Looking for downsizing?
What is downsizing?
While the term downsizing has historically been associated with Australians moving into a smaller home, it’s actually a whole lot more than this.
Downsizing is in fact about gaining freedom.
This may include the freedom of being more financially independent, or could include the freedom to finally enjoy the home you’ve always wanted or an area you’ve always liked.
Downsizing typically involves Australians moving out of the family home - often after the children have left - and moving to a new home which suits their stage in life. Around one out of four Australians over the age of 55 have downsized.
This guide helps explain many of the advantages of downsizing, along with the types of downsizing-friendly homes that are available and the financial incentives on offer.
As this guide shows, and despite what you may see in some media commentary, there is a no ‘one size fits all’ downsizing method.
Just as there’s huge diversity in the backgrounds, outlooks and motivations of Australians over 50, there are also a wide range of downsizing options on offer.
Why do people downsize?
There are so many benefits of downsizing, it is hard to list them all.
Research shows that the main reason why people downsize is to move to a more manageable home, which doesn’t require as much maintenance and attention and suits their stage of life.
This typically involves people moving to a smaller-sized dwelling, with less or no yard space, so they don’t have to spend as much time looking after their home.
It can also mean moving to a new home, which requires less upkeep compared to an existing home, or a community which provides maintenance services.
However, while some downsizers move to a dwelling with less bedrooms than previously - given their children have left home - they may choose to keep or even increase their amount of entertaining and living space.
For this reason, downsizing is often known as ‘right-sizing’.
As mentioned above, downsizing also allows Australians to move to a new location, so they can be closer to what’s important to them and improve their lifestyle.
Research has shown that downsizers often decide to move so they can be close to health services, shops, friends or family, or public transport.
Others are keen to enjoy a new stage of their life by moving to a different climate or close to great natural or urban features.
Many downsizers decide to move into specific downsizing communities which provide great communal facilities and activities, including cafes, bars, gyms and pools, while others prefer moving into homes outside of a community. We discuss these options further below.
Australians also often downsize so they can move into a home which is more accessible.
This may include a home which has no or fewer stairs, along with design features to avoid trips and falls, such as hobless showers and grab rails in bathrooms.
Another important benefit of downsizing is that it allows Australians to improve their financial independence, by selling the family home and moving into a less expensive home.
Downsizing for financial gain is typically a higher priority for younger downsizers (such as those in their 50s and 60s), given that - compared to older generations - they are more likely to be entering retirement with debt and also need to wait longer to access the pension.
According to a recent major research report, some 35 per cent of people aged 55-64 who downsized did so for financial reasons, compared to only 19 per cent of people aged 75 plus.
By downsizing, some Australians are able to retire early, or continue to work, either full or part-time, as part of a longer-term plan to transition to retirement.
Housing options for downsizers
A common misconception is that downsizing always involves moving from the family home and into a retirement village - in fact nothing could be further from the truth!
There are a veritable galaxy of downsizer-friendly housing options, to suit a wide range of age groups, preferences and budgets.
Downsizing may involve moving into duplexes, villas and apartment complexes, which have been specifically designed for Australians over 50.
It could also involve moving into specific downsizing communities, including land lease communities, seniors rental villages, freehold over 55s housing and retirement villages.
Government incentives supporting downsizing
There are a wide range of government incentives currently in place to support downsizing. These incentives recognise the benefits of downsizing to the broader community.
For instance, the Australian Government offers a downsizing superannuation incentive.
This incentive allows people aged over 65 to place up to $300,000 per person (or up to $600,000 per couple) from the net proceeds of their family home sale into their super.
Before 1 July 2018, people aged over 75 were not allowed to make such a contribution, while people aged 65 to 74 needed to have worked for at least 40 hours over 30 consecutive days in the financial year. These rules are now being waived for downsizers.
The superannuation downsizing contribution is particularly attractive for self-funded retirees, who want to top-up their retirement income, and would not be concerned about reduced access to the aged pension.
A number of State Governments also provide stamp duty incentives which are specifically targeted at downsizers.
Downsizers can also take advantage of tax incentives which apply to land lease communities and some leasehold retirement villages, including being able to avoid stamp duty and council rates and take advantage of Commonwealth rental assistance payments.
How to plan for downsizing
Firstly, it’s a good idea to discuss the idea of downsizing with your family.
Selling the family home is a big move. You and your family are likely to have financial and sentimental bonds to this home.
Given this, it is worth discussing your proposed downsizing decision with your children to get their perspective and ensure everyone is on the same page.
It’s also important to get legal and financial advice.
Buying into retirement or over 50s community can be complicated – perhaps even more complicated than buying a traditional property. This is because specific rules and regulations tend to be in place for these properties, which doesn’t cover traditional properties.
Prospective purchasers need to consider varying land title and contract options and also consider potential benefits and impacts on their income sources and savings. Given this, seeking out legal and financial advice is vital.