Downsizing in retirement
About the author:
- Author name:
- By Greg Thornton
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- Date posted:
- 16 July 2021, 1:00 PM
By the time you start considering retirement you may have substantial equity in your home. You may even own your home outright. Selling the family home and downsizing is one way to free up cash for retirement and the money you receive can be invested in shares, term deposits, managed funds or superannuation.
In addition to finding a place to live, there are many financial, practical and emotional factors to consider before deciding to downsize your home. Selling the home, where your children were raised and leaving behind neighbours and friends, can be difficult and stressful. It is important to consider all these factors when making this decision.
Another important thing to consider is whether the sale of your family home will affect your Age Pension. The Pension entitlement depends on the value of your assets (the assets test) and the income you receive (the income test). It is recommended you seek independent financial advice in relation to how the sale of your home may impact your Centrelink position
What to do with your extra funds
After you have downsized, you may have money to invest in other income-producing assets. There are lots of options available, so it is best to seek financial advice on the investment products the suit your needs.
One of these options is contributing into superannuation.
The 2017–18 Budget introduced contributing the proceeds of downsizing into superannuation as part of the government's package of reforms to reduce pressure on housing affordability in Australia. If you are 65 years old or older and meet the eligibility requirements, you may be able to make a downsizer contribution into your superannuation of up to $300,000 from the proceeds of selling your home. Couples will be able to contribute $300,000 each.
Non-concessional super contributions are payments you put into your super from your savings or from income you have already paid tax on. They are not taxed when they are received by your super fund.
You can only make downsizing contributions using proceeds from the sale of one home and you must make your downsizer contribution within 90 days of receiving the proceeds of sale. This is, from the date of settlement. You cannot access it again for the sale of a second home.
There are several eligibility criteria for the downsizer contribution to super. It is best to talk to your financial adviser to ensure that you qualify.
Scenarios from the ATO website:
Example 1
A couple, George and Jane, sell their home for $800,000. Each spouse can contribute up to $300,000 each into their super accounts.
Example 2
A couple, Bruce and Betty, sell their home for $400,000. The maximum contribution both can make cannot exceed $400,000 in total. This means they can choose to contribute half ($200,000) each, or split it – for example, $300,000 for Betty and $100,000 for Bruce.
Example 3
A couple, John and Fatima, sell their home for $600,000. Only John is on the title. Both John and Fatima meet all the other requirements, therefore both John and Fatima can make a downsizer contribution of up to $300,000 each.
More information
Meeting with a financial planner can help you make sense of your options and help develop a plan for your future. If you would like to make a time to catch up for an obligation free discussion, please contact me here.
These are examples of some of the strategies that you can consider. As always this information is general advice only and is made without consideration of an individual’s relevant personal circumstances.
Disclaimer: The information contained in this report is provided to you by Morgans Financial Limited (Morgans) AFSL 235410 ABN 49 010 669 726 as general advice only and is made without consideration of an individual's relevant personal circumstances. Morgans, its related bodies corporate, directors and officers, employees, authorised representatives and agents ("Morgans") do not accept any liability for any loss or damage arising from or in connection with any action taken or not taken on the basis of information contained in this report, or for any errors or omissions contained within. It is recommended that any persons who wish to act upon this report consult with their Morgans investment adviser before doing so.