Downsizing your home can enhance your lifestyle,
Imagine a home that aligns perfectly with your current stage in life – simpler, more manageable, and full of potential.
For Australians nearing retirement, downsizing means figuring out how to fit all your belongings into a smaller space.
It also involves managing your finances efficiently to enjoy a more comfortable and relaxed lifestyle during retirement.
The Australian housing market has recently hit a total value of $11 trillion, with house prices rising by over 380%.
This price increase has significantly contributed to the rapid wealth growth among Australians aged 55 and over in recent years.
When considering downsizing, understanding how to leverage your current property is key to funding a more comfortable retirement.
Fortunately, the federal government introduced the Downsizer Contribution Scheme to make this process simpler and more accessible.
Through this scheme, downsizers can unlock thousands of dollars in equity when selling their home and moving into something smaller.
Jason McLean, strategic advice manager at Ord Minnett, explains that those aged 55 and over can contribute up to $300,000.
As a couple, this amount increases to $600,000, which can be directly contributed to your superannuation from the sale.
These downsizer contributions do not count towards the regular contribution caps, which allows for greater flexibility in funding retirement.
Furthermore, individuals are exempt from the $1.9 million total superannuation balance test when making this contribution.
McLean adds that by combining the maximum superannuation downsizer contribution with other non-concessional contribution limits, substantial amounts can be added to your super.
Over two financial years, this strategy allows for a total contribution of up to $1.56 million into your superannuation account.
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According to data from the Australian Bureau of Statistics (ABS) and the Reserve Bank of Australia (RBA),
the top 20 per cent of Australian households have between $1.5 million and $2.5 million in equity each.
This is a significant amount of wealth, highlighting the financial potential of downsizing for many Australians.
To qualify for the Downsizer Contribution Scheme, McLean explains that you must have owned your home for at least 10 years.
Additionally, the property must be located in Australia and cannot be a caravan, houseboat, or mobile home.
It’s important to note that the SDC can only be made from the sale of one home.
Moreover, the contribution must be completed promptly after the sale of your property, within a specific timeframe.
McLean highlights that many people overlook this critical detail: the contribution must be made within 90 days of receiving the sale proceeds.
Failing to meet this 90-day requirement can result in the missed opportunity to take advantage of the scheme.
Getting ready to maximize your equity
Before purchasing the next property with the proceeds from your sale, it’s crucial for downsizers to establish a clear budget.
This budget should account for various costs, including agent fees, marketing expenses, solicitor payments, and stamp duty.
In addition, don’t forget about capital gains tax. While private homes are generally exempt, exceptions may apply if your property was rented.
If the home was used for business purposes, you may face tax obligations when selling the property.
After conducting thorough due diligence on your next property, such as scheduling building and pest inspections, consider the owner’s corporation rules.
Once this is done, downsizers can use the equity from the sale to purchase the new property, unlocking any excess equity.
This excess can then be invested to further enhance comfortable living and ensure financial security into retirement.
Peter McCormack and Callum Bryant, private wealth advisers at Ord Minnett, specialize in creating tailored investment portfolios for clients at any stage of wealth accumulation.
Each portfolio is specifically designed to meet a client’s income needs during retirement, even after downsizing.
“We work closely with you to understand your income goals, evaluate your assets, and allocate investments effectively,” says McCormack.
“Our aim is to ensure that the money from the sale of your home generates consistent cash flow,” he adds.
He further explains that once clients see the potential cash flow from a well-managed investment portfolio, they begin to enjoy retirement fully.
At Ord Minnett, return on investment is a key priority. However, the firm also places great importance on care, personalization, and relationship-building.
Bryant notes, “We understand that clients entrust us with wealth that has been built over a lifetime.”
“Therefore, we collaborate with our team of research analysts to create portfolios that provide our clients with financial peace of mind.”
