5 Things you Need to Know Before Downsizing

Downsizing isn’t just about finding the perfect home for your next chapter; it’s about making sure the move makes sense financially. Whether you’re looking to reduce maintenance, unlock funds, or position yourself for aged care in the future, understanding the numbers behind the move is key. Here are the five most important figures you need to know before you downsize.

1. The Cost of Downsizing

When it comes to downsizing, the focus is often on what you’ll gain—but it’s just as important to know what it will cost you to get there. Many people simply compare the sale price of their current home to the purchase price of their new, expecting to have the difference in their pocket. The reality is that downsizing costs money. Selling your current home comes with expenses like real estate agent fees, marketing, and legal costs. Then, there’s the cost of buying your new home which can include stamp duty, building inspections, and conveyancing. Don’t forget the moving costs, removalist fees and the costs of setting up your new place, such as utility connections or even renovations to make it feel like home.

All up, these costs can run into tens of thousands of dollars, so having a clear idea of what you’re spending is crucial.

There is a simple calculator on Downsizing Made Simple to help you work out what it will cost to Downsize.

2. The Cost of Your New Home

Your new home might be smaller, but that doesn’t necessarily mean it will cost less. To work out what your new home is going to cost you need to look at the whole transaction, the simplest way to do that is to break it down into the ingoing, ongoing and outgoing costs.

The ingoing cost is the price of the property, which will depend on factors like location, size, and any transaction costs like conveyancing, stamp duty or upgrades.

Then there are the ongoing costs to consider. If you’re moving into a retirement village or strata-titled property, you’ll likely have fees for maintenance, gardens, and shared facilities. Even in a stand-alone home, rates, insurance, and utilities can add up.

Finally, there are outgoing costs, especially if you’re considering a retirement village or granny flat. Exit fees (also called deferred management fees) can take a significant chunk of the value of your home when you leave, so understanding these upfront is essential. In a granny flat arrangement the exit fee is likely to be 100%.

3. Your Pension

If you’re receiving the Age Pension, downsizing your home can mean that you downsize your pension. Your home is usually an exempt asset, but once you sell it, any leftover funds become assessable. Every $1,000 above the asset threshold reduces your pension by $3 per fortnight—that’s $7,800 per year for every $100,000 in extra assets.

The good news? Downsizing into a granny flat, retirement village or land lease community can see you qualify for rent assistance on top of your pension. In a granny flat or retirement village you need to pay $252,000 or less for your home, in a land lease community there is no price cap. Rent assistance can add up to $211 per fortnight on top of your pension payment.

Supersizing your downsize – by upgrading to the bigger apartment or the perfect location or choosing a retirement village where you can pay your management fee upfront – can reduce the leftover amount and potentially keep more of your pension. Even a small pension comes with valuable perks, like Rent Assistance and the Pensioner Concession Card, which can save you thousands each year.

4. Your “Leftover” Funds

After selling your current home and buying a new one, what’s left? This is one of the most important figures to know. Some people use these funds to boost their super, top up their investments, or spend on travel.

If you’re not careful though, leftover funds can be a double-edged sword. They’re assessable for both the Age Pension and aged care means tests, so managing them wisely is essential.

5. The Cost of Aged Care

Even if aged care isn’t on your immediate radar, it’s worth factoring into your downsizing plan. Whether you intend to stay in your new home and receive aged care or expect to move to an aged care home, it’s important to understand that the amount you will pay is means tested. The biggest cost of moving into an aged care home is normally the Refundable Accommodation Deposit (RAD) which can range from a few hundred thousand to over a million dollars, depending on the location and the accommodation. While you don’t have to pay for your aged care accommodation by lump sum, you can choose to pay by Daily Accommodation Payment (DAP) that can be expensive. As at 1^st January 2025 daily payments are calculated on any unpaid RAD at 8.42%, which basically means for every $100,000 you don’t pay your accommodation cost increases by $8,420 per year.

The Bottom Line

Downsizing is about freeing up the time and money to enjoy the next chapter of your life. Knowing these 5 numbers will help you make smarter decisions that support your lifestyle now and provide security for the years to come. Just like most big life decisions, downsizing needs careful consideration before you sign on the dotted line. Seeking advice from an accredited Retirement Living and Aged Care Specialist can ensure that your next move is a step toward freedom, not financial stress.

By Rachel Lane, Principal, Aged Care Gurus