Everything you need to know before downsizing
Downsizing in retirement is a huge step. Make sure you know the basics before you make your decision.
What is downsizing?
Put simply, downsizing means selling your current home and buying a smaller property. Most commonly, it refers to people who are still living in a large, multi-bedroom home where they raised their family. Now, with no kids left, they are able to move to something better suited for a couple. By downsizing, you will be able to release some of the equity you have in your existing home (provided you buy something cheaper).
What are the benefits?
The primary benefit should be financial. You will receive a lump sump from the sale of your property and be able to take out a smaller mortgage. Or, if money isn't an issue, now is your chance to move into a smaller but more luxurious property. You will also save money on utilities as it costs less to light and heat a smaller home. In practical terms, you no longer have to clean or maintain a large home that has grown to big for your needs. Downsizing also gives you the chance to move to a different area that you have always loved but couldn’t afford when looking for a family home.
Are there any potential downsides?
As with all financial and property decisions, there could always be downsides. Smaller properties aren’t necessarily cheaper. For example, if you are moving from a house to an apartment you will now have to factor in strata fees to your ongoing budget. You may find it difficult to live happily in a smaller space or you might miss the home where you have lived for many years. Moving house can also mean moving suburbs, so be wary of being too far away from friends or services you use regularly. Selling your home can also potentially impact your eligibility for government benefits like the old age pension.
Get the right advice
These tips are just a basic overview to introduce you to the idea of downsizing. To make sure you make the right decision for you, it makes sense to speak with a financial advisor. You can find a list of registered advisors on the government’s MoneySmart website. The Department of Human Services also has Financial Information Service officers who can provide advice and runs a number of free seminars covering basic financial decisions.
Have you considered downsizing?
Any advice contained in this communication is general advice only. None of the information provided is, or should be considered to be, personal financial advice.