Downsizing for Retirement Costs to Consider
Downsizing Costs: It may not be worth it.
Did you know?
According to Corelogic Australian property prices are $103,400 higher than last year 2020, meaning Australians are even more asset rich than earlier times.
But downsizing your house for retirement can come with many hidden costs that should be weighed up. You may be better off doing some renovations so you can age in place. A critical factor often overlooked in discussions about downsizing is cost. Moving to a smaller home is not necessarily less expensive.
Despite the potential profit from the sale of your home, there are a number of costs to consider.
Costs to Consider before you downsize
- Stamp Duty
This varies from state to state and in some places, concessions may be available for ‘off the plan’ purchases.
- Legal Fees
You'll need to pay fees on the sale and purchase.
- Preparing your home for sale
Primping the house and garden, a coat of paint or new carpet – these costs can quickly add up.
- Buying and selling in a buoyant market
Despite its occasional dips, the Aussie housing market has been on an upward trajectory for some years. Even though you may sell at a good time, it’s difficult to time it so you buy in a lower market – so it’s likely that you’ll be selling and then buying in a resilient property market, one with an upward price trajectory.
- Sales Fees
Generally these involve advertising, real estate commission and auctioneer costs. The 2017 McGrath report found that the combination of stamp duty and agents’ fees can be around $55,000 for an average-priced Sydney home.
- Building Inspection
It’s good practice to have any potential home inspected per purchase; it can save future stress and expense.
- Moving Fees
Packing, sorting, moving can all add up.
- Connection Fees
To get utilities established.
A smaller home may not easily accommodate your furniture and you might need a few replacement items.
It’s a good idea to research the market and get a valuation of your current home. Will it be sufficient to cover the costs of downsizing?
Will downsizing affect my Centrelink pension?
According to the ASIC MoneySmart website, the profit you receive from selling your family home is exempted from the assets test for up to 12 months if you plan to use the money to purchase, construct, or renovate another home.
On the other hand, these proceeds of sale are "deemed" in the income test, which considers these proceeds as income from financial assets. This may affect your government benefits.
Topping up super using the downsizer contribution should not impact Centrelink entitlements. However, it is always advisable to seek financial advice and speak to Centrelink to discuss your individual circumstances.
What’s the alternative to downsizing in retirement?
If you decide your family home is the best place to see out your retirement, you could consider
a Household Loan which is a kind 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 lfiestyle.
- Improve your cashflow and you could relieve financial stress.
- Create a contingency fund for those unexpected expenses.
- Top up your super or other invested funds.
- Renovate or modify your home to make it safe and comfortable for retirement.
- Refinance a home loan or pay down debt.
- Buy a new car.
- Cover medical expenses.
- Give to your children or grandchildren when they need it most.
- Choose your own 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 live 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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