Jason Featherby | The West Australian
Monday, 18 June 2018
From July 1, if you are 65 years or older and sell your family home, you can contribute some or all the sale proceeds to super. These “downsizer contributions” present an opportunity to top up your super, even if you’re otherwise unable to contribute under super law due to your age, work status or the amount you’ve got in super.
There are other factors to consider before downsizing. The first, and sometimes the most important, is the connection one feels with their family home.
Often, we have raised our kids in the one home all their lives and shared many happy moments and memories with friends and family. This can make downsizing a very difficult and emotional decision, irrespective of how much sense it makes financially.
There are also some practical factors you should consider if you are thinking of downsizing. Knowing the actual costs of selling your home is a good place to start. Often repairs, renovations and a fresh coat of paint are needed to make your home “sale ready”.
Then there are the fees involved in selling the home and buying a new one, such as paying real estate agents, legal fees, stamp duty, and potentially strata fees if you are moving to an apartment or townhouse.
There may also be short-term costs depending on the timing of the sale and getting into your new house, such as renting and storage fees for furniture. Knowing the total selling and buying costs is a must.
The state of the real estate market may also affect your decision. The Perth market for example is the “softest” it has been in 25 years.
It is crucially important to be realistic about what your property is truly worth. Overestimating could torpedo your retirement plans.
If you aren’t in a hurry, it could make sense to wait, research the best times to sell in your area and act accordingly. Remember though, prices have and can fall further.
Waiting is also often a double-edged sword. If you wait until house prices go up, chances are you are also going to be paying more on your new place.
Your new location is also an important consideration. Prices may mean downsizing and staying in your current area isn’t feasible.
Ultimately, it all comes down to the lifestyle you want. If you are making a big sea change, such as moving interstate, it can make sense to rent for a while to be sure you are happy with your decision.
If you are moving away from your existing support networks, such as family and friends, you should make sure there’s a local community that you can get to know. Also, you may want to be closer to health services.
The biggest factor, of course, is the reward. Moving to a smaller home often means a very nice tax-free profit on the sale of your existing place. This can then be used to improve your lifestyle in retirement, allowing you to spend more, go on more frequent and grander holidays and spoil the grandkids.
The downsizer contributions make this even more tempting.
The best part is that you don’t even need to downsize. You could buy a bigger house, move into an investment property, a holiday home or even into aged care.
There is no requirement to buy another residential home to live in. You do, however, need to be mindful of the age pension consequences. The family home is exempt from Centrelink’s pension calculations.
Super assets are assessable, and anyone downsizing will see the proceeds being assessed by Centrelink for the age pension. Ultimately, it could reduce or eliminate your entitlements.
You could also lose your Commonwealth Seniors Health Card (CSHS) if your deemed income post contributions push you over the income threshold – currently $53,799 for singles and $86,076 for couples, combined.
So, if you’ve made the decision to sell the family home, then it may be worthwhile putting it off until the new financial year and getting some financial advice.