Downsizing your home? Here’s how to understand the downsizer contribution.

If you qualify or are hoping to qualify for the Age Pension, the impact of selling an asset needs to be considered. The value of your main residence is excluded from the assets test, however, if it is sold, and some of the proceeds added to your super, that value will then be assessed and may reduce your age pension benefits.

If you are eligible, you’ll need to complete a downsizer contribution form and provide this either before or together with your contribution cheque, to your complying superannuation fund so it can be correctly classified. The form is available from the ATO website. It’s important to be aware of the timing of your contribution to super. The contribution must be made within 90 days of receiving the proceeds of a sale (a longer permitted period), which is usually the date of settlement.

As you near retirement and find that your family home no longer suits your needs, downsizing can provide a dual benefit of generating extra cash and simplifying your life.

The maintenance of larger homes can be costly, downsizing to a smaller property can assist in reducing costs and adding more savings to your retirement.

There is an emotional aspect to be mindful of when considering leaving the family home, having support systems in place and careful planning can help with the transition to a new living arrangement.

Consult a real estate agent about housing market conditions, it may not be the right time to sell or buy, and they will help you know if entering the market is a wise choice. This may also help you to understand if your property is in the right shape to be sold, being mindful of the cost of upgrades.

Determine your budget: Determine how much you can afford to spend on a new home by assessing your current and future financial situation. Consider factors such as your retirement income, savings, and other expenses, like healthcare costs.

Research the housing market: Research the housing market in the area where you’re considering downsizing to get a sense of what’s available and at what price. This will help you identify homes that fit within your budget.

Calculate the costs of selling your current home: Selling your current home will likely involve real estate commissions, closing costs, and other fees. Calculate these costs to get a sense of how much you’ll have left over after selling your home.

Plan for moving costs: Downsizing typically involves moving, which can be expensive. Plan for the cost of hiring movers or renting a moving truck, and consider other expenses, such as temporary housing or storage fees.

Factor in taxes: Downsizing may (but in most cases won’t) affect your tax situation, so it’s important to consider how it will impact your tax liability. Consult with a financial advisor to understand the tax implications of downsizing for your specific situation.

Plan for potential expenses: Even if you’re downsizing to a smaller home, there may be expenses you hadn’t anticipated, such as home repairs or renovations. Plan for these potential expenses by setting aside some savings.

Not planning ahead: Downsizing is a big decision and should not be taken lightly. It’s important to plan ahead and consider all the options available to you.

Underestimating your expenses: Many people underestimate their expenses in retirement and end up with less money than they need. Make sure you have a clear understanding of your expenses, including healthcare costs, before downsizing.

Focusing only on the price: When downsizing, it’s important to focus on the value of the property, not just the price. A cheaper home may end up costing you more in repairs and maintenance in the long run.

Not considering future needs: When downsizing, it’s important to consider your future needs, such as mobility issues or the need for additional space for family visits. Make sure the home you choose will meet your needs for the foreseeable future.