Hidden costs of downsizing leaving some Boomers worse off – realestate.com.au

Efforts to encourage retirees to free up larger homes for younger families still risk many facing greater financial security concerns that will create further economic disincentives.

Aussie Baby Boomers – born between 1946 and 1964 – are often at the forefront of Australia’s national conversations about crucial housing supply and rising property prices.

Both government policy and the dynamics of the housing market often ensure that people at retirement age give up their home in favor of a smaller property. However, Homesafe Wealth Solutions’ findings show that the reality can be as economically damaging as it is beneficial.

National home prices are at record highs across the country and while a tighter interest rate environment is expected to slow growth this year, the market is still expected to be 6 to 8% more expensive by the end of 2026.

As buyers continue to enter the market and demand increases, retirees are battling more than just public and government pressure to move on.

Australians aged 55 and over can currently contribute up to $300,000 from the sale of a home directly into their retirement.

Any financial gains from selling and downsizing are still largely eroded thanks to expensive stamp duty and estate agent fees.

While concessions have been widely discussed, political complexities have largely put the idea on the back burner in recent years, with the pendulum swinging the other way in the form of the government’s ‘overnight tax’.

The controversial plan, proposed at last year’s Economic Reform Roundtable, suggests that households with more rooms than they actually use would have to pay more taxes in a bid to free up housing stock.

The vast majority (85%) of older households (55+) have two or more spare bedrooms, although research from realestate.com.au and GemLife shows that many people continue to live in their family home because suitable smaller properties are not available.^..

Smaller homes designed with older Australians accounting for less than half of all new homes built between 2016 and 2021.

For Boomers looking to balance the cost of their retirement, strict retirement eligibility rules provide more incentive to avoid downsizing.

Although family homes are exempt from the asset tests that determine pension benefits, funds from the sale of real estate are taxable.

If a couple frees up $300,000 by cutting back, Homesafe estimates show their pension could be cut by up to $900 every two weeks. Under current phase-out rates, this amounts to $23,400 per year.

“This is a pitfall that many retirees do not see coming,” says CEO Dianne Shepherd. “Downsizing means that much more is lost than square meters.

“Many retirees are ultimately worse off. The idea that this automatically improves financial security is not always the case.”

Homesafe Wealth Release CEO Dianne Shepherd. Image: supplied

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Even with financial incentives and suitable housing alternatives, older Aussies simply don’t want to move.

The Australian Institute of Health and Welfare said housing is crucial to the physical, psychological and emotional well-being of many.

“The family home is not just an asset, it is a source of identity, stability and connection,” Mrs Shepherd added. “Downsizing is not the universal solution.

“Most older Australians want to stay where they are, many cannot afford to move, and the housing market often doesn’t offer what they need.”

This article appeared first Mortgage Choice and is republished with permission.