22 Nov 2018
As written previously. In the 2017 Federal budget and effective from 1st July 2018 measures were introduced to assist retirees over 65 years of age to convert realised funds from sale of their home into tax free allocated pensions. Noting that certain conditions need to be met to provide individuals the opportunity to contribute up to a further $300,000 into superannuation to convert to tax free pensions. See https://www.ato.gov.au/General/New-legislation/In-detail/Super/Contributing-the-proceeds-of-downsizing-to-superannuation/
From a research perspective it was found that in 50% of cases it was financial needs that drove the case for downsizing with the other 50% including a range of factors from health, house maintenance issues and in some cases simply a move to be closer to family or friends.
Interestingly when asked, “if they could wind back the clock what would they do differently in the lead up to retirement?” retirees said:
> 47% - 50% would plan better, save more and invest harder in the lead up to retirement.
> 23% would have delayed retirement. Many of this group fall into the 50% above.
Effective downsizing of the home can solve the issues which address the financial needs and can also address other property needs and requirements i.e. provide for a more appropriate and functional property, fewer stairs, reduce cleaning, less garden maintenance or even provide for a quieter area to live in.
From an income perspective downsizing proves an ideal time and opportunity to plan for the future and revisit the retirement funds and savings to structure a portfolio that meets with the future capital and income needs of the downsizer.
Approximately only 25% of retirees move a large distance away, making either a sea change or a tree change. However, once found the platform can be prepared for a comfortable retirement.
The various options available will create different benefits and trade-offs.
|Stay put in the home
You know the area and remain where you have been for a decade or more.
Closer to health services
Place may need refurbishment
Finances may be limited.
|Downsize for a sea change/ tree change.
|| A complete change of lifestyle.
Keep a similar size home.
Create new friends.
Generate extra funds for income
|Major upheaval socially and preparing for moving.
Maybe further away from some services.
|Downsize locally to a smaller place
Stay in the area – close to existing services.
Eliminate some gardening and maintenance – maybe get anewer fresher bathroom kitchen while saving money – plus spare funds.
A smaller place may take some time to get used to.
Decluttering moving and staying decluttered.
Downsize to a retirement village
More social interaction
Sense of security.
Access to onsite support while staying independent.
Spare funds - extra income
Ongoing monthly fees – need to be taken into account in the budgeting – but should be manageable.
Resale of property in the future usually will have a proportion deducted.
Planning for the future:
The various advantages and disadvantages depend very much on individual circumstances, where you live know and what or where you wish to downsize to. Importantly for those considering the move the message is: Don’t leave it until it’s too late – get the benefits now and plan ahead.
Worth considering however, that the downsized property can cost you more than you originally anticipated, leaving a smaller surplus than you expected. Again, expert advice, good investing and budgeting can overcome these issues.
Professional help is available, namely:
Your financial adviser – to review your income requirements, establish a budget, revisit and consider Centrelink issues, review your investment options for existing funds and the expected surplus funds from the sale of the property
Real estate agent - can advise on the value of your property and most likely sale price – ensure you get a realistic estimate first. The agent can also advise on any essential repairs to assist with the sale of the home.
Property stylist: - This person can usually recommend what furniture to remove or rent/replace for the showing of the property. Maximising the attractiveness of the home for sale. The cost is budgeted into the
A buyers agent - This is a newer category of service where an agent works on your behalf to save you money when buying the right place. You will be tapping into their expertise to find and negotiate on your downsized property.
If you are considering downsizing or would like to learn more, contact your PSK adviser in the first instance