4 financial considerations before you downsize

Are you thinking about selling up and moving into a smaller home to start the next chapter of your life? You’re not alone – 43% of Australians who downsized after turning 50 moved into a property with fewer bedrooms.¹

Before you downsize, though, it’s important to consider the financial implications of such a major shift. Here are four questions to ask before the big move. 

Make sure you download our free Seniors downsizing checklist for an easier way to stay on top of your move. 

1. Pre-sale: Will selling my home affect my benefits?

You don’t need to be unemployed to receive Centrelink benefits, and there are many reasons why you may be getting regular payments from the government. However, you’ll need to consider whether downsizing to another home will impact these benefits.

If you intend to apply for a home loan, whether or not you receive Centrelink payments could affect your potential approval. It largely depends on your lender and your current financial situation, so it’s important to speak to a financial advisor or a Centrelink agent before you put your house on the market. The family tax allowance, carer’s allowance, war veteran’s and widow’s allowance, and the disability pension will all be considered by your lender when applying for a home loan.²

2. Pre-sale: Will my home’s market value be enough?

We’re currently coming off a boom period in the housing market, but prices are all relative.³ For example, selling during an upswing will mean you earn more, but if you need to buy a home straight away then you’ll also be paying a higher price anyway. Likewise, selling during a downturn may provide less in the way of funds, but you’ll be able to pick up a downsized home for a lower price.

It’s critical that you research the market value for your current home and also figure out how much it will cost in the area you intend to downsize to. Will the amount you can get from your current home be enough to cover all the costs (including stamp duty, real estate agent fees, building/pest inspection costs and more) for where you want to live?

3. Post-sale: Where should I invest the money from the sale?

If you’re selling in a regional area with the intention to move to the big city, there may not be much left over from your sale to invest elsewhere. However, most people downsizing will buy a less-expensive property, which will mean you’ll have more money in your savings to invest.

But where should you park that money? Topping up your super fund could be an option, but for greater returns there are many other investment avenues – with bigger returns coming with bigger risks. If you won’t need to touch that excess cash for a lengthy period, you could invest it in a term deposit. The interest return will be low, but it’s also a low risk.⁴ Alternatives include investing in the share market, buying another property or purchasing a business. It’s best to speak to a financial planner who can work with you to determine the best opportunities for your situation.

4. Post-sale: Can I contribute any of the funds to my super?

Downsizing is quite common when you’re approaching retirement, if not already there. That means it’s important to have a sizable nest egg so you can easily transition into your relaxing, non-working lifestyle.

You’ll be happy to know you can actually contribute a portion of funds from your current home’s sale directly into your super (called after-tax or non-concessional contributions). The Australian Securities and Investments Commission says “if you are under age 65 you can bring forward up to two years of the non-concessional cap, allowing you to contribute up to $300,000 at a time, depending on your super balance”.⁵ That tidy sum could be a massive boost to your retirement savings.

This content is provided for information purposes only and is not intended to be a substitute for financial advice.

If you’re thinking about moving house, it’s important to also protect your new property with adequate home insurance before you downsize. To find out how we can help, call the experts at Australian Seniors on 13 13 43 or get a free online quote today.