Selling your home in retirement

Selling your home in retirement

Selling your home in retirement is a significant decision, and it’s important to unpack some of the key considerations around superannuation, Centrelink, and broader retirement planning.

Common Reasons for Selling Your Home in Retirement

Retirees may choose to sell their family home for various reasons. Typically, these include:

1. Downsizing for a smaller property: Opting for a home that is more accessible or easier to maintain.
2. Releasing equity: Selling to invest surplus sale proceeds for retirement.
3. Tree-change, sea-change, or relocating overseas: Often driven by cost-of-living pressures or lifestyle preferences.
4. Transitioning to retirement villages, assisted living, or aged care: Seeking environments suited to later-life needs.

While these reasons vary, financial planners help clients navigate strategies to optimize retirement outcomes and avoid unintended financial pitfalls.

Downsizer Contributions

A well-established measure for investing surplus property sale proceeds is the Downsizer contribution to super. This initiative has grown in popularity since its introduction in 2018, with expanded eligibility from 2022 making it accessible to more Australians.

Key Statistics

The ATO data (as of September 2024) highlights:

• Approximately 78,000 Australians have utilized this contribution option.

• Total downsizer contributions have reached just under $20 billion.

• The average contribution is $250,000.

Recap of Downsizer Rules:

• Eligibility: From age 55.

• Contribution limit: Up to $300,000 per individual or $600,000 per couple.

• Conditions:

  • Proceeds cannot exceed sale amount.

  • Contributions must be made within 90 days of settlement.

  • The property must have been owned for at least 10 years.

  • Partial or full main residence CGT exemption applies.

  • The Downsizer contribution can only be utilized once.
    

Importantly, this contribution is non-concessional (after-tax) but does not count towards normal non-concessional contribution limits, regardless of your total superannuation balance.

Additional Contributions

If you satisfy eligibility criteria (age and total superannuation balance), there may be room for further contributions under normal non-concessional limits: up to $120,000 per financial year or $360,000 using the three-year bring-forward rule.

Centrelink Considerations

Selling a family home to invest proceeds may turn a non-assessable asset (the family home) into an assessable financial investment for Centrelink purposes. However, Centrelink provides some flexibility when reinvesting in a new home.

Exemption Rules

• Duration: Home sale proceeds intended for a new home are exempt from the Asset Test for up to two years.

• Conditions: The exemption only applies to the portion earmarked for purchasing a new home.

Example Scenario

• Sale value: $1,200,000

• Intended purchase: $900,000 home

• Proceeds: Held in savings or term deposits earning 4.5% p.a.

Centrelink Assessment:

• Asset Test: $900,000 exempt; $300,000 assessed.

• Income Test: $900,000 at lower deeming rate (0.25% = $2,250); $300,000 at higher deeming rate (up to 2.25% = $6,750).

This exemption can extend beyond two years under certain conditions, making personalized financial advice essential.

Balancing Financial Implications

Selling your home in retirement involves weighing Age Pension entitlements against the longevity of your retirement capital. For example:

• Case Study: Sandra and Eric

  • Surplus proceeds: $500,000.

  • Sandra (63) and Eric (68) decide to contribute $250,000 each to their super using the Downsizer rules.

  • Alternative: Sandra contributes $300,000 (Downsizer) and $200,000 (non-concessional), minimizing the impact on Eric’s Age Pension.

Selling your home in retirement is a pivotal decision with personal and financial implications. Whether you aim to invest, pay off debt, or fund care, collaborating with a financial adviser can provide peace of mind. With professional guidance, you can achieve your retirement lifestyle and financial goals.

By: Katherine Isbrandt CFP® and Shaun Jones FP
Money Strategist & Retirement Planner
Principal of About Retirement