Downsizing In Retirement – A Balanced View

Friday, February 01, 2019
Downsizing In Retirement – A Balanced View

Written by Hudson Adviser Ivan Fletcher

Are you looking to sell your house and make a massive lifestyle change in Retirement.
There are many pros and cons to consider in making such a significant move.

The Benefits of Downsizing

  • Potential Cash Windfall to build your retirement kitty and improve your retirement lifestyle with a higher income capacity.  As a simple rule of thumb an extra $100,000 invested with a diversified and balanced approach could increase your income by $5,000 p.a. through the majority of your retirement.

  • You can now even put up to $300,000 each into Super from a home downgrade provided you meet the criteria (mainly that you have owned your home for at east 10 years ad are above age 65).  Refer previous Hudson article on this subject - Retiree Home Downsizers     

  • Reduced work load in maintaining the home– including everything from household cleaning to outside maintenance (from roofs to lawns).

  • Reduced Cost of home related expenses – including rates, electricity bills (smaller space to cool or heat).

  • More appropriate living space for your needs including the exclusion of stairs or the inclusion of an internal garage.

  • Opportunity to change location – whether it is to be closer to water or the trees or family members (younger or older family).  Of course you need to factor in whether the family you are moving to are stable in their own location (ie not following career changes etc). 

Disadvantages of Downsizing

  • Loss or reduction of Centrelink entitlements.  An increase in your investment base conversely means a reduction in any age pension entitlements via the Assets and Income Tests. In some cases this could also impact entitlement to the Seniors Health Care Card.

  • Reduction in your Estate planning assets. The family home is a significant piece of your estate planning.  By converting some of it to investment for spending in retirement, you will likely be reducing what is left in your estate after you have gone. This is amplified if you have reduced your centrelink entitlements and having to live more off of your own assets. The government will applaud you for this, your children may not.

  • Loss of Community - Leaving your existing community that’s been developed over a lifetime can be a traumatic experience for some and not a consideration to be taken lightly.  As we age, there can be a tendency to retreat from being actively social and making new friends.  Traditionally we have already made a social network of friends through our jobs, our own sports and hobby interest, our kids schooling and sporting associations and our community groups (example church or charitable organisations).  As we age, the prospect of starting over and making new friends in a new location can be more challenging with many of those outlets no longer relevant to our lifestyle. Whilst moving to the bush or the beach presents wonderful images for retirement (promoted by just about every financial institution on the TV), it is worth giving some careful consideration  that you may be moving to a place that is away from your established community as the importance of community is possibly even greater in retirement.

Some considerations

  • Downsizing within your existing community can deliver the best of both worlds with financial gains without the social impact of lost community.

  • If making a major location shift, a strategy to consider is maybe renting out the family home and renting in the place you’re thinking about moving to (try before you buy and sell) allowing ample time to get to know the area and ingratiate yourself in the community to see whether it truly meets your needs.  Experiencing a full year in the area first thought the highs and lows of the seasons could save you some heartache.  A move North may make the winters more bearable, but the heat may present the same issue in reverse in the summer.

Final Comment

The above matters are for thought provocation to approach such life changing decision with eyes wide open.  We all have different values and priorities.  Financial freedom as well as location choices are important in retirement, but so are our social connections.


Feedback

Nigel and Sarah Blackmore commented on 01-Feb-2019 07:32 PM
Good advice about renting in your chosen down sizing or retirement area for a year. My wife and I sold up in Perth and moved to the far North of NZ. Small coastal town 4hrs drive from the Auckland rat race. Great fishing, beautiful beaches and rivers.
The house we bought was in a great location close to the beach and cafes, small but expensive supermarket and medical centre.
First year was OK but then the street changed with big family's of unemployed moving in. Lots of fighting, dogs barking, constant noise and people coming and going at all hours of night and day. Not really the place to grow old.
We also came to miss the things we took for granted in our Perth suburb. Many choices of places for a cheap meal with BYO. Supermarkets with good specials close by, the movies, public swimming pool, hospital's close by with good specialists for that dicky knee and hip.
In the end we sold up at a loss after 3 years and moved back to Perth.We recommend try before you buy.

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