Supersize your downsize

By Rachel Lane

For many, the term “downsize” conjures images of a more compact, less expensive dwelling. Yet, downsizing doesn’t necessarily equate to moving into a micro-residence. In reality, it’s less about square metres and more about finding a home that aligns with the next exciting chapter in your life!

Yes, at times downsizing means a smaller garden and home. But often, it could still involve three bedrooms, two bathrooms, and a spacious double garage. Moreover, the cost doesn’t always decrease. As with most property decisions, factors like location, choice of home, enhancements like modern benchtops and appliances, and even additional perks such as storage for boats or caravans play crucial roles.

Now, here’s an interesting twist: while lots of people see a financial benefit in downsizing (you can put the money left over into your investments), if you’re receiving the Age Pension, choosing a larger home in a prime location with the latest upgrades might actually be more affordable.

Understanding Age Pension calculations is vital here. Generally, your home is normally an exempt asset, so when you sell your home, you are selling an exempt asset. Similarly, the new home you purchase remains exempt. The issue arises when the new house is cheaper than the one you are selling, which can inadvertently lead to downsizing your pension when you downsize your home.

This brings us to a concept worth pondering: what if “Supersizing your Downsize” is the way to go? In essence, selecting the house of your dreams might be the smarter financial choice.

To paint a clearer picture, consider Pam’s scenario: With a home valued at $900,000, investments of $200,000 and $20,000 in personal assets, Pam is contemplating two houses in a Land Lease Community. One is a 2-bedroom, 1-bathroom setup, whereas the other boasts 3 bedrooms and 2 bathrooms. The former is $125,000 less but feels a bit tight, especially when her grandkids visit. The latter, though pricier, seems just right in terms of space.

In both case Pam will keep her pension and qualify for rent assistance. However, by investing in the larger, ideal home (the one she loves), she could boost her annual pension by approximately $9,750.

There’s undeniable merit in retaining even a minimal pension. Consider the potential earnings on the surplus funds. Once assets got over the asset threshold, the pension reduces by $3 for every additional $1,000 of assets per fortnight. When you hear it like that it doesn’t sound too bad but it means that for every $100,000 over the threshold your pension is reduced by $7,800/year — which can be a tough level of income to replace, particularly on conservative investments like bank accounts and term deposits.

Moreover, receiving some pension entitles you to perks such as Rent Assistance (potentially adding $185 to your pocket fortnightly) and the Pensioner Concession Card, which offers substantial reductions on essentials, possibly translating to yearly savings in the thousands.

Rachel Lane is author of Downsizing Made Simple with fellow finance expert Noel Whittaker, the new edition is now available to pre-order online. The Downsizing Made Simple website is here to guide your downsizing journey with great information, tools and easy-to-use resources.

The original article was published on the website.

Rachel Lane and fellow finance expert Noel Whittaker are the authors of Downsizing Made Simple, the 2nd edition is out now. The Downsizing Made Simple website is here to guide your downsizing journey with great information, tools and easy-to-use resources.



The ultimate downsizing guide

Let Noel Whittaker and Rachel Lane guide you through the legal and financial maze, explain how a move can affect your lifestyle, superannuation, pension and benefits, and share some real life stories from readers.

Whether you’re moving to a townhouse or apartment in a strata title development, considering a granny flat or tiny house with family, looking at collaborative housing with like-minded people, or making the move to a retirement community, listen to the experts, and make it your best move.

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