Downsizing in a booming housing market
Retirement | 28/04/2021 |
5 min read
House prices are booming.
The previous quarter saw property values jump 6.7% in Sydney, 4.9% in Melbourne and 7.6% in Hobart.
That’s the fastest increase in 32 years as listings fail to keep up with demand.
These skyrocketing prices have had an unexpected impact on many retirees. They’ve suddenly found themselves asset rich, but income poor. In other words, they’re living in million-dollar homes while having to rely on the Age Pension to make ends meet.
That’s where the Downsizer Contribution scheme may help. It enables you to unlock the equity in your home and boost your retirement savings. That means more income to live the sort of retirement you want.
Here’s how it works.
Downsizing your home while upsizing your super
Are you thinking of making a sea (or tree) change? Or perhaps the family home is too big to maintain and you want something smaller? Whatever the reason, the recent surge in house prices has made selling the family home a tempting proposition.
If you’re 65 or older and you sell your family home, you can contribute up to $300,000 (per person) towards your superannuation. This applies even if you are unable to contribute due to your age or work status and even if your super balance exceeds the A$1.6 million cap
This extra money in your super or account based pension can contribute towards a higher income in retirement.
How the Downsizer Contribution scheme works
The downsizer contribution rules are intended for the family home, which means you must have owned the property for at least 10 years and used it as your primary place of residence.
More specifically, you'll need to meet the following rules:
- Be aged 65 or over
- The maximum contribution per person is $300,000
- If you’re a couple selling your property, both of you can contribute into your super, up to a combined maximum of $600,000
- You must notify your super fund in advance if you’re making a downsizer contribution so that it is entered as exempt from the non-concessional contributions cap
- You cannot claim a personal tax deduction for a downsizer contribution
- If the property sells for less than $300,000 you can only contribute up to the property’s value, i.e. $250,000 if that’s what the property sold for
- You must make your downsizer contribution within 90 days of receiving the proceeds of the sale.
Will this affect my Age Pension?
The proceeds of the sale may have Age Pension implications, depending on your circumstances.
For example, if you down-size and invest surplus funds into super, you’ll be moving money from the family home (which is exempt from the assets test) into an assessable environment. That may mean you lose part, or all of your Age Pension.
But for some people, a downsizer contribution may be beneficial as you will have access to more funds than you would have otherwise, e.g., an additional $300,000 in your Account Based Pension that you can draw on.
It’s also worth noting that any money you contribute to your Account Based Pension (and earnings derived from it) are tax free.
That being said, we strongly recommend you speak with a financial planning expert to understand what impact selling the family home may have on Age Pension payments and overall income.
Getting the balance right
When it comes to the family home, retirement, and the Age Pension everyone’s situation is different.
Downsizing the family home and shifting some of that equity into your Account Based Pension is one way of enjoying a better retirement lifestyle. But there are rules and tax implications you need to be aware of.
A financial planner can help you understand the costs and benefits of the Downsizer Scheme, and how to best structure your assets for retirement. An initial appointment is available to members at no additional charge.
If the booming house market has made you take a second look at the family home, now might be the time to start that conversation.
This information is provided for general information only. It does not take into account your personal objectives, financial situation or needs and should therefore not be taken as personal advice. You should consider whether it is appropriate for you before acting on it and, if necessary, you should seek professional financial advice. Togethr Trustees Pty Ltd ABN 64 006 964 049, AFSL 246383 ("Togethr") is the trustee of the Equipsuper Superannuation Fund ABN 33 813 823 017 ("Equip" or "The Fund"). Past performance is not a reliable indicator of future performance.
Togethr Financial Planning Pty Ltd (“TFP”) (ABN 84 124 491 078, AFSL 455010), trading as Equip Financial Planning, is licensed to provide financial planning services to retail and wholesale clients. TFP is owned by Togethr Holdings Pty Ltd (ABN 11 604 515 791). You can obtain the TFP Financial Services Guide and/or Privacy Statement by contacting our Helpline on 1800 682 626. This is general information only and does not take into account your personal objectives, financial situation or needs and therefore should not be taken as personal advice.