How the Age Pension could be impacted by downsizing
To own a patch of dirt with your name on the title deed.
Perhaps the dream isn’t a three-bedroom brick-and-tile on a quarter-acre anymore, but whether it’s an inner-city apartment or a renovator in the suburbs, some Australians still want a place to call their own.
Our home is likely to be one of the biggest investments most of us will ever make. And even though prices in some areas are currently falling, Australia still rates as one of the least affordable places in the world to buy a house.1
That can be tough for young people hoping to enter the market, but high prices can be great news for retirees who scrimped and saved for years to put a roof over their head.
Downsize contributions to upsize your super
According to a Start at 60 survey, more than 80 percent of Starts at 60 readers own their homes outright, with 56 per cent owning properties worth more than $500,0002. Of course, if you’re happy with your income, that’s a great safety net to have.
But if you’re unhappy with the amount you have to spend in retirement, selling your house, buying a less expensive property and using the cash to boost your super balance and thus your income, could make sense.
Those who sell their main residence and satisfy the eligibility criteria may contribute up to the lesser of $300,000 and the amount of the proceeds to their super as a downsizer contribution. If both member of a couple are eligible and the proceeds are $600,000 or more, the downsizer contribution can be up to $600,000 ($300,000 for each member). Downsizer contributions are not assessed against other contribution caps.3
“It may also be more tax-efficient than using the money to invest outside super,” Bryan Ashenden, BT’s head of financial literacy and advocacy, points out.
“If you can’t get it into the super environment, then you’re looking at investing in your own name and you’ll be paying tax at your own marginal tax rate,” he explains.
“But if you can put it into super and then move it across to a pension, then you’re going to be in a totally tax-free environment.”
But while this will increase the amount of income you can draw down from super, it may decrease or even remove your eligibility for the Age Pension. This is an important consideration, so we’ve set out some key points that may help you get a feel for whether it may be worth exploring if downsizing could feature in your retirement income plans.