Downsizing can free up equity to invest or spend.
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Downsizing → free → equity
But for retirees receiving the age pension that can be a problem as you may be converting an exempt asset into an assessable one.
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you → receive → one
New data from over-50s developer GemLife shows that, of 1474 purchasers across 12 communities, the average equity release was $254,098 when downsizing into a land lease community.
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release → show → community
That $254,000 can boost your savings, buy a new car, caravan or boat or help out the kids but it can also reduce your pension and other benefits.
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it → boost → pension
For pensioners, the magic numbers are $333,000 if you’re single and $499,000 for couples.
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you → ’re → couples
Once your assessable assets exceed the threshold, your pension reduces by $3 a fortnight for every $1000 above the threshold.
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pension → exceed → threshold
Put simply you lose $7800 per year of pension for every $100,000 of assets over the threshold.
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you → put → threshold
So what does releasing $254,000 actually mean?
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releasing → release → 254,000
Well, it depends on what you start with.
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you → depend → what
A single person starting with $50,000 in assets would have $304,000.
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person → start → 304,000
If they started with $250,000, their assets would rise to $504,000, which is $171,000 over the threshold, their pension would be reduced by $513 a fortnight, or $13,338 a year.
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pension → start → 513
And if they started with $500,000 they would have $754,000 after they downsize, that’s over the cut-off of $745,750, so their pension would be lost.
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pension → start → 745,750
Couples can have more.
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Couples → have → more
A couple starting with $200,000 would have $454,000 after they move, and still be below the $499,000 assets threshold.
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they → start → threshold
The question isn’t just how much equity can you unlock: it’s how much retirement income you will have left once you do.
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you → unlock → income
If they started with $500,000 they would have $754,000 which is $255,000 above the threshold, reducing their pension by about $765 a fortnight, or $19,890 a year, under the assets test.
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which → start → test
And if they start with $867,000 or more the move would push them above the $1.121 million cut-off and their pension would be lost.
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pension → start → off
These examples are deliberately looking only at the assets test.
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examples → look → test
How you invest or spend matters.
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invest → invest → ?
If you invest it, the income can help offset any pension reduction, but the deemed income will be used to calculate your pension under the income test.
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income → invest → test
If you spend it on a boat, car or caravan, those assets still count under the assets test but only at market value.
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assets → spend → value
It’s important to understand that your pension will be paid based on whichever test, income or assets, produces the lowest pension.
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test → ’ → pension
Downsizing your home can mean downsizing your pension, that doesn’t automatically make it a bad decision.
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it → downsize → pension
You need to understand how much equity you will release, what you will do with it and how it will affect your pension and other benefits.
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it → need → pension
In a land lease community getting at least some pension can take on extra importance because the site fees qualify as rent for rent assistance, potentially adding up to $5819 a year (single) or $5486 (couple) on top of your pension.
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fees → get → pension
The question isn’t just how much equity can you unlock: it’s how much retirement income you will have left once you do.
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you → unlock → income
Rachel Lane is the author of Downsizing Made Simple, a book and website aimed at demystifying downsizing.
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Lane → downsize → downsizing
- Advice given in this article is general in nature and not intended to influence readers’ decisions about investing or financial products.
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Advice → give → investing
They should always seek their own professional advice that takes into account their own personal circumstances before making any financial decisions.
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that → seek → decisions
The Aporia
