Downsizing could release $500,000. What could that mean for your Age Pension?

Selling the family home and moving to a smaller property can unlock hundreds of thousands of dollars for retirement.

But there is an important question many downsizers do not consider until after they start doing the sums.

What happens to your Age Pension when money that was previously tied up in your home becomes cash or investments?

That question has become even more important from 20 September 2026, with new Age Pension rates and higher deeming rates now in effect.

The maximum Age Pension has increased by $36.80 a fortnight to $1,237.70 for a single person, while the maximum combined payment for a couple has increased by $55.60 to $1,866 a fortnight.

See the Australian Government's September 2026 pension changes

At the same time, the Government has increased the rates used to calculate deemed income from financial assets.

From 20 September, financial assets are deemed to earn 1.75 per cent up to $66,800 for a single pensioner or $110,600 for a pensioner couple, and 3.75 per cent above those amounts.

That makes understanding what happens to the money released by downsizing particularly important.

Your family home is treated differently

ne of the unusual features of Australia's Age Pension system is that the value of your principal home is generally not included in the Age Pension assets test.

So a retiree may live in a valuable home and still qualify for the Age Pension, depending on their other income and assets.

See how Services Australia treats your principal home and other real estate

But once you sell that home and move to something cheaper, the money left over may become an assessable asset.

That is where downsizing can change the equation.

And if you are considering a retirement village, there is another wrinkle. Depending on the type of arrangement and how much you pay to enter the village, Centrelink may still regard you as a homeowner even though you do not own the property in the conventional sense.

We explain those rules in more detail in our TrueCost article:

Am I a Homeowner? How retirement village living can affect your Age Pension status

Consider a simple example

Imagine a retired couple owns their home outright.

They sell it for $1.5 million and buy a smaller home for $900,000.

Ignoring transaction costs for simplicity, they have released around:

$600,000

Now consider the same couple buying a retirement village residence for $700,000.

They could potentially release:

$800,000

Recent CBRE research found that retirement village independent living units typically trade at a substantial discount to surrounding residential property in many markets.
Unlocking that amount of capital can provide significant financial flexibility in retirement.

It might be used for travel, living expenses, helping family, investing, superannuation or simply providing a larger financial buffer.

But it can also affect Age Pension entitlements.

The assets test matters

For Age Pension purposes, a homeowner couple can currently hold up to $499,000 in assessable assets before the assets test begins reducing their pension.

For a single homeowner, the corresponding amount is $333,000.

Check the current Age Pension assets test with Services Australia

A part pension can continue until assessable assets reach the applicable cut off, subject to individual circumstances.

Importantly, these figures relate to total assessable assets, not simply the money released from selling your home.

Superannuation that is assessable, bank accounts, shares, investment properties, vehicles and other assets may also count.

So someone who releases $600,000 from their house does not automatically lose their pension.

What matters is their overall financial position after the move.

The money may also be deemed to produce income.

The Age Pension also has an income test.

Rather than looking at the actual interest earned on many financial investments, Centrelink uses a system known as deeming.

From 20 September 2026, the lower deeming rate is 1.75 per cent and the higher rate is 3.75 per cent.

Learn more about the new deeming rates

For example, if a pensioner couple had $600,000 in financial assets, those assets would generate approximately $20,288 a year of deemed income under the new rates, before considering any other income.

At $800,000, the deemed income would be approximately $27,788 a year.

These are illustrative calculations only. Centrelink calculates Age Pension entitlement using both the income test and the assets test, then generally applies whichever produces the lower pension entitlement.

This is why the headline amount of money released by downsizing should never be viewed in isolation.

Could spending more on your next home actually help?

It sounds counterintuitive, but in some circumstances spending more on your next home can leave less money exposed to the Age Pension assets test.

That does not mean someone should deliberately overspend on property simply to obtain more pension.

It means the financial equation can be more complicated than:

Cheaper new home = better financial outcome.

For retirement village buyers, different contract and payment models can further change the result.

Our TrueCost series looks at this in:

Supersize Your Downsize: How the price and payment model of your next home can affect your retirement finances

There are special rules while you are buying your next home.

If you sell your principal home and intend to use some of the proceeds to buy, build, rebuild, repair or renovate another principal home, special rules can apply.

For homes sold from 1 January 2023, qualifying sale proceeds can generally be exempt from the assets test for up to 24 months, with a possible extension of up to another 12 months depending on the circumstances.

During the exemption period, money intended for the new principal home is subject to the lower deeming rate.

Read Services Australia's rules for selling your principal home

This can be particularly important for people who sell first and then take time to find their next home.

Downsizing can still make financial sense

None of this means releasing equity from your home is a bad idea.

Quite the opposite.

For many Australians, downsizing can transform a large amount of inaccessible housing wealth into money that can actually be used during retirement.

A smaller home may also reduce maintenance, gardening, insurance, energy and other housing costs.

The important point is that the cheapest new home does not automatically produce the best overall retirement outcome.

A person selling a $1.5 million family home and buying for $700,000 may release substantially more capital than someone spending $1 million on their next home.

But the additional $300,000 released may affect their Age Pension position.

That does not necessarily make either option better or worse.

It simply means the pension impact should form part of the calculation.

Retirement village fees add another layer

This becomes particularly important when comparing a conventional downsized home with a retirement village.

Retirement living can involve a different combination of:

• purchase price
• ongoing service charges
• deferred management or exit fees
• capital gain arrangements
• refurbishment or reinstatement costs
• resale provisions
• Age Pension implications
• the amount of capital released from the family home

One of the biggest areas of confusion remains the Deferred Management Fee, or DMF.

Downsizing.com.au's TrueCost series provides a step-by-step guide to understanding how these costs work:

Five Steps to Calculating a Retirement Village Exit Fee

TrueCost listings can also provide a personalised financial report showing entry costs, ongoing charges, exit fees, potential equity, pension impacts and buyback timeframes, allowing different retirement village options to be compared more clearly.

Look at the total cost of the move.

Looking only at the advertised purchase price can give an incomplete picture.

That is why comparing the true financial cost over the period you expect to live there can be more useful than looking only at what you pay on day one.

If you're considering retirement living, you can compare thousands of retirement village properties around Australia on Downsizing.com.au.

Search retirement villages and retirement living properties across Australia

When you see the TrueCost badge on a participating listing, you can request a personalised TrueCost financial report to better understand the financial implications before making a decision.

Before selling, run the numbers.

Services Australia recommends that people considering downsizing seek appropriate advice or speak with its Financial Information Service about how a move could affect their payments.

Check the Age Pension assets test with Services Australia

The key lesson for anyone planning to downsize is simple.

Do not ask only, "How much money will I release?"

Also ask:

"What happens to that money once I release it?"

For some retirees, unlocking $500,000 or more from the family home can provide enormous freedom and security.

But understanding how the proceeds interact with the Age Pension, investment income, ongoing housing costs and the true cost of the next home can help ensure the move improves your overall retirement position, not just your bank balance.

This article provides general information only and does not take into account your individual financial circumstances. Age Pension and Centrelink outcomes depend on personal circumstances. Consider obtaining independent financial advice or contacting Services Australia's Financial Information Service before making significant financial decisions.