Downsize your home and upsize your super

With longer life expectancies, the rising cost of living and the property boom, more and more Newcastle retirees are finding themselves asset rich and cash poor.

Likewise, it’s getting harder and harder to get money into the tax effective superannuation environment. Therefore the Government’s new “Downsizer Contribution” legislation seems like a wonderful opportunity for ‘equity rich’ retirees to boost their tax-free superannuation income. However, there are some disadvantages to be mindful of.

The Downsizer Contribution

From age 65, personal contributions to superannuation are limited to those still working and are capped at $100,000 per year. The new legislation, which is available from 1 July 2018, allows homeowners who are over the age of 65 to use the proceeds from selling their homes to make a one-off deposit of up to $300,000 into their superannuation. The limit applies per person, meaning a couple can contribute up to $600,000. The contribution needs to be made within 90 days of settlement and it is possible for spouses of homeowners to claim the contribution, even if the house is owned in just one spouse’s name.

Australian Super have put together a great info sheet with further details.

Is downsizing right for you?

For people over the age of 65, the benefits of downsizing into a smaller property, such as an apartment or townhouse, and therefore having less maintenance and lower running costs are attractive. As are the super contribution benefits of this scheme.

While this legislation could benefit older Australians who are asset rich and cash poor, every individual circumstance is different, and there are a range of rules regarding this initiative. There is also a possibility that this strategy could reduce your existing age pension, or make you ineligible in the future, because the value of the family home is exempt in the asset test, whereas cash and superannuation funds are not.

So, whilst this strategy seems like a wonderful helping hand for retirees, it’s important to carefully check your eligibility, the impact on Centrelink entitlements and the costs involved in selling your home and buying a new one, to ensure it is worthwhile.

For many of Newcastle’s baby boomers, the family home is the biggest asset so it is also important to consider whether now is the right time for you to liquidate this asset.

Our team of specialists are here to hep

To ensure you are equipped with everything you need to make an informed decision, get in touch with the Rethink Financial Planning team for our personalised financial advice to work through the pros and cons of whether or not this is the right strategy for you. We’re a team of trusted, highly-skilled financial planners in Newcastle and would love to see how we can help.

Contact us on 4962 4440 or you can fill out our Pre-appointment Questionnaire here and one of the team will be in touch.