29 October 2019

Downsizing: 4 financial benefits & how they can work for you

Pat Carbone
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The average rate of return for super funds is expected to dip below 5% this year as the economy struggles and interest rates fall. Term deposit and savings interest rates are also decreasing, with an average rate of around 1.5% for major banks as of September 2019.

This trend may well hit Australian savings and super accounts hard, particularly those who were banking on a high rate of return to help fund their retirement. Luckily, there’s an easy solution if your super isn’t at the level you’d hoped it would be – downsizing.

Moving to a smaller, more affordable home could be the perfect way to free up the cash and time you need to set yourself up for the retirement you deserve.

1. FREE UP EQUITY A comfortable retirement doesn’t come cheap. The ASFA estimate that the average couple will need at least $640,000 in super or savings, in addition to owning their own home outright and mortgage-free.

One of the smartest, easiest ways to quickly boost your cash reserves is to sell your current home and move to a more affordable alternative. A big advantage here is that you can then deposit the proceeds of selling your home straight into your super without it counting towards your contribution caps.

1. SAVE ON REPAIRS AND MAINTENANCE When you retire you’ll have a finite amount of savings or super to draw from in order to fund your lifestyle (plus the aged pension if you’re eligible). The repairs on a large standalone home can quickly deplete these funds, particularly if you need to undertake a large project like replacing a leaky roof or installing new foundations.

Plus, everyday maintenance like caring for your garden and lawn can be costly, particularly if you can’t do it yourself. If you downsize to a smaller, easier to maintain unit, townhouse or apartment, you’ll most likely cut these costs dramatically and help stretch out your retirement fund.

1. LIVE A BETTER LIFESTYLE FOR LESS Depending on where you move, downsizing could decrease your costs of living while improving your lifestyle. Downsizers who move to retirement villages in particular find that they spend less on socialising and leisure time because they don’t need to leave the village to enjoy these important connections to community.

1. ENJOY LOWER UTILITY BILLS Back in 2017, concerning reports started to emerge of retirees who wouldn’t turn their heaters on in fear of a power bill they can ill afford. Unfortunately, with energy prices sky-high, this problem is unlikely to stop any time soon.

Downsizing is a great way to make sure that your retirement budget isn’t as tight and that you don’t experience as much bill stress. Even if it’s hard to identify financial efficiencies, at least you’ll know that if you move to a smaller, newer property it’ll be far easier to heat and cool and should result in a lower power bill.

Are you retiring soon? Are interest rates decreasing your return on your super and savings? If you choose the right property to downsize to, you could end up with a bigger, better lifestyle with more cash in the bank to play with – and that’s a goal worth shooting for!

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