As lenders bail out of the reverse mortgage market, downsizing is an increasingly compelling option.
Less than 100 years ago, a retiree wasn’t expected to live long enough to even draw a pension. But here we are today, likely to need money spanning 15 years or hopefully more after we retire. The challenge for empty nesters, is finding the money to live on. That’s the premise of a report by REST Super 
Sure, we have our super and maybe the age pension, but Australians – especially older generations, are often underfunded for superannuation.
That’s why downsizing to a more manageable home is fast becoming the lifestyle and financial solution for many empty nesters. More so because reverse mortgages, an option that allows retirees to stay on in their homes, is increasingly drying up.
Reverse mortgage – fewer providers
Reverse mortgages let you dip into the value of your home while you’re still living there to access extra money in retirement. No repayments are due until you sell up or pass away.
It may sound like a great idea, but the number of lenders offering this product is rapidly shrinking. The Commonwealth Bank, Westpac and Macquarie have all recently bailed out of the reverse mortgage market.
On the face of it, this could leave many empty nesters locked into a high maintenance home that is too big for their needs, while also leaving them strapped for cash.
The good news is that your home can still be a surprise source of cash in your senior years.
Moving to a smaller, perhaps more affordable and more manageable home can free up swathes of home equity. It can also be a way to live the retirement dream close to your favourite fishing spot or regional locale – if that’s your goal.
There is also a financial bonus for downsizing. Since 1 July 2018, home owners aged 65-plus, can make a downsizer super contribution of up to $300,000. That limit applies to each owner, so if you own your place as part of a couple you could potentially boost your combined super savings by up to $600,000. Downsizer contributions are tax-free, and it won’t count towards contributions caps. Even if you have more than $1.6 million in super, you can still take advantage of the downsizer contribution.
Impact on age pension
Once you have sold your home and purchased a new place, you could be left with substantial funds to invest. Some commentators have seen this as a disadvantage of downsizing because it potentially means not being able to access age pension benefits.
But seriously, isn’t it better to enjoy a decent life in retirement rather than restrict your income – and lifestyle – just to be eligible for government handouts?
Moreover, while we may be seeing a downturn in the property markets of Sydney and Melbourne right now, investing in a downsizer home means you still have a foot in the market. So your property will continue to grow in value over time, providing funds for you to leave a generous estate for those who follow.
Greg Oddy is Director of Sales and Marketing at Downsizing.com.au