With the number of Australians aged 65 and over predicted to more than double by 2055, downsizing during retirement is becoming increasingly popular.
- 40,000 centenarians
- Female babies will live to 96
- Male babies will live to 95
- 2.7 working age Australians for every 1 aged 65 or over
- 17.3 per cent of older Australians in paid work
Downsizing is more than just moving house; it requires a lot of research, planning, culling and preparation. Make sure you consider the following before downsizing:
- The amount of work your current home is likely to require in the future, such as roofing, flooring, plumbing or wiring
- Access issues in your home, such as a steeply sloping block, steps or multiple levels
- Your feelings of boredom or loneliness
- Access to public transport
- Whether your children are likely to move back home
- Downsizing will free up some of your capital, allowing you to do the things you’ve always wanted to do, like travel
- Your other real estate holdings as property is not a liquid asset
- Your health – don’t overestimate how healthy you think you’ll stay. We recommend planning your retirement early so you’re able to make the decisions over your home rather than have someone else make the decisions for you
- Your pension, if you receive one. Speak to Centrelink about how downsizing might affect payments
So now you need to think about how you’d like to spend your retirement. Before you downsize into just a smaller house, have you considered buying a retirement village unit? These often conjure up images of aged care facilities or an old, depressing complex of outdated buildings, but retirement communities now offer huge social networks and lots of activities while still providing independent living. These are lifestyle choices only you can make.
Some retirees who have a granny flat on their property and are looking to downsize think they can just move in there and rent out their home for a bit of extra income. This is illegal. You would need to get permits from the council, changing your home from a single dwelling (class 1a) to having two separate dwellings on the one property (class 1b). Although this is possible, it’s often complicated and difficult to obtain approval from the council because a lot of properties don’t comply with state regulations. Of course, people do rent out their home while living in the granny flat without going through the proper authorities, but this creates added complications, like the issue of mailing addresses, splitting utilities, infrastructure setup and insurance.
Once you’ve decided on the kind of property you’d like to move to, you can now start thinking about the selling/buying process:
- Whether to buy and sell at the same time
- Whether selling first will put you in a stronger negotiating position. If you sell first, how long will it take to find your ideal place and where will you live in the meantime?
- The financial and practical implications of buying before selling
- Whether or not renovations and repairs will return a greater profit
Remember, the process of downsizing can be traumatic as both you and your children have strong emotional ties to the family home. Your children, who no longer live with you, may want you to keep the house and even try to offer you financial advice. Although your children have your best interest at heart, this can create problems during the selling process (trust us, we’ve seen it happen!). At the same time, you also need to be wary of taking lifestyle advice from accountants, financial advisors and the like. Make sure you hire an agent that you trust and surround yourself with experienced advisors during this big change.
