There comes a time when many older Australians consider downsizing the family home. This thinking can arise for a range of reasons, from financial through to finding the routine maintenance on the old family home becoming a chore. Downsizing sounds simple enough, but if you ask anyone who has been through the process you will discover a long list of emotional and financial challenges.
It seems simple process. Sell your large family home when you retire and move into an apartment or a smaller house or retirement community.
At first glance you would think that this single step would simplify your life, and boost your retirement savings at the same time. As with most things in life there is so much more to the decision to downsize than money.
The Federal Government recently introduced incentives designed to encourage more retirees to downsize from homes that no longer meet their needs. However, so far, the numbers of people taking up this offer is smaller than the Government anticipated. It seems that many have decided that they would prefer to “age in place”.
This is outcome is hardly surprising because to most of us, our property represents a reassuring constant in a world of rapid change.
According to the Productivity Commission’s report, Housing Decisions of Older Australians, 76 per cent of Australians aged over 60 see their home as a place to “see out their retirement”, 71 per cent view the home as a “safety net”, while 44 per cent would like to see their property passed on to their children.
Meanwhile, research by the Australian Housing and Urban Research Institute, downsizing amongst older Australians, found the five most common motivations to downsize include:
- lifestyle preference,
- an inability to maintain the house and garden,
- children leaving home,
- and, health and disability.
It’s interesting that only 10 per cent of those responding to the survey cited financial gain as their motivation for seeking a smaller dwelling, while just 6 per cent pointed to financial difficulties as the primary driver for their decision. Experience shows that the psychological and emotional adjustment can be more daunting than making the numbers stack up.
The purchase of the family home decades earlier was often the result of years of toil and sacrifice, often funded by working multiple jobs, and the relentless savings discipline that were required to get a deposit together. The goal of achieving the attainment of the Great Australian Dream – home ownership is associated with both achievement and identity.
Saying goodbye to the family home so many years later to downsize can be a jarring end to their dream. It can be especially emotional for ladies who have been widowed because their memories are deeply involved with the work that their husbands did in their early days.
The Australian property culture driven by a ‘bigger is better’ mantra. The decision to sell the family home later in life is often made harder because Australian freestanding houses are amongst the largest in the world. According to the Australian Bureau of Statistics, the average new freestanding house built in Australia in the 2017-18 financial year was 231m2, second only to the United States, where super-sized dwellings are the norm. While we may have moved on from ‘peak McMansion’ in 2011-12, when the average house size topped out at 245m2, the 2018 Commsec Home Size Trends Report confirms that properties built in Australia today are some 30 per cent bigger than they were in the 1980s.
For many people in retirement, the adjustment to an apartment or another much smaller property can be an emotional roller coaster ride and a logistical nightmare.
The prospect of a massive garage sale and the need to rapidly learn the art of decluttering can be overwhelming! Marie Kondo’s book, The Life-Changing Magic of Tidying Up, should be essential reading for all Aussie downsizers!
As with most things in life, there are positives and negatives associated with downsizing. Giving careful thought to both the benefits and the drawbacks of downsizing will allow for more realistic expectations.
The positives include less household maintenance, being closer to Shops and transport, the opportunity to increased retirement savings and the convenience of being able to confidently lock up and leave when you are travelling. These benefits need be weighed up against the practical realities of leaving your current community and joining another one, living in a smaller space, reduced ability entertain as many guests and confusion about the impact on incomes if your Age Pension is affected.
As our lifespans increase, so too does the cost of retirement. This can lead to an uncomfortable conflict between the financial reality of living longer and the emotional desire to remain in your home for as long as possible. Centrelink exempts the family home for the Age Pension assets test and this can often cause people to hold on to a valuable property when, for lifestyle or health reasons, they would be better served by a smaller property.
While it can be possible to downsize and structure your finances so you generate a higher level of ongoing income (even allowing for reduced Age Pension payments), achieving this in the current low interest rate environment will depends heavily on how the sale proceeds are invested and the return you receive on those funds.
When considering downsizing the most important question that must be addressed is what really matters more in retirement?
The answer to this question will be different for everyone. For most people, managing the tension between their desire to be able to maximise their enjoyment now, with the perceived need, whether it is real or not, to keep money in reserve for a rainy day. With lifespans increasing many people feel a need to either provide for more flexibility to meet unexpected expenses down the track or even just to leave a greater legacy to their children.
The decision to SKI (spend the kids’ inheritance) could well be taken out of your hands though. If the need to sell the family home is forced onto the owners due to the death of one of them or major health issues, the choice of where to live could be limited to what is available and whether it fits within your budget. Statistics show that more than 40 per cent of older Australians would like to see their property passed on to their children, in this era of substantially longer life expectancy, it is highly likely that the inheritance is likely to come from a property that will be smaller than the traditional family home.
Written by Mark Noble based on an original article by David Kennedy posted on Startsat60.com Nov 28, 2019