Selling the family home

Downsizing your home

By the time you are considering retirement you may have substantial equity in your home. You may even own your house outright. Selling the family home is one way to free up cash for retirement. The money you receive can be invested in shares, term deposits, managed funds or superannuation.

In addition to finding a place to live, there are many financial, practical and emotional factors to consider before downsizing your home.

The impact on social security when you downsize

Your Age Pension entitlement depends on the value of your assets (the assets test) and the income you receive (the income test). Selling your home may affect the amount of social security benefits you receive.

Your home and the 2 hectares surrounding it are not counted under the assets test. If you sell your home, the proceeds will be exempt for up to 12 months, as long as you are planning to use the money to buy another home. However, the proceeds will be deemed under the income test.

Case study: Lee Lin sells the family home

Senior woman putting the family home on the market

Lee Lin is 67 and divorced. She decides to sell the family home after her children move out because it's too big. She expects to sell her home for $800,000, buy a cheaper apartment for $500,000 and have $300,000 left to invest.

Before she puts her house on the market, she goes to Centrelink and asks how the sale will affect her Age Pension. The Financial Information Service officer tells her that the $300,000 will be counted towards the assets test for her Age Pension. Lee decides she is still better off downsizing, even though it will reduce her pension.

Alternatives to downsizing your home

Selling the home where your children were raised and leaving behind neighbours and friends can be difficult and stressful. Add to that the challenges of relocating to a new area, moving into a smaller space and making new friends and, suddenly, staying put might seem like a good idea.

Here are some possible alternatives to selling your home:

  • Converting your home to dual occupancy so you can live in one half and rent or sell the other half
  • Renting out some rooms; however, this has tax implications and may affect your Age Pension so seek financial advice before you proceed
  • Considering a reverse mortgage if you need extra cash and have equity in your home - but make sure you understand the long-term risks.

If you intend to stay in your house for the long term, you may want to renovate your home so that it's safe and easier to move around as you get older. The My aged care website has information on getting help to stay in your own home so you can maintain your independence for longer. 

What to do after you downsize

After you've sold your house, you may have money to invest in other income-producing assets. There are lots of options available so seek financial advice on the best mix of investment products for your needs.

Downsizing into super

In the May 2017 budget, the Government announced that from 1 July 2018, if you are aged 65 or over and sell your principal residence that you have owned for at least 10 years, you will be able to make a non-concessional contribution to super of up to $300,000 from the proceeds. Couples will be able to contribute $300,000 each.

The contribution will not count towards the non-concessional contribution cap or the $1.6 million balance test, and you will not need to meet the existing maximum age or work test rules. See the ATO website for more information.

Selling the family home is not an easy or simple decision. Before you do anything, consult a financial adviser on the tax and social security implications, and speak to family and friends.

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Last updated: 06 Mar 2019