Kids moved out? Thinking about looking to downsize and make the move to a smaller more manageable home. Whether it’s for financial reasons or lifestyle factors, we all want to downsize which can be a challenging process. Not if you plan it right. Set the foundations in place upfront and enjoy your golden years in the lifestyle you deserve.
Know your why and set up a plan
Be clear about what you’re trying to achieve and your reasons why, from the outset, so you can effectively plan for it. Consider when selling your current home and buying your downsizer will let you end up with the money you are looking for and need to keep you in the lifestyle you want. Think about lifestyle goals too. If you’re looking for a simpler, quieter lifestyle, sea or tree change or even to embrace CBD living then plan for that.
Downsizing might sound simple enough in theory, but the process involves a significant number of moving parts. You will need to take into account what you might get for the sale of your home, any tax implications, the timing of when you sell to when you need to and want to move, the budget of what you are wanting to live in, the logistics of organising your move. Download a downsizing checklist to plan every stage of the process; from the ‘premove’ stage to moving into your new home which includes arranging finances, to sorting your things you want and don’t want, packing up what you will be taking, what do you need to get rid of and what do you need to buy etc.
Prior to taking the above action you may also consider what options you might have with your current home which you can maximise to sell for a higher amount, or bring in a professional to advise you. After all if you sell for more, you will have more for your next exciting phase of life.
A major step in your planning process is to ensure that your exit from one property coincides with your move into your new dwelling. Getting this right saves a lot of stress and money too!
Financing the transition
First step is to get an estimated valuation on your home, then deduct any mortgage and work out how much you might have left over. Bring in a mortgage broker who will work with you in settling current loan but more importantly in determining how much you can borrow (if a loan is required) or speak to your accountant in sharing your current situation versus where you plan to be financially upon downsizing. Work out the best option for your requirements and financial position and get advice from industry experts if you have any questions. Do you sell first before you buy your new dwelling, do you build a new dwelling, do you subdivide and build where you live and all the other options you may be considering. Remove the emotion and ensure the numbers stack up for you. If the numbers don’t stack up change your strategy or requirements, you still have to have an income to support the lifestyle you want.
Enjoy the decluttering process
We all gather too much especially if we have lived in the same home for many years. Downsizing means ridding yourself of unnecessary ‘stuff’, some of which may have sentimental value so give them to the kids and move on. More likely than not a considerable amount of decluttering is required to move from a larger home to something smaller. This may include decluttering furniture, heirlooms or clothing you may be able to give away, sell, or dispose of. Think of it as an opportunity to make a fresh start, because that’s what you’re doing. Downsizers also look to this time to buy new to last through retirement.
Create an inventory of everything you have in your current home, and work through it methodically. Consider what you want to give to family and friends, what you can sell, and what you’ll donate or throw away. Work out what you might be able to put into storage. It can be challenging to part with items of sentimental value, so give yourself time to declutter. It can be a rewarding process and exciting time!
Keep in mind you’ll probably need to compromise to a degree with your new home. For example, you could end up settling for one parking spot instead of two, living a little farther from your family than you had planned, or being a 10-minute walk from the shops instead of two. Being aware of what you will and won’t compromise as you shop around for a home can help you settle on a property you are happy with.
Government incentives for downsizers
Be aware of any government incentives designed to assist seniors with their downsizing efforts. Planning with these in mind means you can take advantage of tax and super benefits.
One major incentive to be aware of is the one relating to super contributions. From 1 July 2018, people aged 65 and over will be able to make a non-concessional (or after-tax) contribution of up to $300,000 into their super from the proceeds of selling their home. You won’t need to satisfy the existing voluntary contributions rules, and you won’t need to worry about the restrictions on non-concessional contributions for people with balances above $1.6 million. You can also still make other voluntary contributions under the existing contribution rules and concessional and non-concessional caps.3
Note, for this rule to apply, the house you sell needs to have been your principal place of residence for 10 years or more. And if you have a partner, husband, or wife, both of you can take advantage of this incentive, bringing the total allowable non-concessional contribution up to $600,000 for the two of you.3 If you want to take advantage of this incentive, make sure you exchange your sales contract on or after 1 July 2018.4
Start planning now
Downsizing can bring with it the financial and lifestyle benefits you are seeking, but you need to plan for it properly and be prepared to say goodbye to your old house and some belongings. By managing the process carefully, being open to compromise, and learning about government incentives that apply, you can ensure you get the optimum benefits out of your downsizing.