Register For Our Mailing List

Register to receive our free weekly newsletter including editorials.

Home / 536

Navigating downsizing

You may have spent years (and a significant amount of money) making your current home your “forever home” so thinking about downsizing can be hard. It helps to offset any sadness about leaving with excitement about your new home and the happy times to come. Like any big decision getting your downsizing decision right is going to take some research.

Know your why?

Understanding why you want to downsize is a crucial first step. Knowing what you want to leave behind, what you want to keep and those things you want to change helps you understand the driving force behind your decision. You may want a different lifestyle and seek a “sea change” or “tree change” or you may simply want a low maintenance home in your current community. There can be financial reasons too: paying off debt, freeing up equity and reducing property related costs with the combined outcome being more time and money to spend doing the things you love.

Determine what you can afford

Moving costs money. While that may seem obvious, many people simply compare the price they are getting for their existing home with the price of their new one, but this is a recipe for disaster – because the cost of moving can easily run to tens of thousands. You need to break it down into selling, moving, and buying costs, this will make sure you are not left short when it comes to how much you will have available to spend or invest. 

Work out where

Where you live affects how you live and it’s something you can’t change without moving again. So, think about the people and places you want to be close to (or far away from). Whether it is family, friends, the beach or a favourite club identifying the people and places that you want to be close to can help you narrow down your Where.

Consider the accommodation itself, taking into account the spaces you'll need – a second bedroom if one person snores, a room for visitors, an outdoor space to enjoy your morning coffee – think about how you will live in the space.

And while you may be fighting fit now, it's wise to contemplate your future needs, especially if your plan is to stay in your new home long term. Ask yourself “What happens if I need care?”. Modern homes, including granny flats and those within retirement communities, are often designed with future care in mind. Look at your new home for potential access challenges, such as narrow halls and doorways and cramped bathrooms.

Few people plan to spend their days watching television, but if you don’t plan anything else that’s what you can find yourself doing. So when you’re thinking about where to downsize to ask yourself “How will I spend my time?”. If you are thinking about moving into a retirement community there is normally an events calendar, grab a copy and circle the activities that interest you.

Understand what you are signing

No matter what form your new home takes – whether it's a freehold, strata title, leasehold, licence, or a granny flat arrangement – you will need to sign a contract. Your contract spells out your rights, responsibilities, and costs. Your job is to ensure that you understand it and that it has a fair balance of these three elements.

Of all the downsizing options granny flat arrangements can be particularly complex as they involve family, are not necessarily on commercial terms and if it goes wrong the whole family can be affected.

Crunch the numbers

While the purchase price of your new home may be obvious there’s much more to consider.

In freehold or strata properties, you may need to factor in stamp duty, owners’ corporation fees, and the potential for special levies. While granny flat arrangements are typically with family that doesn’t mean they are free. In retirement communities, there is the weekly or monthly fee that you pay to live in the village and often there can be an exit fee.  Your exit fee will typically include a Deferred Management Fee (DMF) as a percentage of either your purchase price or future sale price and there can be shared capital gains or losses with the village operator, along with renovation costs, marketing and selling fees.

There is a simple exercise called the Ingoing, ongoing and outgoing that you can use to work out how much you will pay upfront, while you live there and when you leave.

Armed with the knowledge of what your new home is going to cost you can get a clearer view of the bigger financial picture. How much money will you have to invest or spend, how much Age pension (and other benefits) you can receive, your cash flow, and in the longer term your financial position should the need for aged care arise.

The Where and Why of your downsizing decisions are just as important as the contract you sign and its associated costs. Ultimately, getting good “bang for your buck” from your downsizing decision often comes down to how you invest your time and who you spend it with.

This is an edited extract from Downsizing Made Simple (2nd Edition) by Rachel Lane and Noel Whittaker. Downsizing Made Simple is available from www.downsizingmadesimple.com.au and all good bookshops. The website also has lots of useful exercises, checklists and calculators to help you on your downsizing journey.

 

Rachel Lane is the Principal of Aged Care Gurus where she oversees a national network of advisers dedicated to providing quality advice on retirement living and aged care. She is also the co-author of a number of books with Noel Whittaker including the best-seller 'Aged Care, Who Cares?' and their most recent book 'Downsizing Made Simple'. To find an adviser or buy a book visit www.agedcaregurus.com.au.

Firstlinks readers are invited to celebrate the launch of the second edition of Downsizing Made Simple with authors Rachel Lane and Noel Whittaker. Places are limited, so book early. In various major cities from November 28 to December 7.

 

4 Comments
Jenny Winthrop
November 23, 2023

The biggest issue with downsizing for me is to convince my husband to do so. Any advice on this would be appreciated, except getting a new husband, of course...

Peter
November 24, 2023

I am in the same situation except that I am the husband who does not want to go. We live in a regional town and are within walking distance of dentist, doctor, physio, chiro, hospital, pathology services, local supermarket, parks and schools for kids and grandkids. It takes us 10 to 15 minutes to get to anywhere I need to go by car with most of this spent waiting at traffic lights. We have a pool and a walking track along the river with a salt water reach and a fresh water reach at the end of our no through road street. There is no traffic at night and lots of wildlife. Why would I want to leave?

Graham W
November 24, 2023

You have answered your own reason to make a change. As soon as you are not able to drive around you are in a world of pain. Make the change before you have to and need to settle for second best. Find somewhere nice while you can. Many folk move to regional areas after retirement but overlook that they had great holidays but are know not close to the much needed facilities that they both need. No drivers license, no lifestyle.

CC
November 27, 2023

Not sure what you're on about there Graham. Peter sounds like he has a fabulous place to live. Each to their own though, but I would say there is more to life than just maximising one's finances by downsizing

 

Leave a Comment:

     

RELATED ARTICLES

Aged care and the Intergenerational Report

Is it better to rent or own a home under the age pension?

We need hard conversations about frailty planning

banner

Most viewed in recent weeks

16 ASX stocks to buy and hold forever

In his recent shareholder letter, Warren Buffett mentions several stocks he expects Berkshire Hathaway will own indefinitely, including Occidental Petroleum. We look at ASX stocks that investors could buy and hold forever.

The best strategy to build income for life

Owning quality, dividend-producing industrial shares is key to building a decent income stream. Here is an update on the long-term performance of industrial stocks against indices, listed property, and term deposits.

Are more taxes on super on the cards?

The Government's broken promise on tax cuts has prompted speculation about other promises that it may consider breaking. It's widely believed that super is lightly taxed and a prime candidate for special attention.

Lessons from the battery metals bust

The crash in lithium and nickel prices has left companies scrambling to cut production, billionaires red-faced, and investors wondering how a ‘sure thing’ went so wrong. There are plenty of lessons for everyone.

Welcome to Firstlinks Edition 545 with weekend update

It’s troubling that practical skills like investing aren’t taught at schools as it leaves our children ill-equipped to build wealth, and more vulnerable to bad advice. Here are some suggestions to address the issue.

  • 1 February 2024

For the younger generation, we need to get real on tax

The distortions in our tax system have been ignored for too long, and we're now paying the price. It's time Australia got real and addressed the problems to prevent an even greater intergenerational tragedy.

Latest Updates

Shares

16 ASX stocks to buy and hold forever

In his recent shareholder letter, Warren Buffett mentions several stocks he expects Berkshire Hathaway will own indefinitely, including Occidental Petroleum. We look at ASX stocks that investors could buy and hold forever.

Investment strategies

Clime time: 10 charts on the outlook for major asset classes

The charts reveal that interest rates can't rise much further as Australian mortgage holders are under stress, bank dividends look solid, and the bond market is in flux because yields are being manipulated.

Strategy

Phasing out cheques, and what will happen to cash?

Cheques and bank service, or the lack of, were major topics when I addressed a seniors’ group recently. The word had got out that the government was phasing out cheques, and many in the audience were feeling abandoned.

Retirement

What financial risks do retirees face?

Treasury's consultation into the retirement phase of superannuation is generating a lot of interest. This submission to the consultation outlines the key financial risks to an individual’s standard of living in retirement.

Shares

Recession surprise may be in store for the US stock market

Markets are partying like it's 1999, but history suggests that US earnings and economic growth are vulnerable following an interest rate tightening cycle. Investors should prepare their portfolios accordingly.

Investment strategies

3 under the radar investment opportunities

The Magnificent Seven are hogging the headlines, yet there are plenty of growth opportunities elsewhere, at a fraction of the cost. Here are three stock ideas riding key areas of structural and cyclical change.

Shares

Why a quant approach can thrive in the age of passive investing

The rise of passive investing is unlikely to derail the value of quantitative strategies. Passive investing hasn’t eradicated the irrationality of crowds, leaving pockets of opportunity to outperform indices.

Sponsors

Alliances

© 2024 Morningstar, Inc. All rights reserved.

Disclaimer
The data, research and opinions provided here are for information purposes; are not an offer to buy or sell a security; and are not warranted to be correct, complete or accurate. Morningstar, its affiliates, and third-party content providers are not responsible for any investment decisions, damages or losses resulting from, or related to, the data and analyses or their use. To the extent any content is general advice, it has been prepared for clients of Morningstar Australasia Pty Ltd (ABN: 95 090 665 544, AFSL: 240892), without reference to your financial objectives, situation or needs. For more information refer to our Financial Services Guide. You should consider the advice in light of these matters and if applicable, the relevant Product Disclosure Statement before making any decision to invest. Past performance does not necessarily indicate a financial product’s future performance. To obtain advice tailored to your situation, contact a professional financial adviser. Articles are current as at date of publication.
This website contains information and opinions provided by third parties. Inclusion of this information does not necessarily represent Morningstar’s positions, strategies or opinions and should not be considered an endorsement by Morningstar.