Sell the family home. Buy something smaller. Pocket the difference.
Sounds simple.
It’s the plan most of us are handed once the kids have gone. And for plenty of women, it works.
But I’ve watched people downsize, go too far, and regret it. Selling, buying and moving – then finding the new place doesn’t fit their life. That’s an expensive mistake, and a hard one to undo.
Downsizing in retirement means selling your home and buying something smaller or cheaper, usually to cut upkeep and free up money. It works when the new home fits the next 20 years of your life, not just your budget.
So size for the life you’ll actually live. And before you list, weigh the move against staying put and renovating what you already own.
Important to note: before you make any decision about downsizing meet with your accountant and financial planner to ensure you get the Best outcome for your personal situation. Tax and superannuation laws are very complex and require an expert to interpret for you.
Why Downsizing in Retirement Can Go Wrong
Most lists of the pros and cons of downsizing mention “less space” in a line. For some people, it turns out to be the whole story.
The “everyone says I should” trap
Lenore is 74 and widowed. She shared the unexpected emotional cost of downsizing with The Senior, after moving from a four-bedroom house in Port Stephens to a two-bedroom unit in a retirement village. (Lenore is a pseudonym – she didn’t want to be ridiculed.)
Everyone told her downsizing was the way to go.
Then her family came to stay. They were cramped and getting on each other’s nerves. Her words: “I thought ‘what have I done?'”
“No one, including myself, talked about if it would actually suit me,” she said.
She stuck it out for a while. Then she sold and bought a bigger house on a smaller block. Two moves, and two rounds of buying and selling costs, for one decision.
Dr Zena Burgess, CEO of the Australian Psychological Society, calls our bond with home “place attachment”. She says people often face family and social pressure to downsize.
“Not everyone feels comfortable living in a smaller home.”Dr Zena Burgess, Australian Psychological Society
The right-sized home is hard to find
Even when you know what you need, it may not be for sale.
The realestate.com.au GemLife Downsizing Australia Report found smaller one-to-three-bedroom homes made up less than half of the homes built between the 2016 and 2021 Censuses. And 17% of people surveyed said not finding the right-sized home was one of the main things stopping them from downsizing.
That makes it tempting to grab whatever’s available.
Don’t.
What Downsizing for Retirement Really Costs
Count the cost before you list
The gap between your sale price and your purchase price is rarely the money you keep.
Moneysmart lists the big costs of downsizing in retirement: agent fees, stamp duty, legal fees and removalists. Then come the smaller ones that sneak up on you – storage, decluttering, cleaning, repairs before you sell, and a skip bin or two.
| Cost | When it hits |
|---|---|
| Repairs, cleaning and decluttering | Before you sell |
| Real estate agent fees | When your home sells |
| Legal fees | On the sale and on the purchase |
| Stamp duty | When you buy the next home |
| Removalists, storage and skip bins | Moving week, and sometimes for months after |
| Strata or body corporate fees | Every quarter, if you move to a unit or apartment |
Sources: Moneysmart and the Australian Psychological Society.
Check the gap itself, too. If you sell and buy in the same market, Moneysmart warns the difference in price may be small. And a unit or apartment can bring strata or body corporate fees that chip away at the savings you moved for.
Run the numbers on the whole move. Not just the sale price.
Downsizing rules for pensioners and the downsizer contribution
While you live in your home, it isn’t counted in the Age Pension assets test. Sell it, and the part of the proceeds you plan to use to buy, build or renovate your next home may be exempt. Money left over may count under the assets and income tests.
Moneysmart’s example is Mary, 67. She sells for $800,000 and buys a $500,000 apartment. The $300,000 left over trims her pension slightly – and she decides the extra money is worth it.
If you’re 55 or older, you may be able to add up to $300,000 from the sale to your super as a downsizer contribution.
An eligible partner can do the same. The ATO’s downsizer contribution rules include owning the home for at least 10 years and contributing within 90 days of receiving the proceeds. You only get one.
This is general information only. Speak with a qualified broker or financial adviser about your circumstances.
Should I Downsize? A Right-Sizing Test for the Next 20 Years
Downsizer, upsizer or right-sizer?
When we downsized, we sort of upsized.
I prefer to call it right-sizing.
Right-sizing means choosing the home that fits the life you’ll actually live in retirement. It might be smaller. It might be the same size somewhere easier. It might even be bigger where it counts – a guest room, a garden, a shed.
The question moves from “how small can I go?” to “what will I need in the years ahead?”
Not just next year.
Five questions that tell you it’s time to downsize – or not
Run every option through these. Moneysmart’s questions about your home in retirement cover several of the same things.
- Where will family stay? Count the visits, the grandkids and the Christmases.
- Where do your hobbies, garden and pets go? If they matter now, they’ll likely matter at 80.
- Will it still work if your mobility changes? Stairs, steps at the front door, a shower you can walk into.
- How close is your support? Family, friends, transport, shops and health services.
- What will it really cost to live there? Fees, strata and running costs – not just the price gap.
Still unsure about a new area? The realestate.com.au guide suggests you “try before you buy” by renting there first. And it’s worth knowing what downsizers want in a home before you shop alongside them.
Alternatives to Downsizing in Retirement: Stay, Change or Renovate
The options most people skip
Moneysmart puts it plainly: downsizing doesn’t suit everyone, and some people stay and make changes to their home instead.
If you stay, you still have choices.
- Rent out space. Take in a boarder or rent out a room.
- Create a dual occupancy. You may be able to convert your home, then rent or sell half of it.
- Release equity. A reverse mortgage or home reversion can give you cash. Moneysmart warns there’s risk and a long-term financial cost, so get independent advice first.
Any of these can affect your tax and your pension. Check before you decide.
Renovate the home you already own
Then there’s the option I teach: renovating for retirement with the one property you already own. Your own home is the hero.
You don’t need walls coming down. Cosmetic Plus is kitchens, bathrooms, paint and floors – no council approval, no structural work. Done well, it can make your home easier to live in and lift its value, whether you stay or sell later.
It isn’t risk-free. Overspend, or renovate to your taste instead of the market’s, and you can lose money. Know your numbers before you start.
Put every option side by side – renovate, sell, downsize, develop or stay – before you sign anything.
Right-Size Before You Downsize
Downsizing in retirement can work beautifully. It just needs more than a smaller number.
Count every cost of the move, not only the price gap. Size your next home for the next 20 years – family, hobbies, mobility and support. And test the move against staying and renovating before you list.
A downsize that doesn’t fit is expensive to undo. Lenore paid for it twice.
If you’re weighing up whether to stay, sell, downsize or renovate, Your Home’s Retirement Plan walks you through it. You’ll know which move fits before you spend a cent finding out.
Downsizing in Retirement: Your Questions Answered
Is there a downside to downsizing?
Yes. You get less space, less room for guests, a new area to settle into and the emotional pull of leaving the family home. Selling, buying and moving costs can also shrink the money you free up.
What is the best age to downsize?
There’s no single right age. Most people consider it when their home stops suiting their needs. If you want to make a downsizer contribution to super, you need to be 55 or older.
Will I lose my pension if I sell my house?
Not necessarily. Money you’ll use to buy, build or renovate your next home may be exempt from the assets test. Money left over may reduce your payments. Services Australia’s Financial Information Service can talk you through it.
Can I put money from selling my home into super?
From 55, you may be able to contribute up to $300,000 as a downsizer contribution. You must have owned the home for 10 years or more and contribute within 90 days of receiving the proceeds.
Not financial advice.
