Wealth

Case study: downsizing for retirement

See how Mei-Win and Steven downsized to achieve their ideal retirement lifestyle.

Mei-Win, 65, and Steven, 68, had big dreams for retirement, but were short of the cash they needed to live life to the full. Here’s how downsizing helped them achieve their goals in retirement.

Asset rich but cash poor

Buying a campervan and touring Australia had always been on Mei-Win and Steven’s bucket list, while they had paid off the family home and had no debts, they didn’t have a lot in savings. How could they achieve their dream retirement and travel the country?

The potential of downsizing

As empty-nesters, Mei-Win and Steven were living in a big home, with big costs. After talking to a licensed financial adviser, the couple decided that downsizing — or “rightsizing” as it’s also known — was a sound financial move. A smaller home would not only unlock the equity they’d built up over the years, it would also help them to save money on rates, utilities and maintenance. This in turn would free up additional cash for fun pursuits, such as travel, and life’s little luxuries.

More cash to fund a fun lifestyle

The first step Mei-Win and Steven took was to purchase a smaller and more manageable home in the same suburb. Next, any profit from the sale went straight to investments — some liquid, others longer-term. Their licensed financial adviser recommended the following products to diversify the couple’s income options in retirement:

The Australian Unity Wholesale Cash Fund — which invests in highly rated cash and short-term securities — to deliver regular monthly income payments and preserve their capital.
The Altius Bond Fund — a portfolio of Australian Government bonds and credit securities — to provide Mei-Win and Steven with regular income at relatively low risk to their capital.
The Platypus Australian Equities Fund — which invests in high-quality Australian companies — to deliver capital growth over the medium- to long-term.

The couple also invested in the FuneralPlan bond, which allows them to put money aside for their funeral expenses, taking the burden off their children.

Man sitting on porch bench with a cup of tea

Living retirement to the full

By downsizing and implementing some smart investment strategies that made the most of the equity they had built in their home, Mei-Win and Steven now have the income they need for a more comfortable lifestyle. Says Steven: “We’ve bought our caravan and are all set to go. If we hadn’t downsized, travelling around Australia would still be a pipe dream.

Tips on downsizing for your retirement

Downsizing could make all the difference to your retirement lifestyle. Listed below are a few tips and considerations to help you decide whether this approach is right for you.

Tips on downsizing for retirement

Consider the less obvious savings

In addition to allowing you to access equity that was tied up in your house, downsizing to a smaller home also offers the potential to slash your bills. This can free up much-needed funds, allowing you to do more with your investments and lifestyle.

Assess your superannuation

If you are aged 60 or over, you may be able to contribute up to $300,000 of home sale profits in to your superannuation. This applies Australia-wide and there are time restrictions on when this is can be done so it’s worth investigating.

Be aware that any investments may affect the Age Pension

The Age Pension is means-tested, and the government sets out asset and income test rules to determine what you are eligible to receive. Home sale profits, superannuation and income from your investments may reduce the amount of Age Pension you receive.

Get the right investment portfolio for your circumstances

Your investments should reflect your unique circumstances, such as your age, health, risk appetite and lifestyle. Having a mix of options — from cash in the bank to fixed income assets and shares that deliver capital growth — helps diversify your portfolio and manage risk.

You can manage your own superannuation through a Self-Managed Superannuation Fund (SMSF)

A SMSF is a private superannuation fund that you manage yourself. It is an option if you have substantial retirement savings and want direct control over how your superannuation is invested. The success of a SMSF relies on your investment strategy and adherence to strict ongoing compliance requirements.

Get professional help

Downsizing can be an exciting new beginning if you take advantage of all the benefits and avoid possible pitfalls. Getting the right advice is crucial — and an experienced, licensed financial adviser is an excellent place to start.

Further help and information

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