These are the three key rules you need to follow to make downsizing less painful

Downsizing is an effective way for older homeowners with a lot of wealth locked up in the family home to solve two problems at once. Selling a home that is too hard to maintain and buying a smaller, more affordable property allows downsizers to use the difference to boost retirement savings.

Recent government incentives allow eligible homeowners over 65 to contribute some of the proceeds of the sale of the family home into superannuation, and there are certain tax advantages for doing so.

Downsizing isn’t always smooth sailing, but by avoiding potential pitfalls, homeowners can make the transition much smoother.

1. Start the process early

Homeowners often underestimate how long it can take to sell a long-held family home, and what changes they might have to make to get the best price.

Properties that have been owned for several decades will likely require cosmetic updates ahead of sale, with painting and minor repairs at the top of the list. Gardens and landscaping are other key areas to tackle.

However the longest step in the process is usually reducing the number of items in the house, because the transition to a smaller property means there won’t be enough space to take everything.

“Where a lot of people become overwhelmed is deciding what to do with all their stuff,” says Mick Mezzino of Clearspace, a company specialising in decluttering and downsizing. “Their children won’t want it, that’s almost a guarantee.”

Getting rid of excess items of furniture and belongings can take longer than expected. Photo: iStock

Decluttering can be almost as emotional as selling the home itself, so avoid rushing this step and start well before the need arises.

“It’s best to start as early as possible, even if they’re not ready to downsize,” Mr Mezzino said. “What often triggers the time to downsize or declutter is a crisis. It’s often a death in the family, an accident or an illness. When that happens, they lose control of the decision making.”

2. Enlist the right help

Downsizing is a huge moment of upheaval, but getting the right assistance early in the process will make it quicker and simpler. While adult children are the first port of call, many downsizers seek expert help, according to Lorraine Cox of Downsizing With Ease.

“So many families work full-time, they’re busy with their own careers, children, and even grandchildren, and they don’t have time to help parents,” she said. 

As everyone’s circumstances are different, it’s important to also seek financial advice tailored to your situation, as selling the family home can affect your eligibility for entitlements such as the age pension.

And if you’re planning to take advantage of the downsizer superannuation scheme, have an expert examine your situation to recommend the best strategy for structuring your retirement finances.

Over-55 developments and retirement villages can have different fee structures, depending on the property. Photo: Domain.com.au

To cover the cost of maintaining common property, retirement villages and over-55 communities often have fee structures that differs to typical strata complexes.

Residents may be charged what’s called a deferred management fee. This is usually a small percentage of the original purchase price, which is deducted from the sale of the property when the owner leaves. 

As these fees are based on the length of stay, residents who invest the bulk of their money into a retirement unit may find their wealth declining over time, which can have an effect on any inheritance downsizers intend to leave to their children.

3. Choose the best property

A modern, single-level, low-maintenance home is often the most suitable property for downsizers. Large apartments and attached or freestanding villas are also sought-after, but buyers need to consider quarterly strata fees that may come with the property.

The location is just as important as the property itself, and for many downsizers, staying in their original area is important to maintain proximity to friends, family and healthcare providers.

Villas offer house-like amenities for a lower price than a typical freestanding home. Photo: Domain.com.au

Attitudes towards retirement villages and over-55 living has changed in the past decade, according to Ms Cox.

“For a long time there was a stigma that retirement villages were next to nursing homes, but it’s so different,” she said. “Some of the people are still working, they’ve still got active social lives.”

“They’re freeing up the capital they’ve got tied up in their home and they’re travelling, they’re enjoying life. They’re not waiting till they’re 75 or 80 to do it.”

This period of life should be exciting rather than stressful, and by mapping it out as early as possible, homeowners will be equipped to handle the process smoothly.