Owning a good home in Australia is like owning small slice of paradise. But as people get older, the homes they bought decades ago may no longer suit their current needs and lifestyles.
Over the course of the years, kids will move out, locales may develop and change, and costs like maintenance and rates can rise steeply. These changes often leave older Australians with houses that are more of a liability than an asset.
With living costs rising steeply and no end to economic uncertainty in sight, downsizing homes during or in preparation for retirement is becoming an increasingly popular practice. Moving to a smaller property means less associated costs and can come with a host of benefits.
Smaller properties are often easier to keep maintained and live in for those with mobility issues. A smaller property in a good location close to public amenities is often more convenient than a larger property that is further away as well.
The sale of the original property also has the potential to generate a significant amount of retirement income. According to the ATO, almost 60,000 prospective retirees have chosen to sell their homes and invest the proceeds in their superannuation over the past five years.
These instances of downsizing occurred as a part of the government’s Downsizer Contribution Scheme which allows the seller or sellers of the home to invest up to $300,000 of the proceeds into their super accounts.
The threshold age has recently been reduced to 55 as the government seeks to encourage prospective retirees to be a part of the scheme. Early participation in the scheme can result in significant returns by the time superannuation is accessed during retirement.
Downsizing has also been cited as part of the solution to the housing crisis. Larger homes in the suburbs can create problems for retirees but they are often what young families are searching for. This is partially the reason for the scheme being expanded to include over 55’s.
While downsizing has the potential to create significant returns, there is one barrier that has proven to be difficult to overcome for those considering downsizing. Buying a suitable property for a lower price can be difficult considering rising property prices and potentially large administration costs such as stamp duty.
The key to downsizing effectively lies in ensuring all suitable options are explored and the process is entered into with the right planning and enough time. Downsizing on short notice may result in less profit and a worse property, so it is not recommended as a means to swiftly generate retirement income.