Downsizing in Retirement: Is it a good idea?
Downsizing is not as easy as selling your home and pocketing the cash. As with any financial decision, especially a financial a decision involving the sale and purchase of a home, a lot of planning is required. It’s a significant life decision and you need to explore the options and make sure it is right for you.
There’s a range of downsizing pros and cons to consider.
Downsizing House Pros
- Downsizer Contribution
You may be able to contribute up to $300,000 of the proceeds of your home sale into your super.
- Increased Cashflow
Downsizing could free up money to top up your super, pay off your mortgage or
improve your retirement lifestyle.
- Fit for Purpose
A smaller home may have a more suitable layout and reduce the time spent on household tasks.
Your new home could be closer to family, services, recreation facilities and transport.
- Lower Cost
Smaller homes are generally cheaper to run, easier to maintain and may cost less to insure.
- Lower Carbon Footprint
A smaller home means less energy is expended heating and cooling it, which is good for the environment (and likely to please the grandkids!)
House Downsizing Cons
- Emotional Connection
Leaving a family home can be hard; after all, it’s where many memories have been created and milestones celebrated.
A lack of suitable and affordable housing in your preferred area may see you need to move further afield than desired.
A new neighbourhood may mean finding new service providers and see you further removed from family and friends.
- Less Space
A smaller home means making hard decisions about letting go of precious furniture and other objects, many of which also have an emotional connection.
Downsizing also means having less space for guests, which can be particularly challenging for larger families.
Is it time to downsize? Here's what to consider
Besides the downsizing pros and cons we listed above, there are a few questions worth asking yourself when deciding if it's time to move to a smaller home:
- Are you downsizing to improve your retirement finances?
- Do you want a smaller home to improve your lifestyle?
- What sort of house will suit you now and in the years ahead?
- What are the ‘must-have’ features of your new home and neighbourhood?
- Is there appropriate housing stock in the area you want to live?
- Can you find a new home that suits your lifestyle, budget and future needs?
Each of these decisions needs to be researched before taking any action; you don’t want to sell your family home and then not find the ideal replacement in your chosen area.
What’s the alternative to downsizing in retirement?
If you decide your family home is the best place to see out your retirement, one alternative to downsizing is getting a
a Household Loan, which is a type of reverse mortgage. A Household Loan is specifically designed to meet the needs of retirees and enables you to access the equity built up in your home.
It can be a good option if a lot of your wealth is tied up in the value of your home, but you want to enjoy your retirement years living there.
There are a number of ways you can use the home equity accessed through a reverse mortgage. These include:
- Increase your regular fortnightly or monthly income and improve your retirement lifestyle.
- Improve your cash flow and relieve financial stress.
- Create a contingency fund for those unexpected expenses.
- Refinance a home loan or pay down debt.
- Top up your super or other invested funds.
- Renovate or modify your home to make it safe and comfortable for retirement.
- Buy a new car.
- Cover medical and dental expenses.
- Give to your children or grandchildren when they need it most.
- Choose your in-home care service and tailor it to meet your needs.
- Cover the costs of transitioning to residential aged care.
Our Household Loan allows you to avoid downsizing in retirement and continue living in the home you love while enjoying the lifestyle you deserve.
If you’re wondering how home equity could improve your retirement funding, see how much equity you could access with our free to use equity calculator.
Applications for credit are subject to eligibility and lending criteria. Fees and charges are payable and terms and conditions apply (available on request). Household Capital Pty Limited is a credit representative (512757) of Mortgage Direct Pty Limited ACN 075 721 434. Australian Credit Licence 391876.
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