What should you consider before deciding to downsize your home

What to do before downsizing your home

Accumulation phase, (1)

Today I would like to go back to the topic of downsizing. You can already find my articles explaining the downsizer contributions to super Part 1 and Part 2. Great source of information to understand rules of this specific type of super contribution.

But today I am not going to be discussing superannuation or any other financial side of downsizing.

Today we I want to list some other important issues you should consider before going ahead with selling your home and buying a new place.

A lot of people wish to downsize in retirement, as often it forms part of preparation for the upcoming retirement. But this could also happen during retirement years.

Downsizing can be a very good option to improve your housing or financial situation, as long as you are aware of certain points you need to address first:

1.     Understand your reason for downsizing, just because your friends are doing it, or you see this on telly or in paper, it doesn’t mean this is the best strategy for you.

Most reasons for downsizing are:

  • Home is too big and we just don’t need all that space,
  • Cost or time of maintenance,
  • Health deterioration and difficulty to keep up with work around the house, or stairs are just too much to handle,
  • Financial reasons, selling a big family home, downsizing to something smaller and keeping the difference to either create a new income stream or have more enjoyable retirement or improve your lifestyle.
  • Sometimes we hear that the reason is a “tree-change” or “sea-change” or moving closer to children and grandchildren.

So understand your reason, as all other steps should fallow your reason for this decision.

2.     Now is the time to figure out where you wish to move to, as this change is not only the geographical move, but it will impact on your finances, your social life, type of your lifestyle.

You have to decide on the type of the accommodation you wish to buy. Think about your future years, as you don’t want to be moving again. Can you see yourself living in this new place if your health deteriorates and you require more medical attention?

Also ask yourself how you want to spend your time, what is it you wish to be occupied with during your retirement days after downsizing. If you want to consider future health care, maybe retirement communities are a good fit for you. 

3.     Once you have chosen your place, now please pay attention to all legal and financial forms you are being asked to sign. You have to understand the contract.
For example:

  • Is the property a freehold or a strata title,
  • If you are moving to a retirement community, is this a leasehold or licence agreement.
    Your contract will explain your rights, your responsibilities and all costs.
  • If you wish to create a granny flat agreement, this can be very complex, can impact your Age Pension so you need to understand the rules. This agreement involves your family members, it is not the same type of contract as buying a new home as Granny flat agreement is not based on commercial terms, therefore if later there is an issue, the whole family could suffer.

4.     And now the important part of understanding your affordability, do the numbers, ask yourself those questions:

  • Can I afford the place?
  • Will I have enough money left after this transaction?
  • Will the change affect my government benefit such as Age Pension?
  • If yes, do I have other sources of income that will cover this Age Pension income loss?
  • Should I consider investments or income streams that can maximise Age Pension?
  • Should I receive financial advice before I spend my money or sign the contract?
  • Who can assist me with legal and financial issues of this change?

I have already written articles about the Downsizer contributions to superannuation, which might be a very important consideration after having sold home and purchased a new place. View those articles Part 1 and Part 2 of Downsize Contributions.

If you find yourself in the situation of being unsure of the move, especially if you feel unease if you can afford it or what you should do with the remaining savings and surplus funds from the sale of your home. If you wonder if such a move would impact your Age Pension or your income stream, book a meeting with me to go over those questions and to plan properly for the big downsizing change.

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