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packing up for retirement

How a Downsizing Contribution Supercharges a Retirement Plan

When you prepare for your very final day of work, you may not realise how much your lifestyle will change. 

You will have more free time, hopefully far less stress, and your living situation will be different. 

Many retirees come to the realisation that their current home isn’t necessarily the right fit anymore.

Maybe you live close to the city or to your work office and you don’t need to anymore? Perhaps your home is far larger than you actually need (and has far too many rooms to clean!) or maybe you’re looking to relocate to a far quieter, coastal town?

If your home isn’t a match anymore, you may like to take advantage of the downsizer contribution scheme. This will allow you to secure your dream retirement home and enjoy financial benefits. The downsizer contribution scheme gives you the opportunity to boost your superannuation balance by releasing money locked up in your home’s equity.

Here’s what you need to know…

Who is eligible for the Downsizer Contribution Scheme?

Whether you are thinking of selling your home, or have recently sold, you may be asking yourself if you can make a downsizer contribution to your super.

It is currently available for Australians who:

  • Are aged 65 and above, but there is a proposal to extend it to people aged 60 to 64. 
  • Have owned (by you or your spouse) their home for 10 years or more prior to selling.
  • Own a home in Australia and is not a caravan, houseboat or other mobile home.
  • Have not previously made a downsizer contribution to their super from the sale of another home.

Still not sure if you are eligible? Head to the ATO’s detailed eligibility criteria.

How Does this Scheme Work?

When you sell your primary home, you can make a downsizer contribution of up to $300,000 into your superannuation, provided you are 65 years and older. However, in a recent proposal for amending current Superannuation legislation, the government wants to lower the qualifying age to 60. 

Even though downsizer contributions are technically ‘non-concessional,’ this specific contribution does not count towards your contribution cap. 

Here’s an example of what this looks like in real life.

Suppose you and your partner are 68 and 70 years old, and you own a home that you have lived in for the past 25 years. If you sell your home for $1,000,000 and buy a townhouse for $500,000, this will leave you with a surplus of $500,000, enabling you to both make considerable downsizer contributions to your superannuation. For example, one spouse can contribute $300,000 while the other contributes $200,000. Alternatively, you can split the contributions equally at $250,000 each.

How Do I Make the Downsizer Contribution?

If you’ve decided to make a downsizer contribution as part of your financial planning for retirement, you have to be aware of the timelines around contributing. You can only make this super contribution within the first 90 days after you receive the proceeds from the sale. Also, your downsizer contribution will count towards your total super balance and your Transfer Balance Cap (TBC). 

Note that the TBC might restrict future contributions. It only applies when your super savings are moved into the retirement phase. 

Furthermore, downsizer contributions will be counted when Centrelink examines your assets and income, which affects your eligibility for age pension. Speaking with a wealth manager should make your options clearer.

Planning for retirement is a marathon, not a sprint.

Retirement planning requires patience and endurance—you cannot spend the last two years of your career scrambling after sources of income and think that this will be sufficient. The people who are most prepared for retirement have diverse investment portfolios, consider all their financial options, and engage with an experienced financial planner for advice.

To know more about tips in managing your finances during your retirement years, check out these posts:

Find your financial freedom when you consult with the Newcastle Financial Planning Group. We create customised plans and help our clients with all aspects of retirement financial planning, from maximising their superannuation contributions to building an investment portfolio, and more.

Book an initial complimentary meeting and start taking care of your future today!

DISCLAIMER: The views expressed in this publication are solely those of the author; they are not reflective or indicative of RI Advice Group’s position and are not to be attributed to RI Advice Group. They cannot be reproduced in any form without the express written consent of the author. This information (including taxation) is general in nature and does not consider your individual circumstances or needs. Do not act until you seek professional advice. Newcastle Financial Planning Group, Central Coast Financial Planning Group, Sydney Wealth Advisers, Coastal Advice Port Macquarie and Coastal Advice Ballina Byron are subsidiaries of Coastal Advice Group Pty Ltd which is a Corporate Authorised Representative of RI Advice Group Pty Ltd, ABN 23 001 774 125 AFSL 238429.
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