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For many Australians, the family home is the largest asset they own.
So when retirement arrives, it’s natural to ask:
“Should we downsize?”
Downsizing can:
free up hundreds of thousands of dollars
reduce maintenance and running costs
simplify your lifestyle
help fund travel or healthcare
allow you to move closer to family
But here’s the part many retirees don’t fully consider:
Selling your home can affect your Age Pension and long-term cashflow.
Let’s unpack how it works, clearly and practically.
Why Downsizing Looks Attractive in Retirement
There are good reasons many retirees consider downsizing:
Lifestyle benefits
Smaller home = less cleaning and upkeep
Lower council rates and utilities
Less physical strain maintaining large properties
Opportunity to relocate to lifestyle communities
Financial benefits
Release equity
Boost super
Reduce living expenses
Improve liquidity
But not all financial impacts are positive; especially when it comes to Centrelink.
How the Family Home Is Treated Under the Age Pension
Under the Age Pension assets test, your principal place of residence is generally exempt.
That means:
A $700,000 home
Or a $2 million home
is not counted as an asset for Age Pension purposes (as long as it’s your main residence).
This exemption is extremely valuable.
What Happens When You Downsize?
When you sell your home:
The home itself disappears (it was exempt)
The sale proceeds become cash
Cash is an assessable asset under the assets test
This is where pension impacts begin.
Example 1: Downsizing Without Planning
Let’s say:
You own your home worth $1.5 million
You’re receiving a part Age Pension
You sell the home and buy a smaller one for $900,000
You now have $600,000 in cash
That $600,000 is now an assessable asset.
Result:
Your Age Pension may reduce
It may stop entirely depending on your total assets
This can be a shock for retirees who assumed downsizing would automatically improve finances.
Example 2: Downsizing and Contributing to Super
Now let’s say:
Same situation
You use the excess proceeds to make a downsizer contribution to super (if eligible under current rules)
Super may still be assessable under the Age Pension once you reach pension age, but:
The structure may provide investment tax advantages
It may improve retirement income flexibility
It may provide better long-term growth than leaving funds in cash
However, it may not restore lost pension entitlement.
The key is modelling the outcomes first.
The Downsizer Super Contribution (Overview)
The downsizer contribution allows eligible Australians to contribute proceeds from selling their main residence into super, subject to rules.
Key points (always check current ATO rules):
There is a maximum contribution limit per person
You must meet age requirements
The property must meet ownership and residency conditions
Contribution must be made within specific timeframes
Importantly:
Downsizer contributions do not count toward normal non-concessional caps
But they may still affect Age Pension assets testing once in super
This strategy can be powerful, but it’s not automatically pension-neutral.
How Downsizing Can Improve Cashflow
Even if your Age Pension reduces, downsizing can still improve cashflow.
1) Lower ongoing costs
Lower utilities
Lower rates
Lower maintenance
No mortgage
2) Liquidity
You now have accessible funds for:
medical expenses
travel
aged care needs
emergencies
3) Investment flexibility
Funds can be invested to generate income
You can tailor drawdowns
The key is weighing reduced pension vs improved flexibility.
When Downsizing Makes Financial Sense
Downsizing can be smart when:
The current home is expensive to maintain
You want to reduce physical strain
You want to move closer to support networks
You have excess housing equity not aligned with lifestyle
You don’t rely heavily on Age Pension
You want to diversify away from property
When Downsizing May Hurt Financially
Downsizing may reduce overall financial security when:
You heavily rely on the full Age Pension
Your excess sale proceeds push you above asset thresholds
You underestimate transaction costs
You underestimate lifestyle adjustment
You move to a retirement village with ongoing fees
The Retirement Village Factor
If you move into a retirement village:
Entry structures can be complex
Ongoing fees can apply
Exit fees can reduce estate value
Centrelink treatment varies depending on:
Lease vs freehold arrangements
Entry contribution structure
Always review contract details before committing.
Aged Care Planning and Downsizing
Downsizing can also interact with aged care planning.
Large cash balances can affect:
Means-tested care fees
Accommodation payments
Strategic planning matters if aged care is likely in the medium term.
Psychological Factors Matter Too
Downsizing isn’t just financial.
Many retirees struggle with:
Emotional attachment to family home
Fear of making a mistake
Worry about future regret
Pressure from children or family
A financial model can provide clarity, but lifestyle goals should lead the decision.
A Simple Framework Before You Downsize
Before making a decision, ask:
1) What is my current Age Pension entitlement?
Full? Part? None?
2) How much excess equity will I release?
What happens if that becomes assessable?
3) What are my long-term income needs?
Does downsizing improve or reduce sustainable income?
4) What are transaction costs?
Agent fees
Stamp duty
Legal fees
Moving costs
5) How long do I plan to stay in the new property?
Short-term moves can destroy financial benefit.
Key Takeaways
Your home is exempt under the Age Pension assets test
Cash released from downsizing becomes assessable
Downsizing can reduce or eliminate Age Pension payments
It can still improve cashflow through lower expenses
Downsizer contributions to super may help, but do not automatically restore pension
Emotional and lifestyle factors are just as important as financial ones
Modelling before selling is critical
FAQ
1) Will downsizing affect my Age Pension?
Yes. The proceeds from selling your home (if not reinvested in another home) become assessable assets and may reduce your pension.
2) Is the family home counted in the Age Pension assets test?
Generally no. Your principal residence is exempt.
3) What is a downsizer contribution?
It allows eligible Australians to contribute proceeds from selling their home into super, subject to current ATO rules.
4) Will putting downsizing proceeds into super protect my pension?
Not necessarily. Once you reach Age Pension age, super is generally assessed under the assets test.
5) Is downsizing always a good financial move?
Not always. It can reduce pension payments and involve high transaction costs. The decision should be modelled carefully.
Downsizing can be a smart retirement move, but it’s not automatically a financial win.
The family home’s exemption under the Age Pension assets test is extremely valuable. Once you sell, that exemption disappears and the numbers change.
Before making a major decision, it’s important to understand:
How your Age Pension may change
How your cashflow will look long term
Whether super contributions help
What your lifestyle priorities truly are
Thinking about downsizing?
At What If Advice, we model the impact on your Age Pension, super, and retirement income, so you can make a confident, informed decision.
Book a Retirement & Super Workshop and get clarity before you list your home.
General Advice Disclaimer
This information is general in nature and does not take into account your personal financial situation, needs, or objectives. You should consider whether it is appropriate for you and seek personal financial advice before making any decisions.