Are you thinking about downsizing your home? There is a great government incentive that might just make your decision a little easier. It's called the Downsizer Contribution, and it was designed to help older Australians make the most of their retirement savings while freeing up larger homes for younger families. Let's dive into what this means for you and how you can take advantage of it.
What is the Downsizer Contribution?
Introduced in July 2018, the Downsizer Contribution originally allowed individuals aged 65 and over to make a personal superannuation contribution of up to $300,000 using the proceeds from the sale of their home. The age limit was reduced to 55 on 1 January 2023. This contribution can be made regardless of other voluntary contributions you might be eligible to make under existing rules. The best part? You can make this contribution even if you're over 75, provided you've owned your home for at least 10 years and it was your principal residence at some point. You don’t need to currently have a super fund either.
Eligible Home/Dwelling
To make a downsizer contribution, an individual or their spouse must have disposed of an ownership interest in a dwelling located in Australia. The definition of 'dwelling' for this measure excludes caravans, houseboats, and other mobile homes.
How does it work?
Here's a quick rundown of the key points:
- Eligibility: You must be 55 or older and have owned your home for at least 10 years.
- Contribution Limit: You can contribute up to $300,000 from the sale proceeds of your home. If you're part of a couple, you can each contribute up to $300,000, making it a total of $600,000.
- Timing: The contribution must be made within 90 days of the settlement date of your home sale.
- No Work Test: There's no requirement to meet the work test, and you're not restricted by total super balance rules.
A Few Important Considerations
While the Downsizer Contribution offers many benefits, there are a few things to keep in mind:
- Sale Proceeds: If the sale of your home is less than $300,000, you can only contribute the amount of the sale proceeds into superannuation. You can't "top up" the contribution with funds from other sources.
- Social Security Impact: If you're of age pension age and receiving social security benefits, be cautious. The full value of your family home is exempt from both the Income and Assets test for social security purposes. However, any remaining sale proceeds (after purchasing a new home) will be assessable, regardless of whether the funds are contributed into super or not. This could result in losing some or all of your age pension benefits and access to the pensioner concession card.
Case Study: Jeff and Helen
Let's take a look at a real-life example to see how the Downsizer Contribution can impact your financial situation.
Jeff and Helen, aged 80 and 76 respectively, have owned their home for 35 years. Their home is valued at $1.4 million, which is exempt from social security assessment. Jeff has an account-based pension worth $350,000, and Helen has one worth $105,00089. They also have $5,000 in a cash account.
If Jeff and Helen sell their home for $1.4 million and buy a new home worth $800,000, they can contribute the remaining $600,000 into their respective super accounts under the downsizing scheme ($300,000 each). They then commence new account-based pensions from this new money and draw the required minimum annual payments.
Impact on Age Pension Benefits
Before downsizing, Jeff and Helen's combined age pension was $34,437, and their total income was $65,310. After downsizing, their total income increased to $69,873, but they lost access to any age pension benefits and the pensioner concession card. This may not be the outcome they wanted, as concessions from the senior's card were an important factor for them in retirement. However, they may qualify for the Commonwealth Seniors Health Card.
Final Thoughts
The Downsizer Contribution is a valuable tool for older Australians looking to boost their retirement savings and make the most of their golden years. However, it's essential to consider the potential impact on your social security benefits and overall financial situation before making any decisions. Consulting with a financial adviser can help you navigate the complexities and make the best choice for your unique circumstances.
So, if you're thinking about downsizing, take a closer look at the Downsizer Contribution. It might just be the key to unlocking a more comfortable and financially secure retirement.
As a licensed financial adviser and Accredited Aged Care Professional™, I have the experience and expertise to help you sail through your retirement years with confidence, clarity, and peace of mind.
If you would like to discuss a Downsizer strategy, please contact Sophie on 02 4325 0884 or [email protected].
Sophie Doyle (AR#000470612) is a Retirement & Aged Care Specialist at Morgans Financial Limited (Morgans AFSL 235410 / ABN49 010 669 726). Sophie is passionate about helping people over 55 make informed decisions that empower them to step confidently into the next phase of life. She specialises in creating personalised financial strategies tailored to each client’s lifestyle, aspirations, and risk tolerance—enabling them to live a life full of meaning, purpose, and peace of mind.
