If your children have left home or retirement is on the horizon, you probably have downsizing – or “rightsizing” as it’s sometimes known – on your radar.
A smaller home can bring a host of benefits, but it can also be hard to leave the family home behind. After all, it was the place where memories were made. And, on a practical level, it can be exhausting to think about Marie Kondo–ing your possessions and deciding what to keep, what to donate and what to throw away.
When you’re facing a life change on this scale it’s vital you don’t feel under pressure to act before you’re ready. So how do you know when the time is right? These pointers could help you to decide.
Is downsizing for me?
Different people have different reasons for deciding to downsizing, and it depends on your own personal circumstances whether downsizing will be the right approach for you.
One of the most compelling reasons to downsize, however, is financial. For many people, their home is their biggest asset, and selling that home and moving into somewhere smaller unlocks funds that were previously caught up in the “house” – a situation that often referred to as being “asset rich, cash poor”.
For example, selling your family home and buying somewhere less expensive can give you more income in retirement. If you take advantage of the government’s downsizer contribution you’re allowed to deposit up to $300,000 in your superannuation account, so there could be tax benefits too. (That amount doubles to $600,000 if you’re a couple.)
Beyond the finances, you might be fed up with the work and expense of maintaining a home that’s too big for your needs – especially if you have a large garden and unused spaces like Peter and Anne. You may love the idea of a move to the country or the coast, or living closer to your grandchildren. You could also be looking for a home for life where you can safely age in place.
If these scenarios see you nodding in agreement, then downsizing could be the right option for you.
What are the downsides to downsizing?
Many people use downsizing as part of their retirement strategy, banking on the fact that the sale of the family home will provide leftover funds that can be invested or used elsewhere. But there is no guarantee you’ll make a profit in the transaction on the sale of your home. Depending where you live now, the value of your home and where you’d like to eventually live, you could end up with less cash to spare than you expected, particularly when you add in the costs of buying, selling and the actual move.
Plus, if you do make a profit, any payments you’re receiving from the government, such as the Age Pension, could be reduced.
“You’re converting part of an exempt asset – your home – into cash, which is an assessable asset,” says Stuart Williamson, Senior Financial Adviser at Australian Unity. “It’s vital that you get independent professional advice so you understand how the sale will affect you.”
It’s also important to take your emotions into account. Moving home can be stressful in any situation but particularly if you’re leaving a home filled with happy memories. You might also be worried about having to make new friends, getting to know new neighbours and, perhaps, finding a new hairdresser and GP – all things that can enhance our general wellbeing and sense of connectedness with our community.
How to decide
The decision to downsize is rarely clear-cut. You’ll almost certainly have to make the odd compromise, so you could start by deciding what’s non-negotiable and where you can be more flexible. Here’s some tips to help you work through the decision-making process:
- Write down your list of personal pros and cons. This will help you to clarify your thinking and prioritise your needs.
- Think about your future independence. If, like the majority of Australians, you’d like to age in your home, consider whether that would that be possible where you’re living now. What happens if you have mobility issues, for example? Can you walk into your shower or move freely with a walking cane if you had future difficulties?
- Imagine yourself in later life – what will you enjoy day-to-day? What will contribute most to your wellbeing? Focusing on things that make you happy can help you to build a picture of where you really want to be.
- Family and friends who have downsized can be a great source of information and advice. Ask them about their experiences – and what they’d do differently if they were to do it again.
As you work through the process, hopefully the decision about whether you are ready to downsize will become clearer. Whatever you decide, you’ll feel better once you’ve made the call.
Dip your toe in the water
People often associate downsizing with a move to somewhere more scenic. Tempted by the idea of a sea change, a tree change or any other significant move? Consider renting in the area for a while. In fact, if it’s possible, Suzy Wiegard, Head of Relationships (Banking) at Australian Unity, recommends staying for a whole year.
“The place you love for your summer holidays could be very different in winter,” she says. “You also need time to decide whether you feel at home with the community, particularly if you’ve moved away from family and friends.”
Allow enough time to decide
There are no hard-and-fast rules about deciding whether downsize. However, if you think it’s a real possibility, you should give yourself plenty of time to consider all of your options.
If you decide to go ahead, you’ll need to do careful research to make sure you’ve ticked every box.
“I know of a couple who moved into a beautiful apartment where they intended to stay for life,” says Suzy. “Then, after a year or so, they realised it wasn’t going to meet their future needs after all. They hadn’t considered what would happen if they weren’t able to drive, so they weren’t within walking distance of essential shops, medical services or even public transport.”
The couple has decided to sell and buy again which, apart from the stress and disruption, can be very expensive.
“Agents’ fees, stamp duty and the costs of the move can easily chew up 20 percent of your equity,” Suzy continues. “It’s important to get it right first time.”
When you’re ready
You may feel there’s never going to be a right time to downsize, particularly if you’re strongly attached to where you’re living now. But if you know in your heart that it would be the best thing for your future, try to see it as an exciting new start. Once the hard work is behind you, you’ll be able to relax and enjoy all your new environment has to offer knowing you’ve found your home for life.
Disclaimer: Information provided in this article is of a general nature. Australian Unity accepts no responsibility for the accuracy of any of the opinions, advice, representations or information contained in this publication. Readers should rely on their own professional advice and enquiries in making decisions affecting their own health, wellbeing or interest.