Downsizing in Retirement: A planner’s perspective (Robert De Ceglie)

I recently spoke at a seminar on this very topic and here’s a few of the discussion points I raised at this event, which I have learned through experience both as the son of elderly parents and as a financial planner.

Downsizing is such a huge life event that it needs considerable amount of thought however it is often easy to lose sight of the main purpose which is to move into a better place and to have a better life.  My observations though are that most people leave it too late to begin investigating their options.

So, when is the right time?

I guess only you (the elderly resident) can answer that. But there are some questions you and your family may wish to ask:

• Is the current home too big?
• Is it getting harder to maintain?
• Does the home feel empty now that the kids / grandkids are gone or visit less?
• Are the stairs getting harder to climb?
• Do you want to spend more time enjoying yourself outside the home (i.e. social events)

If the answer is YES to any, or all, of those questions then there is a good chance you’re already somewhere down the path of making such a move.

Downsizing options

Due to the wave of baby-boomers who are coming up to or already in retirement, the range of options available for retirees is abundant and seems to be increasing every year, but here’s three of the more popular:

• Move into a retirement village, nearby, that caters for your current and future needs;
• Move into another (smaller) home, nearby, such as a unit or townhouse; or
• Relocate to a coastal or rural home.

You need to apply a bit of research on each of these options.

The initial process

The initial process should include a conversation with the family and discuss and explore questions such as:

• If I move, then where to, and what impact (travel) is this likely to have on the family?
• How much is my home worth and how much will I receive less the agent and legal expenses?
• How much does the new home or retirement village cost (including legal / removal costs)?
• What do I do with any surplus money left over from the sale process?
• Are there any ongoing costs and if so, are how much are they?
• Will I be close to transport and amenities such as Hospitals, doctors, café’s, clubs etc
• Will I still be close to my family?
• How will that impact me financially and what about my Estate?
• Lastly, but perhaps most importantly, how will all of this affect my Centrelink benefits?

How the Planning process can help:

Here’s my tips on how taking a planning approach to this process is likely to yield a better financial result and a less stressful outcome than simply going it alone.

• Get to know your local real estate agent(s) to test the market on what price you can get selling your home – including their fees.
• Call a removalist to check prices on how much it is likely to cost for such a move.
• Write down a list of short and medium term (0-2 years) one off capital expenses, that you are likely to require in your new home such as new fridge, lounge TV etc
• Figure out how much you want to set aside for emergencies and deposit this in a high interest account, with the bank or financial institution you know best.
• Understand where your money is invested, such as your super/pension fund, term deposits shares and investment properties;

Once you know all of these things, you can simply work out how much extra you can invest from the sale proceeds of your home LESS those one off capital expenses and emergency funds, to provide a better financial outcome and to supplement any Centrelink pension income entitlements you have lost.

Most importantly, you should prepare a new Lifestyle Budget – one which includes the enjoyable things in life such as a holidays, eating out, gifts to kids, going to the gym etc along with the regular things such as electricity and groceries.

My role as a financial planner is to assist you to achieve your lifestyle goals and a big part of this is understanding where your income comes from, how much you are receiving in your hand and what risks need to be considered with regards to these sources of income. Essentially, there’s three key sources of income in retirement (known as the three pillars) which generally work in combination:

• Age Pension (Centrelink) entitlements;
• Super/Pension Income; and
• Income sourced from private savings (such as bank interest, rental income from an investment property and dividends from shares).

By comparing your lifestyle expenses against the income coming in, you should be able to see whether you can afford the move into a smaller home whilst still being able to live the life you want, aswell as what impact this is having on your capital / savings.

Whilst the process I have outlined sounds relatively simple, unfortunately finding the right answers – especially when it comes to solving the Centrelink puzzle –isn’t so straight forward. However getting a comprehensive financial plan, tailored to your specific circumstances and from a qualified financial planner, will give you the clarity and peace of mind you require at such a significant and stressful time in your life.  

Click here for our recent article on “The 3 pillars of Australia’s retirement income”

Click here for our recent article on “Transitioning from Independent Living to Aged Care”