I’m ready to retire, now what?
The retirement years can be both exciting and daunting. We give you some food for thought about funding your retirement and selling your home or property.
You’ve worked hard all your life and now that you’ve decided to retire, you start thinking about the options available for funding your retirement.
Many retirees will have some superannuation saved up when compulsory superannuation laws were introduced in 1992 but with the rising costs of living, the amount in your super may not be enough. For many, the solution is to sell the family home, or even sell the investment property, if they have any. But are these options the best way to go? Selling the family home or the investment property comes with some pitfalls that you should be aware of.
This article is meant to be for information only and not intended to be advice. We highly recommend you see a financial planner or tax specialist who can give you more specific advice tailored to your situation and goals.
First things first – your financial and lifestyle goals
First, think about your lifestyle goals and how much money you’ll need to live comfortably. This will include sitting down with a financial planner to discuss your circumstances and how to protect your finances.
The next best thing to consider is if you’re going to sell the family home to downsize, do lots of research on where you’ll move to, and weigh the pros and cons. There are plenty of options in this category including:
- Sea change or tree change
- Living in a granny flat in your child’s backyard, or building a granny flat in your backyard
- Living in a retirement village
Some things to think about when downsizing includes:
- If you’ll be moving to an area close to hospitals or other essential services.
- How far from family you’ll be. Loneliness and isolation can be an issue, particularly when grandchildren are involved.
- The impact it will have on your finances as it can affect the amount of pension you’ll receive.
- Your Will and Power of Attorney should be updated every time your finances change. You may need to engage a lawyer to help you with this.
The age pension
The age pension you are entitled to is calculated by an income and assets test. Whether you are selling your family home to downsize or selling an investment property to fund your retirement, both options can reduce your age pension. It’s crucial to speak with a financial adviser for personal advice in this area.
Selling the family home or Principal Place of Residence
The pros of selling your principal residence are that you downsize, meaning less space to upkeep and less cost of running a smaller home.
The cons are the emotional toll of saying goodbye to a home with many memories and starting over again to get to know a new neighbourhood. Also, the proceeds from your sale may affect your age pension or your government benefits.
If you sell your principal home the proceeds are exempt from the age pension assets test, if you will be using the proceeds to buy, build or renovate another home within 12 months from the date of sale.
If you decide not to sell your family home but rent it out while you live in a retirement home, you will need to consider Land Tax implications. Also, the rental income could reduce your age pension.
If you are not ready to sell your family home, other options can include:
- Building a granny flat in your backyard and either renting it out or living in it and renting out the main home. But keep in mind this may affect the amount you’ll get in your age pension.
- Renting out your spare rooms or converting your house into a dual occupancy so you can live in one half and rent out the other half. As with the above point, the rental income you receive will affect your age pension.
- Obtaining a reverse mortgage. A reverse mortgage allows you to access the equity in your home so you have funds for your retirement. What’s great about it is you get to keep your home to sell at a later date, to take advantage of rising house prices particularly if you live near a major city.
Investment home
When selling an investment home to free up money for your retirement, there are two things to think about:
- The right time to sell, and
- The tax payable (CGT) on the property.
You want to make sure you sell your investment home at the best possible time when the market is strong to increase your return on investment. This means speaking with a few real estate agents to get a good picture of how the market is doing and how much your property will likely sell for. Read about our tips for selling your home here.
The profits from your sale will also attract CGT. While the sale of your family home will not attract CGT, the sale of your investment property will.
Also, if you sell an investment property, it will be counted alongside your taxable income so you may want to think about selling it after you retire when you’re no longer earning an income. Also, because it’s an investment property, there will be CGT payable on it.
Centrelink also assesses the pension you’re eligible for based on an assets and income test, so it’s best to work with a financial adviser as to the right strategy for you.
The timing of the sale of an investment property is critical so proper financial advice is crucial.
Our top tips
To sum up here are our top tips if you’re thinking about retiring and selling your home or investment property:
- Have a good idea about the amount of money you’ll need to live your ideal standard of life.
- See a financial planner and/or tax adviser for detailed advice on your tax obligations and how they’ll affect your age pension.
- If looking to downsize (i.e. sell the family home) do thorough research of the area you’re considering moving into and think about whether you can live there long term and how much it will cost to live there.
- See a lawyer to draw up an updated Will and Power of Attorney to reflect the change in your financial circumstances.
- If you need help in selling your property or want a free appraisal, contact us on 0434 056 728 and speak to one of our friendly agents.
