Money
How much could you save by downsizing?
Downsizing can free up cash for your next chapter, but it’s not always the financial windfall it appears to be. Here’s what to weigh up before you make the move.
By Carolyn Tate
Does your family home, that once buzzed with children's laughter and discarded shoes now feel empty and cavernous? Expensive to maintain? And perhaps too much house for your current needs? If you’re still living in the family home after your kids have packed up and moved on, you might wonder if you’d be better off selling up and moving to something more manageable – and if you’re lucky, pocketing some cash along the way.
The concept is an inviting one, but the financial reality isn't always as straightforward as x - y = a hefty wad of cash. The true cost (or savings) involves a potentially complex web of expenses, opportunities and lifestyle considerations that deserve careful planning.
Anthony Sultana, CFP and principal at Creo Wealth, works with many clients navigating this transition. He says the numbers tell only part of the story.
"Downsizing is about more than just moving into a smaller property,” he explains. “It's also about creating the lifestyle you want for the next stage of life.”
Planning your downsizing move
Before you start browsing property listings, Sultana recommends having a think about the broader picture of what you want your life to look like. "It's worth considering proximity to family (including grandchildren), access to healthcare, and whether the new home will suit your needs in retirement," he says.
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The practical considerations matter too. "A single-level, low-maintenance home can make a big difference later on," Sultana notes. "It's also important to think about the emotional side of leaving a long-term home and the financial reality that the sale price may be lower than expected, leaving less to put toward your new property."
That emotional adjustment shouldn't be underestimated. The home you're leaving likely holds decades of memories and the process of sorting through belongings can be more overwhelming than you might expect.
Understanding the true costs
The excitement of a potential windfall might quickly wear off when you start working out the actual costs of downsizing too. There are quite a few to consider as Sultana explains: "Real estate agent commissions, stamp duty (unless concessions apply), legal and conveyancing fees, removalist expenses and sometimes updates or renovations to the new home."
So how much should you budget for these expenses? "While it varies, some people allow between 5-10% of the property value to cover these costs," he suggests, adding that "everyone's circumstances are different, so it's important to confirm your own estimates before making decisions."
Using this formula, if you're selling a $800,000 home, you might need to set aside $40,000 to $80,000 just for costs – which is a significant chunk that can put a dent in your available funds.
Avoiding common pitfalls
Another potential trap is how downsizing might affect your government benefits. "One of the biggest pitfalls is underestimating how downsizing may impact entitlements like the Age Pension or other Centrelink benefits," Sultana warns. "Equity can change your eligibility, so it's ideal to get advice before selling.
"Other pitfalls include hidden or ongoing costs like strata fees or retirement village charges, and overestimating how much you'll have left after the move if your home doesn't sell for as much as expected," he explains.
Then there's the emotional toll. "And of course, there's the emotional adjustment – leaving a family home full of memories can be more challenging than anticipated."
Making the most of your proceeds
If you do decide that downsizing is a good choice for you, planning what to do with any leftover funds is important, says Sultana. “Think carefully about what to do with any residual funds – whether they go into super, investments, or simply help cover living costs."
One valuable opportunity is the Downsizer Contribution to superannuation. "If you're aged 55 or older and have owned your home for at least 10 years, you may be able to contribute up to $300,000 from the sale into super outside the usual contribution caps," Sultana explains. "Couples may be able to contribute up to $600,000 combined."
Your next chapter
As with any significant financial decision, "good planning is key," Sultana says. "Research different areas, visit properties and make sure the home you choose supports your lifestyle and long-term goals. Decluttering gradually helps make the move less overwhelming."
Finally, Sultana reminds us that money is just part of the equation. "Downsizing isn't just about finances, it's about making sure your next home and your broader plans support the lifestyle you want,” he says. “Everyone's situation is unique, so getting advice before making any big decisions can help avoid surprises and make the transition a positive one."
So the question isn't just whether downsizing will save you money – it's whether it will give you the lifestyle and financial flexibility you want for this next stage of your life.
This article contains general information only. It is not financial advice and is not intended to influence readers’ decisions about any financial products or investments. Readers’ personal circumstances have not been taken into account and they should always seek their own professional financial and taxation advice that takes into account their financial circumstances, objectives and needs.
Feature image: iStock/Wavebreakmedia
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