As we get older, some things just get harder to manage.
That goes especially for the traditional family home. When you’re in your 30s, maintaining a house with two big yards is something to look forward to on the weekend.
But when you’re in your 60s, you just want to enjoy your retirement.
For many of my parents’ generation – the Baby Boomers – the decision to downsize is a tough one.
Some people don’t want to let go of the house they raised their children in. Others see downsizing as one step closer to the nursing home. Some see it as “trading down”; letting go of a sizable bricks and mortar asset to move into something smaller.
Recent changes to superannuation law are enticing many of these “fence sitters” to commit to downsizing.
Under the new rules, retirees can funnel up to $300,000 from the proceeds of the sale of a home they’ve owned for 10 or more years into their super fund. If you’re a married couple, that means between you, up to $600,000 from that sale could be invested into your super – and all the tax benefits your super fund enjoys.
On the surface, this might seem like the chance for a windfall: sell the family home, or an investment property, and move into something cheaper and live comfortably on the extra funds you’ll free up for your super.
But as an estate lawyer, I can tell you it’s never that simple.
Already, plenty of retirees are taking advantage of this new scheme, meaning demand for smaller homes is increasing. And not only are you up against other retirees in this market, but younger Australians are increasingly seeking apartments or townhouses to match their busy lifestyles.
That means you may not have the buying power you’d like when re-entering the housing market and could take a hit in stamp duty.
More importantly, how will the sale affect your entitlement for the aged pension? Cash is not exempt from aged pension means testing, so by liquidating your biggest asset you could be shooting yourself in the foot. Other questions to consider include:
- Is the house you’re looking to sell Capital Gains Tax exempt?
- Is the property owned as part of a trust, or subject to finance?
- How will the sale affect your children and grandchildren’s inheritance?
Downsizing can be a liberating experience, something that can actually help you enjoy your retirement more by freeing you up to live, but it needs to be done properly.
At Welden & Coluccio Lawyers, we are Estate Law specialists. This means we help people make decisions that will benefit them and their families into retirement and beyond.
If you’re considering selling your home to take advantage of this new super scheme, make an appointment to speak to us, as no decision happens in a vacuum.
It is wise to see what is proposed all from all angles.