As we age, our needs change – healthcare, social, financial and more – and housing is no different. This is where downsizing may come in…
Downsizing means moving from a larger home to a smaller, more manageable one that better suits changing needs as we age. It’s a popular consideration for Australians in retirement planning, often motivated by the potential for financial freedom, reduced maintenance, and an improved lifestyle. For many, it offers a chance to release capital, lower living costs, and relocate closer to family or essential services. Let’s look at what the pros and cons of downsizing can be, and some of the compelling data concerning our aging population.
Key Benefits of Downsizing Your Home
Financial Freedom and Retirement Savings
As Australians transition into retirement, many face the question of whether their current home is the right fit, financially and practically. By selling a family home and moving into a smaller property, homeowners can unlock the equity tied up in their home to increase their financial flexibility. This is particularly relevant in Australia, where 66% of households owned their homes in 2019-20, with or without a mortgage. Downsizing offers a way to transform this wealth into funds that can cover retirement needs, travel, or reduce debt.
Downsizer Super Contributions and Eligibility Requirements
For eligible Australians aged 55 and older, the downsizer super contribution scheme offers a tax-effective way to invest proceeds from a home sale into superannuation. This contribution can reach up to $300,000 per individual or $600,000 for couples, making it a substantial boost to retirement funds. However, as contributions are assessed under the asset test, they may impact eligibility for the Age Pension. Consulting a financial adviser ensures individuals understand these complexities and make well-informed decisions, particularly those that optimise tax outcomes.
Additionally, since the introduction of the downsizer super contribution scheme, Australians aged 55 and over have increasingly taken advantage of this benefit to bolster their superannuation. The ATO has reported strong participation in the scheme, reflecting a growing awareness of its potential to provide greater financial security in retirement. Here’s an overview of the take-up of the downsizer contribution scheme:
| Financial year | Total individuals | Total contribution ($b) |
| 2018–19 | 6,500 | 1.557 |
| 2019–20 | 10,700 | 2.558 |
| 2020–21 | 13,000 | 3.179 |
| 2021–22 | 19,700* | 5.048 |
| 2022–23 | 15,700* | 4.155 |
| 2023–24 | 13,000 | 3.382 |
*Note: Legislation change occurred during the 2021–22 and 2022–23 financial years. This resulted in a reduction in the eligibility age and a rise in total individuals contributing towards downsizer.
Source: Downsizer super contributions data | Australian Taxation Office
Lower Maintenance and Reduced Upkeep
For retirees, a smaller home often means less maintenance—fewer rooms to clean, smaller yards to tend, and fewer repairs. This shift aligns with changing household trends: the average number of people per household has decreased from 2.9 in the 1980s to 2.5 in recent years. With fewer people in the home, there’s often a reduced need for extra space, making downsizing an ideal solution to reduce upkeep and free up time for things you’d rather be doing!
Better Accessibility
As we get older, we may require things like wider doorways, stair lifts (or no stairs at all), ramps, walk-in showers and so on, to allow for mobility limitations. Some houses aren’t suitable to modify appropriately, so downsizing to a home that has the appropriate accommodations already in place, or at least the potential to renovate with that in mind, is a great incentive for those who need it.
Location Flexibility to Suit Your Needs
Downsizing can open up the possibility of relocating to areas that better fit a retiree’s lifestyle and health needs. That could mean moving closer to family, medical services, or simply choosing a place with a more temperate climate, downsizing can help facilitate these lifestyle goals.
Potential Challenges and Costs of Downsizing
While downsizing offers many advantages, it also comes with its own set of challenges. These considerations should be weighed carefully to determine if downsizing is the right fit.
Moving and Furniture Costs
Moving is rarely inexpensive. From hiring removalists to purchasing new furniture for a smaller space, the costs can add up. Downsizers often need to part with or replace large furniture to fit their new living arrangement, an added expense that’s often overlooked when calculating the financial benefits of downsizing.
Emotional Adjustments
A family home is often filled with cherished memories, making it difficult for many to let go. The process of downsizing can bring an emotional toll, as retirees leave behind the places and memories of the family home. Moreover, moving to a new area may require building fresh connections and adjusting to a new environment, which can be daunting, particularly for older individuals.
Alternatives to Downsizing
If downsizing doesn’t feel right, there are other options to consider. Renting out a room or converting part of the home for dual occupancy can provide financial support without requiring a move. Additionally, equity release options like reverse mortgages may offer access to home equity without the need to sell, though these come with potential financial risks and should be explored with professional advice.
Understanding Financial Implications and Getting Professional Advice
Downsizing can have broader financial implications, particularly around government benefits, tax obligations, and superannuation contributions. Consulting with a financial adviser is essential to fully understand how these factors apply to each unique situation.
Final thoughts: Is Downsizing Right for You?
Australia’s ageing population is a significant consideration in this context. In 2024, 16.8% of Australians are aged 65. In 40 years’ time, that demographic is projected to increase to 20.4% – meaning 1 in 5 Australians will be aged 65+. This demographic shift underscores the importance of proximity to healthcare and community services for a greater number of older Australians, making downsizing an attractive option to enhance both accessibility and convenience.
Downsizing can provide a range of benefits, from increased financial freedom to reduced living costs and the flexibility to relocate. However, it also comes with challenges, particularly around moving costs and emotional adjustments. Taking the time to carefully assess your personal goals, lifestyle preferences, and financial needs is essential.
For guidance tailored to your unique situation, reach out to Priority Advisory Group. Our experienced advisers are here to help you navigate the downsizing process, assess the financial impacts, and explore options like downsizer contributions and retirement planning. Call us at 1300 349 188 or visit our Aged Care Services page to learn more.
Data From:
- Housing occupancy and costs, 2019-20 – Australian Bureau of Statistics
- Downsizer Super Contributions Data – Australian Taxation Office
- Older Australians – Demographic Profile – AIHW