Downsize to retirement living and boost your super balance

The benefits of downsizing are obvious – allowing you to live a more relaxed lifestyle with fewer possessions and less clutter. But another lesser known benefit can deliver a welcome boost to your retirement savings.

If you are 65 or older and sell your family home, the Federal Government allows you to contribute up to $300,000 from the proceeds of the sale into your super. (From July 1, 2022, the age limit will be lowered to 60.) Under the Downsizer Contribution, you can top up your super, tax-free, even if you were previously unable because of your age, work status or the amount already held in super. There is no upper age limit for the Downsizer Contribution, unlike other contributions that can only be made by super holders aged under 75.

By using the substantial equity in your principal place of residence and downsizing to a smaller property it’s a way to boost your super and free up cash for the retirement you desire.

The current Covid-19 crisis may have you considering your retirement plans, your super balance and your housing options with an awareness of the benefits of having more support on hand where you live. Aura Holdings offers over-60s the choice of six retirement communities in Brisbane, the Gold Coast, Sunshine Coast and Toowoomba where residents can downsize to a high-quality apartment, without the stress of home and garden maintenance, with unmatched community facilities, support, and lock and leave convenience.

A contribution cap normally applies to super totals over $1.7 million. However, under the Downsizer Contribution rules, in place since July 2018, retirees who have a total super balance above $1.7 million can still contribute up to $300,000 from the proceeds of their family home.

Only one Downsizer Contribution can ever be made so any subsequent property sales won’t be eligible.

While Downsizer Contributions are not tax deductible, it is important to understand they will be taken into account when determining eligibility for the age pension or aged care packages.

Brad Monk, a senior advisor from LifePath financial planning, says there are some very good benefits to using your superannuation, account-based pensions and the new lifetime pensions, when purchasing a retirement village lifestyle. “The earnings income from an account-based pension are tax free so is the income paid to you. There may also be estate planning benefits that can be utilised. This is a great opportunity for downsizers to benefit from superannuation,’’ he says.

Other rules for the Downsizer Contribution include the property must have been owned for a minimum of 10 years and the contribution to super must be made within 90 days of receiving the proceeds of sale.

For a couple, both partners can each make separate contributions to their individual super of a maximum $300,000 each.

Before making such a large contribution to your super it is always wise to consult professional financial advice.

For information about what an Aura Holdings’ village can offer you in retirement, go to auraholdings.com.au