‘How do I pay for my retirement?’ It’s one of the most common questions I hear. The prevailing wisdom suggests the average family will draw their retirement income from three main sources: their home, their superannuation, and a full or part-age pension.

Successive governments have made it abundantly clear that retirees are expected to tap into their home equity as a source of retirement income. Of course, there are basically only two ways of doing this: downsizing to a smaller property or taking out a reverse mortgage while staying in the existing home.



Neither option is perfect, and each has its own set of advantages and disadvantages. In this column I’m going to look into downsizing; reverse mortgages need separate exploration.




Downsizing sounds simple, but the costs quickly add up. While retirees who move to a land lease community, retirement village, or granny flat can typically avoid stamp duty, those opting for another house or strata-title apartment aren’t so lucky.

Stamp duty, however, is just the tip of the iceberg. Real estate agent commissions, expenses for sprucing up the home to attract buyers, and perhaps to spruce up the new home, plus the physical costs of moving all chip away at the financial benefits.

More significantly, downsizing can have an adverse impact on the age pension receivable. Under the assets test, every $100,000 shifted from the exempt family home into assessable financial assets reduces your pension by up to $7,800 per year.



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