Downsizing Your Home For Retirement
Summary: Downsizing can unlock substantial home equity, but timing and rules are critical. Eligible Australians aged 55+ can contribute up to $300,000 each into super without hitting standard caps. However, surplus cash from the sale is a counted asset, which may reduce your Age Pension entitlements.
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Introduction
For many couples, the family home is more than just a place of memories. It is their largest financial asset. As the empty nest becomes quieter and the stairs feel a little steeper, the idea of downsizing often moves from a "maybe one day" conversation to a strategic retirement priority.
In 2026, downsizing is a sophisticated financial manoeuvre that can unlock hundreds of thousands of dollars in equity, boost your superannuation, and reshape your lifestyle.
Why Do Retiring Couples Downsize Their Homes?
While the financial windfall is a major driver, most Australians downsize for three non-financial reasons:
- Lifestyle Freedom: Swapping a large suburban block for a low-maintenance apartment or villa frees up weekends previously spent on gardening and repairs.
- Accessibility: Many family homes are not designed for ageing in place. Downsizing allows couples to choose single-level living with wider hallways and step-free access before a health event forces a rushed move.
- Location: Moving closer to kids, grandkids, medical services, or the coast can significantly improve quality of life in your 70s and 80s.
What Is the Downsizer Contribution Scheme?
One of the most helpful tools for Australian retirees is the Downsizer Super Contribution Scheme. As of February 2026, here is how the rules work:
- Eligibility Age: You must be 55 years or older.
- Contribution: Each individual can contribute up to $300,000 (or $600,000 for a couple) from the sale proceeds of their home into their superannuation.
- 10-Year Rule: You or your spouse must have owned the home for at least 10 years prior to the sale.
- Cap Exemptions: These contributions do not count toward your standard $30,000 concessional or $120,000 non-concessional contribution caps.
- 90-Day Window: You must make the contribution within 90 days of the settlement date. Missing this deadline is one of the most common and costly mistakes retirees make.
Note: You don't have to downsize to a smaller or cheaper home to use this rule. You just have to sell your home. You could technically move into a more expensive home or even a rental and still put $300,000 into your super.
How Much Money Does a Downsizing Move Consume?
It is easy to look at a $1.5 million sale price and an $800,000 purchase price and assume you’ll have $700,000 in your pocket. However, transaction costs in Australia are high. You must factor in:
- Stamp Duty: On an $800,000 purchase, stamp duty can range from $25,000 to $45,000 depending on your state.
- Agent Commissions: Expect to pay 2% to 3% of your sale price in commissions and marketing fees (e.g., $30,000–$45,000 on a $1.5m sale).
- Conveyancing and Legal: Budget $2,000–$4,000 for both the sale and purchase.
- The Move: Decluttering, removalists, and minor repairs to the new home can easily add another $5,000–$10,000.
When all is said and done, the friction of moving often consumes $60,000 to $100,000 of your unlocked equity.
How Do Centrelink Rules Affect Downsizing?
This is where many couples get caught out. Under Australian rules, your principal home is an exempt asset for the Age Pension. However, the moment you sell it, the surplus cash becomes an assessable asset.
Asset Test
If you sell for $1.5m and buy for $900,000, that $600,000 difference is now counted by Centrelink. For a homeowner couple, every $1,000 over the asset threshold reduces your pension by $3.00 per fortnight.
Income Test
Even if the money is sitting in a 0% interest account, Centrelink deems it to be earning a return (currently up to 2.75%). This deemed income can further reduce your pension.
24-Month Grace Period
If you sell your home and intend to buy another one, Centrelink will exempt the portion of the proceeds you plan to use for the new home for up to 24 months. However, any leftover cash intended for super or savings is assessed immediately.
Choosing the Right Property Type
Downsizing often involves choosing between different legal structures:
| Property Type | Ownership Structure | Key Consideration |
|---|---|---|
| Torrens Title | You own the land and house. | Full control, but you pay for all maintenance and rates. |
| Strata (Apartments) | You own the unit but share land. | Low maintenance, but you must pay quarterly Body Corporate levies. |
| Retirement Village | Often a Leasehold or Licence. | High community support; often involves complex Exit Fees (DMF). |
| Land Lease Communities | You own the home and lease the land. | No stamp duty and lower entry price, but you pay weekly site fees. |
Tips for Couples Downsizing Their Homes
Complete these logistical and financial steps before settling on a decision:
Declutter Early
Start the great cull six months before you list. It is emotionally easier to part with items gradually than in a panic two weeks before settlement.
Measure Your Furniture
Many downsizers buy a beautiful apartment only to realise their 10-seater dining table or king-sized bed won't fit the floor plan.
Check the Younger Spouse Strategy
If one partner is under the Age Pension age (67), putting the downsizing proceeds into their super account (in the accumulation phase) can sometimes keep that money hidden from Centrelink's asset test until they also turn 67.
Consider a Bridge Loan
Buying before you sell is tempting to avoid moving twice, but bridging interest rates are high and can add stress if your home doesn't sell quickly.
Conclusion
Downsizing is an excellent way to fund a comfortable retirement, but it isn't a simple transaction. It requires balancing the emotional weight of leaving a family home against the cold math of stamp duty, super rules, and Centrelink thresholds.
Couples who succeed in downsizing are usually those who prioritise lifestyle first and finances second. If the move makes your life easier, safer, and more social, the financial numbers are simply the fuel to make that life possible. Book a 15-minute no-obligation call with James Hayes to get the moving parts in order for your downsizing.
FAQs
Do I have to buy a cheaper house to make a downsizer contribution?
No. The word “downsizing” is slightly misleading. There is no requirement to buy a smaller or cheaper home—or any home at all. You simply need to sell your eligible residence, meet the 10-year ownership rule, and be aged 55 or over to contribute the proceeds to super.
How does selling my home affect my Age Pension?
While your principal home is exempt from the assets test, any leftover cash after selling becomes an assessable asset. This surplus will be deemed to earn income and added to your asset total, which may reduce your fortnightly pension or even cancel your eligibility entirely.
Can I use the downsizer super contribution more than once?
No. You can only access the downsizer contribution scheme once in your lifetime. Even if you sell another eligible home years later, you cannot make another contribution. It is a one-shot opportunity, so it’s vital to maximise the contribution amount within the 90-day window.
Disclaimer
The information in this article is provided as a general guide only. It does not constitute personal financial advice and should not be relied upon as such. Readers should seek advice from a licensed financial adviser before making any financial decisions. James Hayes and his associated entities accept no responsibility or liability for any loss, damage, or action taken in reliance on the information contained in this article. Links to third-party websites are provided for reference purposes only. We do not endorse or guarantee the accuracy of their content.