Downsizing - What's best for you?

15 Jul 2014

By Chris Youssef

Downsizing a home can free up capital and enhance your lifestyle in retirement. However, if the right measures aren't taken it can actually ruin those golden years. Below are some considerations that can help you determine whether downsizing your home is right for you, and a few tips on how to go about it.

Are you downsizing for the right reasons? Where do you want to spend the rest of your life?
Australians decide to downsize for a range of reasons, including: lifestyle changes, change in circumstances (health issues, divorce, death, etc.), economic factors, or to reduce maintenance. However, it is important to note that downsizing doesn't always free up money, especially after you take into account all of the financial costs, such as real estate fees, removalists, stamp duty, etc. In some cases, downsizing can actually cost more money.

When determining if downsizing is right for you, a good starting point is to understand the lifestyle you want. Is it is achievable in your current home? If not, what will it cost to make it achievable in your current home (ie, renovations) and is that price affordable? Compare this to other alternatives.

I've decided to downsize, what next?
Here are a few things to keep in mind that will help you get the most out of your downsize.

  • Timing – Don't leave it to the last minute. Plan ahead and move before you have to. Starting the process early will give you more time to make the right decision and significantly reduce your stress levels.
  • Transacting – Cash is king. Sell before you buy. Don't get emotionally attached to a new property before you sell your existing one. You may not receive what the real estate agent suggested you would. If that happens, the shortfall could detract from your retirement savings.
  • Surplus/Deficit – Consider what you will do with the surplus funds (if there are any), or alternatively, where the shortfall will come from. Is this affordable?
  • Location – Will you be close to family, friends, public transport, doctors and medical facilities?
  • Storage – Make sure that all of your things will fit in the new place. You will be surprised at all the 'stuff' you've accumulated over the years.Centrelink – What will this do to your Centrelink entitlements? Will they be increased or be reduced?
  • Emotions – Make sure that you are mentally prepared to leave behind your home and memories. This is often one of the hardest things to do.
  • Advice – Seek professional advice from a financial adviser to make sure the numbers add up and that you can achieve the things that are important to you. Professional advice can help you form a view about what your home might be worth, what costs might be incurred to sell your home and the steps involved.

If you decide to stay in your home, there are various organisations (ie, Meals on Wheels) that assist the elderly and those with disabilities to remain living in their current home for as long as possible.

Ultimately, downsizing is a personal decision that should be made with both your short-term and long-term goals in mind. Do your homework, don't rush into it and make sure the decision you make is the right one for you.

To learn more about Chris, view his online profile.

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