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Guide to downsizing from the family home

March 29, 2022
Craig Gibson

Looking to downsize soon or planning on downsizing for your retirement? 

If you need to think about moving to a smaller home, you will want to have a clear idea of all the key things to consider before making this decision. As with any home sale, purchase or move, downsizing takes a lot of planning.

Besides covering all the things you need to think about, we’ll also offer a number of practical downsizing tips to make the experience as smooth and stress-free as possible.

Let’s start by understanding what downsizing involves. 

What does downsizing mean in real estate?

Downsizing real estate simply means selling a large home and moving to a smaller, more manageable property. For this reason, it is also called ‘rightsizing’ because it involves choosing a property that suits your current or future lifestyle.

Downsizing is a term used to describe selling a large home and moving to a smaller, more manageable property.

So who is the most likely demographic to downsize? 

Pensioners, or people approaching retirement are the most likely demographic to downsize, for practical reasons. ‘Empty nesters,’ a term that describes middle-age people whose children have left home, are another demographic who may be looking to downsize. For other age groups, downsizing could be driven by employment opportunities in a different location or the desire to make a lifestyle change. 

When should you downsize a house?

In terms of timing the downsizing your home, it could be time to consider a move to a smaller property if the following applies to you:

  • You are about to retire and want to simplify your life by moving into a smaller property.
  • You can no longer physically manage to maintain your home, which could actually result in it deteriorating over time. 
  • You don’t make use of all the features or space in your home, including extra rooms, outdoor areas, and the swimming pool.
  • Your current home has features, like stairs or a steep driveway, which make it difficult to access or move around.
  • The expense of maintaining a large home is becoming unsustainable in terms of utility bills and repairs. 
  • You want to access the equity in your home and selling is one way of achieving this.
  • You want to move into the city to access employment opportunities or for a lifestyle change.

At what age should seniors downsize?

There is actually no hard and fast rule when a senior should look to downsize and sell the family home. In fact, data from the US organisation, Aging With Freedom, indicates that seniors are downsizing much later in life, primarily because they are much healthier than previous generations.

The current generation of seniors is also working much later in life and putting off retirement or not retiring at all. This is confirmed by the average age of entry into senior housing in the US, which is now 80+,  up from 70+ a decade ago. This is typically the age when health issues mean that care becomes a necessity.

Australians aged between 55 and 74 are the demographic most likely to consider downsizing.

A 2020 survey by the Australian Housing and Urban Research Institute (AHURI) into the downsizing preferences of Australians found that the demographic most likely to have considered downsizing are aged between 55 and 74. The paper also recorded the primary reasons for respondents downsizing as:

  • Lifestyle (27%)
  • Financial (27%)
  • Garden or property requiring too much maintenance (18%)
  • Forced to move (15%)

Ultimately, choosing the right age to downsize depends on a number of factors, including your health, financial circumstances, and personal situation. It makes sense to research all your options well before retirement, so you can make an informed decision. A personal financial adviser can also help set out what your options are, including all the factors you need to take into account. 

What should I think about before downsizing for retirement?

There are a number of important questions to answer if you are downsizing for retirement , specifically:

  • Will the sale of your home fund your retirement, including the purchase of a smaller property?
  • Do you know the true cost of selling and moving, including legal fees, real estate agent commission, inspection fees, and removalists costs? The stamp duty for pensioners downsizing should also be researched in advance.
  • Will you need a bridging loan to help you purchase your new property?
  • What are the implications of selling your property for the Age Pension or government benefits? Currently, you can contribute up to $300,000 of the house sale proceeds toward your superannuation without penalty. The profit from your sale is also exempted from the asset test for up to 12 months if you plan to purchase another home.
  • Does the new property meet your needs and lifestyle preferences? 
  • Does the new neighbourhood have local amenities you need, like medical, transport, and recreational facilities?

You also need to take into account the psychological impact of leaving the family home and moving to a new suburb, town, or city. There will be a period of adjustment that you need to factor into your new life. 

Should I downsize my home and pay off my mortgage?

It can make financial sense to downsize and pay off your mortgage. Depending on how much equity you have in your home, you could buy a smaller property outright with the proceeds and live mortgage-free. 

It may be a good idea to make use of the government’s ‘downsizer’ contribution.

It may be a good idea to make use of the government’s ‘downsizer’ contribution, which allows each individual to contribute up to $300,000 from the proceeds of the sale into your superannuation account. 

Let’s now run through the pros and cons of downsizing.

What are the pros of downsizing?

First up are the obvious pros of downsizing the family home. Downsizing means you can:

  • Unlock the equity in your home to purchase a smaller property.
  • Use the equity in your home, or a portion of it, to help fund your retirement lifestyle.
  • Enjoy living in a new property that suits your lifestyle needs more closely.
  • Move closer to family or a community that meets your needs.
  • Lead a more flexible lifestyle, with a ‘lock and leave’ apartment or townhouse.

What are the cons of downsizing?

Next, are the cons of downsizing you need to consider, including:

  • You will need to leave your family home and all the memories connected with it.
  • It could impact how much Age Pension you are eligible for, particularly if you own other assets (besides the family home).
  • You may miss the community you are leaving, and need to adapt to a new neighbourhood.
  • If you are renting, you could find it expensive, especially if you did not have a lot of equity in your home.

Let’s now give you some tips for downsizing, based on your circumstances or life stage. 

Top tips for downsizing

Downsizing tips for seniors

If you are a senior, at or close to retirement, you should take a practical approach by carefully planning your downsizing journey. Budgeting the whole process is an obvious first step, with a careful eye on the property market and how much you can get for the family home. 

Be sure to research the downsizing stamp duty exemption.

It is also essential you research the downsizing stamp duty exemption or any government grant for downsizing , as this is a major cost to budget for. The same goes for the tax implications of selling as this could impact the Age Pension and other government benefits you are eligible for. Finally, carefully research the type of property and location you are planning on purchasing in, or the financial implications of renting in a new location. 

Tips for downsizing to an apartment

Looking for expert tips for downsizing to an apartment? One of the biggest tips is to familiarise yourself with strata living, because it can be a big lifestyle change. The first thing to do is identify all the costs associated with living in strata, as these are different from a freehold property. 

These include strata levies, which vary. They could be anywhere from 0.3 per cent to 1.2 per cent of the property's value per annum. You should also research the culture and demographic of the complex or building you are moving into beforehand. Finally, identify if the new neighbourhood has all the amenities you need, including transport, shopping, and medical facilities. 

Downsizing tips for moving home

Moving home is one of the most stressful experiences in life, especially later in life. You need to be aware that downsizing to a smaller home means you will have less space. This could mean you will have to declutter and downsize your possessions. 

You may need to declutter to ensure you have enough space in your smaller home.

Working from the floorplan of your new home will help you plan how much you need to cull and if you need to buy new furniture. This can be a positive process as many of us tend to hoard possessions over time. You will also need to factor in the cost of moving, including packing, storage, and/or removalists fees.

Is it worth it to downsize your house? 

As you can see, downsizing property is undoubtedly a major life decision, with many factors and options to consider.

Hopefully this article has given you food for thought, and tips for the best way to downsize your home. You can then decide if downsizing the family home is the right decision. We also recommend getting independent, financial advice from a professional. They can help clarify your options regarding budgeting and investing your sale proceeds. If you do decide to sell, you should also consult a legal professional to review sale contracts and oversee the settlement.

Are you open to an interstate move? Check out our list of the top areas to retire around Australia.

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