How downsizing your home can upgrade your lifestyle

Imagine a home that fits perfectly with where you are in life – simpler, more manageable and filled with possibilities. For downsizing Australians approaching retirement age, this means navigating the logistics of getting all your belongings to fit into your new place while managing your finances effectively to live a more comfortable lifestyle. 

The housing market recently reached a total value of $11 trillion and the median Australian house price has risen by more than 380 per cent over the past 30 years. This has been a major factor behind the fastest wealth increases for Australians aged over 55.

Knowing how to use your existing property when thinking of downsizing to help fund a more comfortable retirement has been made easier, with the federal government introducing the Downsizer Contribution Scheme. 

Downsizers can unlock thousands of dollars in equity when selling and downsizing their home, says Jason McLean, strategic advice manager at Ord Minnett, an Australian-owned wealth and investment firm. 

He says if you’re aged 55 and over, you can contribute $300,000 – or $600,000 as a couple – to your superannuation from the sale of your home without it counting towards regular contribution caps. You’re also exempt from the $1.9 million total superannuation balance test.

“When you combine the maximum superannuation downsizer contribution [SDC] with other, non-concessional, contribution limits over two financial years, you can contribute up to $1.56 million into your superannuation,” McLean says.

It’s a hefty sum when data from the Australian Bureau of Statistics (ABS) and Reserve Bank of Australia (RBA) suggests the top 20 per cent of households in Australia each have between $1.5 million and $2.5 million in equity.

To qualify, McLean says you must have owned your home for at least 10 years, it must be in Australia, and it can’t be a caravan, houseboat or mobile home. You can also only make an SDC from one home sale, and it must be done quickly.

“The key thing we see most people forget is that the contribution must be made within 90 days of receiving the proceeds of the sale,” McLean says.

Preparing to make your equity go further

Before buying the next property with the proceeds of the sale, it’s important for downsizers to create a budget that includes agent fees, marketing, payment to solicitors and stamp duty.

Also, keep in mind capital gains tax. While private homes are exempt, if your current home has been rented or used to run a business there may be tax to pay upon selling.

After doing your due diligence on your next property by arranging a building and pest inspection and getting to know the owner’s corporation rules, downsizers can use the equity of the sale to buy the new property, unlock the excess and invest it to maximise comfortable living well into retirement age.

Ord Minnett private wealth advisers Peter McCormack and Callum Bryant create and manage tailored investment portfolios for every stage of a client’s wealth journey. Each portfolio is client-specific and designed to meet their income needs in retirement, including after downsizing.

“We work closely with you to determine your income goals, assess your assets, and allocate investments to ensure the money from the sale of your home goes on to generate the cash flow,” McCormack says. “We try to break it down mathematically and, once you show someone the cash flow that can be generated from a good-quality investment portfolio, they start to … enjoy their retirement and their life from there on.”

Return on investment is not only the guiding principle at Ord Minnett. There’s also a level of care, personalisation and relationship-building attached to each client. “We understand that our clients are trusting us to manage wealth that has taken a lifetime to build,” says Bryant. “So with this in mind, we work closely with our team of research analysts to construct portfolios with a diligent, thorough approach to help our clients experience financial peace of mind.”

Ord Minnett specialise in assisting downsizers transitioning to their next chapter. For further information on retirement planning and downsizing strategies, visit Ord Minnett.