Case study: Downsizing for Retirement
See how Mei-Win and Steven downsized to achieve their ideal retirement lifestyle.
Mei-Win, 65, and Steven, 68, had big dreams for retirement, but were short of the cash they needed to live life to the full. Here’s how downsizing helped them achieve their goals in retirement.
Asset rich but cash poor
Buying a campervan and touring Australia had always been on Mei-Win and Steven’s bucket list, while they had paid off the family home and had no debts, they didn’t have a lot in savings. How could they achieve their dream retirement and travel the country?
The potential of downsizing
As empty-nesters, Mei-Win and Steven were living in a big home, with big costs. After talking to a licensed financial adviser, the couple decided that downsizing — or “rightsizing” as it’s also known — was a sound financial move. A smaller home would not only unlock the equity they’d built up over the years, it would also help them to save money on rates, utilities and maintenance. This in turn would free up additional cash for fun pursuits, such as travel, and life’s little luxuries.
More cash to fund a fun lifestyle
The first step Mei-Win and Steven took was to purchase a smaller and more manageable home in the same suburb. Next, any profit from the sale went straight to investments — some liquid, others longer-term. Their licensed financial adviser also recommended products to diversify the couple’s income options in retirement.
The couple also invested in a funeral bond, which allows them to put money aside for their funeral expenses, taking the burden off their children.
Living retirement to the full
By downsizing and implementing some smart investment strategies that made the most of the equity they had built in their home, Mei-Win and Steven now have the income they need for a more comfortable lifestyle. Says Steven: “We’ve bought our caravan and are all set to go. If we hadn’t downsized, travelling around Australia would still be a pipe dream.
Tips on downsizing for your retirement
Consider the less obvious savings
In addition to allowing you to access equity that was tied up in your house, downsizing to a smaller home also offers the potential to slash your bills. This can free up much-needed funds, allowing you to do more with your investments and lifestyle.
Assess your superannuation
If you are aged 60 or over, you may be able to contribute up to $300,000 of home sale profits in to your superannuation. This applies Australia-wide and there are time restrictions on when this is can be done so it’s worth investigating.
Be aware that any investments may affect the Age Pension
The Age Pension is means-tested, and the government sets out asset and income test rules to determine what you are eligible to receive. Home sale profits, superannuation and income from your investments may reduce the amount of Age Pension you receive.
Get the right investment portfolio for your circumstances
Your investments should reflect your unique circumstances, such as your age, health, risk appetite and lifestyle. Having a mix of options — from cash in the bank to fixed income assets and shares that deliver capital growth — helps diversify your portfolio and manage risk.
You can manage your own superannuation through a Self-Managed Superannuation Fund (SMSF)
A SMSF is a private superannuation fund that you manage yourself. It is an option if you have substantial retirement savings and want direct control over how your superannuation is invested. The success of a SMSF relies on your investment strategy and adherence to strict ongoing compliance requirements.
Get professional help
Downsizing can be an exciting new beginning if you take advantage of all the benefits and avoid possible pitfalls. Getting the right advice is crucial — and an experienced, licensed financial adviser is an excellent place to start.
Important information
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