Downsizing to upsize your retirement

Nov 1, 2022 | Invesment, Retirement, Wealth

To downsize or not to downsize is the question facing many home-owning Australians in the lead up to or in their retirement years.

And the answer is… it depends.  

There are many factors to consider when weighing up the decision of whether to sell the family home or not, and it depends on your personal circumstances and goals as to which option is going to be the best for you.

What are retirees currently doing?

Research conducted by the Australian Housing and Urban Research Institute (AHURI) in 2018 found while the majority of older Australians aged 55 and over have either already downsized (26%) or thought about downsizing (29%), the largest group of respondents have not considered downsizing at all (42%). 

The research also found that the primary motivations for downsizing among older Australians were lifestyle reasons (27%), financial reasons (27%) and because the garden/property required too much maintenance (18%).

Interestingly and perhaps unsurprisingly, lifestyle and maintenance reasons increased while financial reasons decreased as respondents progressed through retirement. 

Additionally, the largest reason for downsizing for any age bracket occurred in the age bracket of 55-64, with 35% of respondents downsizing for financial reasons. This result is potentially motivated by pre-retirees completing retirement planning and the need to contribute to superannuation while still eligible[1]

What are the considerations?

Retirement Income Needs

For some, remaining in the family home might not be an option, with equity needing to be released from the property to help with meeting retirement income needs.

Retirement Goals

For those with the luxury of choice, it comes down to your retirement goals and what is important to you.

You might want to remain in the family home because it is filled with memories, or so that it can be gifted to your children in the future.

Or you might want to relocate to somewhere that offers a different lifestyle or somewhere that is smaller and requires less maintenance.

It’s also important to consider your current home’s suitability for your retirement years. The two-storey house in the city with a big backyard and a pool might have been great for your young family; however, a single-level villa with a small courtyard near the coast might be more suitable for your retirement years.

Cost of Downsizing vs Not Downsizing

While maintaining and running a bigger property might be a motivating factor for downsizing, the cost of downsizing is quite often seen as a barrier. 

By the time you factor in selling costs such as agent and legal fees, buying costs including stamp duty and more legal fees, as well as the costs of relocating, the leftover proceeds might not be as much as you had initially thought. 

Centrelink Implications

Another consideration for those homeowners currently eligible for the age pension is the impact of the sale on entitlements.

Your home is not counted for age pension test purposes, however, any sale proceeds from downsizing will be counted, which could negatively impact your pension entitlement and/or eligibility.

Retirement Nest Egg

As demonstrated by the AHURI research, financial reasons are a common motivator for downsizing. 

Downsizing may allow retirees to free up home equity, with the proceeds reallocated towards other investments. This can provide a number of advantages:

Diversification: – You’ve no doubt heard the phrase ‘don’t put all your eggs in one basket’, however, the family home often represents a significant allocation within retiree’s investment portfolios. Redistributing some of this allocation towards other investments can help to reduce risk and maximise return.

Greater Liquidity – Property is generally considered an illiquid investment compared to other investment types, such as shares and managed funds. Redistributing some of this allocation towards more liquid investments increases the amount of funds that can be easily accessed when needed.

Rate of Return – Alternative growth investment assets such as Australian and International shares are expected to provide greater potential rates of return over the long term than Australian property.

For the period 1970 – 2021, the average annual returns for growth asset classes were as follows[2]:

  • Australian property – 8.50%
  • Australian shares – 9.80%
  • International shares 10.10%
  • US shares (S&P 500) – 12.00%

This means that your retirement nest egg may be better off as a result of downsizing and redistributing some of this allocation towards other growth investments than by retaining these funds in the family home.  

Additionally, Australians over the age of 60 may now be able to contribute the proceeds from the sale of their home to superannuation under the Government’s Downsizer Superannuation Contribution measure, which is a positive initiative for those looking to boost their superannuation nest egg.

There are a lot of opportunities as well as important points to consider when deciding whether or not to downsize the family home. 

A licensed financial adviser can help you navigate this decision as part of your overall retirement planning to ensure you get the most out of your retirement nest egg!


[1] The AHURI research was conducted in August-October 2018, while the Downsizer Superannuation Contribution measure was only introduced in July 2018.  

[2] Data prepared using the Vanguard Asset Class Tool, based on data supplied by Andex Charts Pty Ltd

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