Downsizing your home in retirement

The family home often holds decades of memories, and for many Australians it's also their largest asset. As children leave and maintenance becomes harder, many people start to think about moving somewhere smaller, closer to family or services, or easier to look after. Downsizing can free up money, reduce upkeep and running costs, and make day-to-day life easier.

It can also be expensive, stressful and emotional. This guide helps you weigh the decision, compare housing options, understand the costs and government rules, and plan the move. It's general information, not financial advice, so talk to a licensed adviser about your circumstances.

Why people downsize

Common reasons include:

• Less maintenance: a smaller home and garden.
• Lower running costs: utilities, rates and insurance.
• Accessibility: single-level living, fewer stairs and easier bathrooms.
• Location: closer to family, health services, shops and transport.
• Finances: releasing money for retirement, though costs can reduce the amount released.
• Lifestyle and community: for example, moving to a village or community with activities.

Reasons to pause

Downsizing isn't right for everyone. Consider:

• the costs of selling, buying and moving, which can be significant;
• the effect on your pension or other payments;
• whether a smaller home will suit visiting family, hobbies or a carer later;
• your connection to your neighbourhood and community;
• whether home modifications and support could let you stay where you are.

Your housing options

• A smaller home in the general market, such as a townhouse, villa or apartment.
• A retirement village. See how retirement villages work.
• An over-50s land lease community. See land lease communities explained.
• Renting, in the general market or a rental retirement village.
• Living with or near family, including granny flats. Get advice about legal and financial arrangements with family.

Understanding the costs

When you estimate how much money downsizing will release, include:

• Selling costs: agent commission, marketing, conveyancing and any repairs or styling.
• Buying costs: stamp duty (some states offer concessions for seniors or downsizers), conveyancing, inspections and loan costs if any.
• Moving costs: removalists, packing, storage and cleaning.
• Setting-up costs: furniture, appliances, modifications and connections.
• Ongoing costs of the new home, such as strata levies, site fees or village charges.

Get quotes and add them up before you commit. Moneysmart has information and tools to help.

The downsizer super contribution

The Australian Taxation Office's downsizer contribution lets eligible people aged 55 or older contribute up to $300,000 each from the proceeds of selling their home into superannuation. Conditions include that you or your spouse owned the home for at least 10 years, it is in Australia and isn't a caravan, houseboat or other mobile home, and the contribution is made within 90 days of receiving the proceeds (usually settlement). You must give your super fund the approved form at or before the time of the contribution.

The downsizer contribution doesn't count towards other contribution caps, but it may affect your pension, because super can be counted under the assets and income tests once you reach Age Pension age. Check the ATO's current rules and get advice.

Pensions and payments

Your principal home is generally exempt from the Age Pension assets test, but money from selling it may be counted. Services Australia has rules for sale proceeds you intend to use to buy or build a new home, which may be exempt for a period. Ask Services Australia or the free Financial Information Service how a move would affect you before you sell.

Decluttering

Sorting a lifetime of belongings is often the hardest part. Tips:

• Start early, months before you plan to move.
• Work room by room, starting with less emotional spaces.
• Measure your new home and plan which furniture will fit.
• Sort into keep, give, sell, donate and recycle.
• Involve family in deciding what to do with heirlooms.
• Photograph sentimental items you can't keep.
• Use local recycling and charity options for unwanted goods.

Planning the move

See our moving home checklist for a step-by-step timeline, from getting quotes to updating your address.

Before you list your home, ask two or three local agents for an appraisal and a written outline of their fees and marketing costs. Compare not only the price estimates but also the total cost of selling, and ask your conveyancer to review the agency agreement before you sign it.

Common mistakes

• Underestimating selling, buying and moving costs.
• Selling before checking pension effects.
• Moving to a home that won't suit changing needs.

Downsizing and your estate

Downsizing can change what you leave to your family, so it's a good time to review your will, powers of attorney and super nominations. If you plan to help family members financially with some of the proceeds, think carefully and get advice. Gifts can affect your pension under the gifting rules, and loans or informal arrangements with family can cause problems if circumstances change. Put any arrangement in writing.

Staying instead

If you decide not to move, you can still make your home easier to live in. Simple changes such as grab rails, better lighting, non-slip flooring and a handheld shower can make a big difference. My Aged Care can assess you for in-home support and home modifications. Some states and councils also offer home maintenance programs for older residents.

Where to find more information

The ATO publishes the current downsizer contribution rules and the approved form. Services Australia explains how sale proceeds and super are treated for pension purposes. Moneysmart has information on downsizing and retirement income, and your state revenue office can tell you about any stamp duty concessions.

Timing the sale and purchase

Decide whether to sell first or buy first. Selling first gives you certainty about how much money you have but may require temporary accommodation. Buying first lets you move once but risks carrying two properties. Bridging finance is available but costs money. Talk to your financial adviser and lawyer about the safest approach for you, and allow extra time for settlement.

Key points

Downsizing can reduce maintenance and release money, but costs, pensions and lifestyle need careful thought. Compare housing options, add up all costs, check the ATO's downsizer contribution rules and Services Australia's sale proceeds rules, start decluttering early and get independent financial and legal advice.