer contribution doesn’t count towards your contribution cap — making it a smart way to invest the equity you’ve gained by selling the family home.
You and your spouse can each contribute up to $300,000 from the sale of your home into your superannuation, but the total amount you contribute can’t be more than what you made from selling the house.
For example, if Bruce and Betty sell their family home for $500k, that is the combined total they can contribute to their super; as such, Bruce can put $200k into his super fund, and Betty can put $300k into her super fund. Bruce cannot top up his contribution with money from savings.
Hometown Australia Residents taking a relaxing walk in the sun.
Understanding the Downsizer Contribution: Rules & Eligibility
Wondering, ‘Am I eligible for the downsizer contribution?’ Here are the downsizer contributions’ rules and the eligibility criteria:
- Home Ownership: You and/or your spouse must have owned the home for at least 10 years before the sale. This period is usually calculated from the purchase settlement date to the sale settlement date.
- Property Type: The home must be located in Australia and cannot be a caravan, houseboat, or other mobile home.
- Capital Gains Tax (CGT) Exemption: The sale proceeds must be exempt or partially exempt from CGT under the main residence exemption. If the home was acquired before 20 September 1985, it would qualify for the exemption if it were a CGT asset.
- Timing of Contribution: You must make your downsizer contribution within 90 days of receiving the sale proceeds, typically at settlement.
- One-time Contribution: You cannot have previously made a downsizer contribution from selling another home or part of your current home.
- Super Fund Form: You need to provide your super fund with the Downsizer Contribution into Super form (NAT 75073) either before or at the time of making your contribution.Note: If only one spouse owned the home, the other spouse can still make a downsizer contribution, provided they meet all other requirements.
Age Limits & Timing: When Can You Make a Downsizer Contribution?
| Date | Minimum Age |
|---|---|
| From 1 January 2023 | 55 years or older |
| From 1 July 2022 | 60 years or older |
How to Make a Downsizer Super Contribution: A Step-by-Step Guide
| Step | Details |
|---|---|
| 1. Check with Your Super Fund | Ensure your super fund, or super funds, accept downsizer contributions. |
| 2. Submit the Downsizer Contribution Form | Submit a ‘Downsizer contribution into super’ form (NAT 75073) to your fund(s) with your contribution or before making the contribution. Without this form, your fund may not accept the contribution. |
| 3. Provide Form for Multiple Contributions | If making multiple contributions to one or more super funds, submit a separate Downsizer contribution form for each. The total contributions must not exceed $300,000. |
| 4. Make a Contribution Within 90 Days | Contributions must be made within 90 days of receiving the sale proceeds. You may request an extension under certain circumstances. |
The Impact of Downsizing on Your Benefits & Pension
While we’re discussing government benefits, let’s talk about pensions. Many Over-60s ask, ‘If I sell my house, will I lose my benefits?’ — and it’s a reasonable question.
Before we can talk about the impact of downsizing on your pension, we first need to cover asset tests.
At its most basic level, the function of the asset test is to find out if you have too much money to be eligible for a government pension. The asset test will consider things like:
- Cash, shares and securities
- Superannuation investments if you are over Age Pension age
- Cars, boats and caravans
- Real estate other than your primary residence
- Home contents, like appliances and furniture
- Personal effects, like jewellery or collections
Your family home (if it’s where you currently live) is exempt from the asset test.
If you are already receiving a pension, the value of your home was not included in your assessed pool of wealth.
Naturally, the equity you unlock by selling your family home will become an assessed asset (cash) instead of an exempt asset (primary residence). This is why so many people worry that selling their primary residence will result in the loss of their pension.
Thankfully, the government does take this into account; non-homeowners can have more money in the bank before they lose their benefits:
Full Pension Asset Limits
| Your situation | Homeowner | Non-homeowner |
|---|---|---|
| Single | $314,000 | $566,000 |
| A couple, combined | $470,000 | $722,000 |
| A couple, separated due to illness, combined | $470,000 | $722,000 |
| A couple, one partner eligible, combined | $470,000 | $722,000 |
Plus, if you plan to buy a new house within a year of selling your family home, the money you plan to use won’t be counted as an asset for up to 12 months after the sale. If something beyond your control delays the purchase, and you can show that you’ve made reasonable efforts to buy, this period can be extended to up to 24 months.
Between the increased asset limit for non-homeowners and the 12-month grace period to downsize, many Over-60s find they keep their pensions without issue.
Let’s Look at Some Example Scenarios:
Jeff and Jenny have $40,000 in assets, which makes them eligible for a full pension. When they sell their family home for $600,000, their total assets will be $640,00. As they are now classified as non-homeowners, this keeps them below the asset limit, and they keep their full pensions.
Tim and Trish own their family home outright and are on a full pension. They sell their property for $1M but plan to use $600,000 of the proceeds to downsize to a Hometown Australia home. As such, the government considers their combined assets to be $400,000, not $1M, and they get to keep their pensions.
Consider Financial Advice
Before purchasing a home or making any decisions that could impact your pension, it’s important to seek professional financial advice. Everyone’s situation is unique, and a qualified advisor can help you understand the potential implications of your choices, making sure your decisions align with your long-term financial goals.
Downsize with Hometown Australia
As you consider downsizing after retirement, remember that it’s more than just a financial decision — it’s about finding a lifestyle that suits your golden years. Hometown Australia supports you every step of the way, from understanding the financial benefits to exploring our vibrant communities.
Discover the possibilities and imagine your future with Hometown Australia by contacting us today!
