Is it time to downsize?

Back in the day, a big house made sense with plenty of room out back for the kids to play in and plenty of room inside for the family to spread out. But now the kids have flown the nest, you may be starting to feel as though you’re rattling around a bit.

If it’s something you’ve been thinking about, this holiday season could be a good time to float the idea, when your family comes together to celebrate the festivities.

The case for downsizing…

A big house can mean big bills—summer and winter. And then there’s the cleaning, the gardening, the upkeep… sometimes it can feel as though the house is getting on top of you, particularly if you’re on your own or you have health issues.

Downsizing may also have an impact on your insurance arrangements, reducing your premiums as you reduce your belongings and the contents of your home. Also, if you haven’t finished paying off your mortgage, downsizing could also mean a lower mortgage payment, which could make a real difference to your cash flow—short-term and long-term.

What’s more, the idea of a tree change or a sea change can be very appealing. Imagine waking up to the smell of eucalypts or sea breezes every morning.

If this sounds familiar, you’re not alone. In a recent study, 43 per cent of respondents who had moved since turning 50 had downsized.[ 1]

So selling the family home, freeing up some equity and downsizing to a smaller property could be starting to make sense.

…and the case against

But there can be a downside—both emotional and financial.

There’s a lifetime of memories in these walls—after all, your kids grew up in this house. Downsizing means you will need to sell or give away the belongings and collectibles you’ve amassed over a lifetime, but you won’t need any more. It’s harder when it comes to mementos and your children’s belongings, but limited space in a smaller house will mean some things will have to go. 

There can also be practical difficulties with selling up and downsizing. Many Australian suburbs are dominated by large family homes and lack the sort of medium-density housing stock that would suit older couples.

You might need to move further afield to find a suitable place. But that means uprooting yourself. You’ve got a lot of social capital invested in your local area and you may not want to move to a far-flung town or suburb where you’d have to start again.

There’s also the matter of the kids’ inheritance. The family home can be a tax-effective way to pass wealth on to the next generation.

Then there’s the age pension income and assets tests. After a lifetime of hard work, you deserve to maximise your entitlements. The family home is exempt from the assets test. But if you sell your home for $1 million and buy a $500,000 apartment, your $500,000 profit will be included in the assets test and can be included in the income test where it is invested.

Deciding whether to stay put or sell up is complicated. Talk to your financial planner or accountant about the tax and other financial implications before you make a big decision.

What you need to know

Any advice in this document is general in nature and is provided by AMP Life Limited ABN 84 079 300 379 (AMP Life). The advice does not take into account your personal objectives, financial situation or needs. Therefore, before acting on this advice, you should consider the appropriateness of this advice having regard to those matters and consider the Product Disclosure Statement before making a decision about the product. AMP Life is part of the AMP group and can be contacted on 131 267. If you decide to purchase or vary a financial product, AMP Life and/or other companies within the AMP group will receive fees and other benefits, which will be a dollar amount or a percentage of either the premium you pay or the value of your investments. You can ask us for more details.