If you are one of the new retirees or someone who is retired, you may be wondering how you could best unlock the wealth that sits within your home, as property prices set to rise.
In 2018, as part of the Australian Government’s package of reforms to reduce pressure on housing affordability, it was announced that proceeds from the sale of the family home can go towards a contribution into superannuation. It is referred to as the downsizer measure.
From 1 July 2018, if you are 65 years old or older and meet the eligibility requirements, you may be able to choose to make a downsizer contribution into your superannuation of up to $300,000 each from the proceeds of selling your home. For couples, both spouses can make the most of the downsizer contribution opportunity, which means up to $600,000 per couple can be contributed towards super.
So here are 5 frequently asked questions about this measure.
1. What are the eligible requirements?
Other than meeting the minimum age of 65, the requirements include having to make the downsizer contribution into superannuation within 90 days of receiving the proceeds of sale, which is usually the settlement date. Furthermore, you have had owned your home for 10 years or more prior to sale. The home is a property, not a caravan, houseboat or mobile home.
2. Can I make multiple contributions?
You may make multiple downsizer contributions into your superannuation, if the proceeds are from a single sale, that is the family home. The total contributions must not exceed $300,000 per person nor the total sale price of the home. All contributions must be made within 90 days of sale.
3. What are the benefits of a downsizer contribution?
Unlocking capital from the family home and contributing the funds into super could boost your retirement income. In a single household, where there is a couple, the downsizer measure allows for both spouses to contribute up to $300,000 each. Which means an extra $600,000 in superannuation. And when converted into an account-based pension, a boost of around $30,000 per year in tax free retirement income.
4. Will the downsizer contribution effect my Age Pension?
In social security terms, a downsizer contribution could significantly reduce Age Pension payments, as the contributions made into superannuation is assessed as financial assets, in contrast to the value of the family home being asset exempt.
For couples who are homeowners, the full Age Pension payment starts to reduce by $78 per annum per $1,000 assets over $401,500. That includes superannuation, cars, investments, and cash. And with the downsizer allowance at $300,000 per person, it takes careful planning to ensure that retirement income is optimized without effecting the Age Pension entitlement. Working alongside a subject matter expert such as a financial planner, will achieve a better financial outcome as well as putting your mind at rest.
5. What are the impacts of downsizer on aged care?
When entering aged care, it is important to consider the impact on the initial and ongoing cost. Having more money in super from a boost from the downsizer contribution may increase the amount of your ‘means tested amount’ which determines whether you pay an accommodation payment or an accommodation contribution.
Furthermore, there is no upper age limit when making a downsizer contribution nor a requirement to purchase a new principal residence. Therefore, you could potentially sell the family home to fund the aged care accommodation payment and contribute the remaining proceeds up to $300,000 each into superannuation. This boost into super could push upwards any ongoing care fees. Seeking guidance from a specialist Age Care professional, will ensure the optimal outcome is achieved