Ask the Expert: Important considerations when downsizing in retirement
Apart from the lifestyle decisions you need to assess when downsizing, you should consider any social security and tax implications.
Question 1
My husband and I are on a part pension. We would like to downsize and move to a small house we have rented out.
Can you please advise me about the disadvantages of moving to our rented house, instead of buying and moving to a new house?
Apart from the important lifestyle decisions you need to assess, you should consider any social security and tax implications.
With social security, it should be fairly straight forward. However, it was unclear from your question as to whether you are selling your current principal home or keeping it and turning it into an investment property.
Regardless, you should update Centrelink. It will record the home you move into as the principal residence and either count your existing home under the asset test, or assess investment(s) you end up buying from the proceeds.
The only difference in moving to a new home is that the proceeds you may receive if you sell your current home are not counted for up to 24 months in the assets test, if you do not move straight into a new home (i.e. you are renting and looking to buy with the proceeds).
For tax, it can get complicated. You can only ever have one place as your principal residence, but you can switch between premises.
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You need to ensure you keep accurate records and valuations anytime you make the switch. I highly recommend seeking tax advice over this.
Question 2
Hi Craig, love your articles and your extensive knowledge.
I am 61 years old, my wife is 56. Our residential home has a balance of $70,000. My super balance is $480,000 and my wife’s super is $430,000.
I have an investment property only in my name, which I intend to sell when I retire at 67 to save capital gains tax, and transfer the net profit of $300,000 to super.
I intend to help my wife and my two children and, at the same time, be eligible for pension when I retire.
Should I open a transition to retirement account while keeping my super account with a minimum balance, withdraw the maximum 10 per cent from the TTR and contribute towards my wife’s super and children’s exchange-traded funds?
Is there a better strategy?
Thanks, Jay
Hi Jay,
Stay informed, daily
Its good to hear you are planning ahead for you and your family.
Starting a Transition to Retirement (TTR) Pension is definitely an option. You can draw 10 per cent of the pension out tax-free each year. How you then invest your funds will depend on your objectives and priorities.
- Making after-tax non-concessional contributions to your wife’s super will obviously help her build up her balance. It may also help you with future age pension payments (see below for more details).
- Investing on behalf on your children will give them a great start. Exchange-traded funds are an easy and popular way to do this.
- The other investment option is to contribute the funds back into your super via salary sacrifice. As contributions to super via salary sacrifice are made pre-tax, this is the most effective strategy from a tax perspective.
You could look at a combination of the above.
Coming back to the age pension, this is payable from age 67, your planned retirement age. As you are five years older than your wife you will obviously be eligible for five years earlier than her.
Once you reach age 67, your super will then be counted under the asset test. However, your wife’s won’t be counted for another five years, as long as the funds remain in accumulation phase. Therefore, if you wanted to maximise age pension payments to yourself over those five years, you could look to build up her super a lot more than yours.
For a homeowner couple, to get the maximum age pension, your assessable assets need to be under $481,500. You still receive a part age pension when assessable assets are up to $1,074,000 (as at January 2026 – payment rates and thresholds are indexed regularly to maintain their value over time).
Note that if you continue to work, or if your wife is still working at that time, you may be assessed under the income test, rather than the asset test (whichever test gives you the lower payment is applied). If neither of you is working, you will be asset tested.
The above issues are something for you to think about.
You do have some options and it’s encouraging you are looking to act. You should consider seeking personalised advice.
Craig Sankey is a licensed financial adviser and head of Technical Services and Advice Enablement at Industry Fund Services.
Disclaimer: The responses provided are general in nature, and while they are prompted by the questions asked, they have been prepared without taking into consideration all your objectives, financial situation or needs.
Before relying on any of the information, please ensure that you consider the appropriateness of the information for your objectives, financial situation or needs. To the extent that it is permitted by law, no responsibility for errors or omissions is accepted by IFS and its representatives.
