Is 65 too late? When to downsize in WA?
In Australia, most people think downsizing is about selling up after retirement to move to a smaller, more manageable place. In reality, downsizing is about freedom and independence; choosing a way to live that suits what you want at any stage in life.
The beauty of moving towards retirement is that you don’t have to let your career dictate where you live. Still, downsizing isn’t something you need to leave off until retirement either. Around 1-in-4 Australians over the age of 55 have downsized as a way to secure their goals of financial independence.
According to the ABS, the average retirement age in Australia is 55.3 years, but many feel tied to their job or mortgage at least until they can get full access to superannuation. Downsizing earlier can allow more time to enjoy that long awaited tree change or sea change.
It’s worth being aware that downsizing can present emotional, administrative and physical challenges. But, it also opens up a new, refreshed chapter in one’s life — one with less financial pressure and more time for the things you love.
How do you know when to downsize?
It’s a very personal decision, but some signs that it might be time to consider downsizing include:
- Your housing expenses have risen to above 30% of your budget
- You’re falling behind on home and garden maintenance
- Your home design doesn’t fit your abilities or lifestyle
- Your job no longer ties you to a specific location
- You’re finding a lack of community and friendship
- Saving is becoming increasingly difficult
- You want more time for travelling
- You want more time to do whatever you love
The benefits of home downsizing
There are plenty of benefits that people cite for downsizing: financial security, fewer obligations, and a home to suit their changing lifestyle.
The financial benefits seem pretty straightforward, right? Downsizing is a way to release capital from your current home and provide you with an improved standard of living. But that isn’t the only way you can end up with more money in your pocket.
Keep your costs down on a fixed income
Yes, WA has become pricier – it’s hard to find a pint for under 10 dollars anymore. But big homes also usually attract larger utility bills for heating and cooling, not to mention rates and taxes. Downsizing to a home with a smaller footprint can mean fewer overheads to worry about each month.
Choosing a newer home can also lower your maintenance costs. You’ve probably realised that older homes often cost a lot more on upkeep. The general rule of thumb is to estimate 1% of the property value on annual maintenance and repairs. Then there’s the freak hail storm or tree through the roof that blows the budget (but smaller homes also cost less to insure).
In our younger years it might have been feasible to keep costs down by doing some repairs ourselves (well, aside from plumbing and electrical), but realistically it won’t be the case forever. The older we get, the more likely we’ll also want or need help with gardening and housekeeping.
Reduce your obligations and stress
Financial burdens aside, the upkeep of a home can be stressful. Is the extra storage space worth the strain? Downsizing earlier means less responsibility, which in turn frees us up for fun, spending time with family and friends, and enjoying our home rather than being a slave to it.
Home downsizing for life now and into the future
Chances are your family home has architectural features that may pose a mobility problem as you age. A steep driveway, stairs, the narrowness of door frames can all cause issues in later life. But it’s not just about a new home’s well-designed amenities for ageing gracefully. Many downsizers move so to be closer to the grandkids, friends, health services, shops, or public transport. Many Edenlife residents love the fact that it’s easy and secure to lock and leave their home for a spot of travel whenever they like.
Consider whether you want to rent, buy or land lease
Australia’s over 55s lifestyle communities are an emerging sector with several benefits to downsizers. The Edenlife land lease model connects you with a modern home in a well-planned community with a community manager.
Of the many benefits, one that stands out is the simplicity. As a resident, you own the house and rent the land, for a much more affordable price point. You may be entitled to Commonwealth Rent Assistance which could knock off a third of the rent. There’s also no need to pay stamp duty fees, plus there are no exit or deferred management fees.
Tips and steps for home downsizing
First, take control and start planning and acting right now. Setting a clear goal of what you want and where you’re willing to compromise will help you and your advisors create a plan, so you don’t have to rush decisions during the process.
Discuss the details.
The title deed for your current home may be in your name, but your loved ones may also have sentimental attachments to the place. Discuss your plans for downsizing with your family, including whether they may want to buy the property at the market price.
Get an estimate.
Consult several local real estate agents for an estimate of your home’s market value. Getting more than one estimate is essential; an agent that really wants to sell your home may inflate their appraisal to secure a listing. An independent appraiser is another option. No matter who you ask, get advice on inexpensive things you can do to improve your property’s value.
Note that, unless your home is very rundown, extensive renovations may not drive up the price as much as they cost. Apart from small improvements, it might be better to let the home’s next owners deal with larger projects; they may want to renovate to their tastes anyway.
Declutter, donate or document.
It’s likely that all of your belongings won’t fit into a smaller place, but that doesn’t mean throwing them all out. If there are things that you’re not using, decide whether to keep, toss, gift or store them. For some items, it may feel good to pass them on to family members who’ll actually use the bloomin’ things!
Hosting a ‘downsizing sale’ with your family can also be more efficient than trying to list items on marketplace sites like Gumtree. Some people find it useful to hire a professional declutterer to help keep the focus on the bigger picture and to systematise the process.
Look at storage.
Some items make sense to keep, but might not fit in your new home — what then? It’s possible to find a low-cost storage unit for items you use infrequently, but that wouldn’t make sense to sell. Some useful items like large power-tools or a kiln could find a second life in the Edenlife community workshop – it’s worth discussing these kinds of arrangements with your community manager.
Create a financial plan for downsizing
Setting out a financial plan with a professional advisor can take a lot of the stress out of the steps you need to implement it. They can help you map out the price point you’ll need to sell your home for and what you might reasonably be able to afford. If you have additional cash from the sale of your home, they can guide you on whether to save or invest the excess equity in super or an immediate deferred annuity.
Check if you qualify for the Commonwealth Rental Assistance to subsidise the land rent, which covers community facilities, maintenance costs, council rates and community management.
It should be said that selling a home doesn’t come without costs. You might lose 2-3% to agent’s fees, and depending on the sale price, there could be tax obligations.
Another consideration is that the Australian Government offers a downsizing superannuation incentive. In a nutshell, the downsizer measure allows people aged over 65 to place up to $300,000 per person (or up to $600,000 per couple) of the net proceeds from the sale of their family home sale into a super fund. Find more information on downsizing super contributions here, and, of course, consult your financial planner before making any decision with your income or assets.
It’s never too early to start planning for your future. Be clear about what you’re trying to achieve from downsizing so you can effectively plan for it. It may be helpful to think of the decision as ‘right-sizing’ — relocating to a home that is right for your lifestyle. While there are a lot of factors to consider, home downsizing can be an exercise in rediscovering appreciation and gratitude for the things that really matter in life.