Upsize your super with a downsizer contribution

Booming house prices in the Central West are presenting unique opportunities for retirees looking to cash in and boost their super.

This month’s Budget announcement that the home downsize provisions are being extended means that younger retirees can benefit with more tax-free super when they need it most. 

A local property boom

Record low interest rates, relaxed lending standards, and the pandemic induced tree-change movement are all combining to drive up local house prices like never before.

While rising house prices are bad news for young people trying to break into the market, they can be good news for retirees.

Home ownership good for retirees

As retirees it’s important that we still own our own home.  The recent Retirement Income Review found that home ownership is the key to feeling secure in retirement. 

And there are substantial transaction costs when we buy and sell property; Stamp Duty, agent commissions, legal fees and removalist’s charges all add up. 

But if we downsize our family home to buy something smaller, like a unit or townhouse, we’re still likely to have some money left over.

Downsizer contributions

That excess money can be contributed into your super tax-free.  You can contribute up to $300,000 into super each.  That’s up to $600,000 per couple.

You can then use your increased super balance to fund a better retirement.  If you’re retired you can draw down the money at any time tax free to pay for a holiday, a caravan, a new car or anything else you desire.  If, like most of us, you have less than $1.6 million in super, you can also use the money to start a higher tax-free income stream paid to you monthly or fortnightly.

You won’t be alone.  Since the downsizer mechanism was introduced about three years ago, more than 22,000 Australian retirees have taken it up.

But there are some conditions.  You must be over 65 and you need to have owned your home for at least ten years.  The Budget proposes that the arrangement be extended to 60 year olds from July next year, but that’s not law yet.

The most important thing, however, is to make sure the numbers stack up.  If you’d like to learn more about whether the downsizer contribution is right for you, give us a call. 

Daniel Crump is the founder of Daniel Crump Financial Planning.  This article is general and does not consider your personal circumstances.  If you would like advice specific to you, please visit www.danielcrumpfp.com.au or give us a call on 0418 148 622.