As Australians retire and their children leave home, many find themselves in properties that are now too large for them. Once bursting at the seams with activity and people, rooms stand empty and become one more thing to take care of or clean.
For this reason alone, many retirees and older Aussies begin to search for property again, on the hunt for a more manageable and smaller home. As they no longer have to worry about being close to work or schools, many have the option to relocate anywhere in Australia, including retiring to the country. Plus, by downsizing many retirees are able to free up equity and retire even more comfortably.
The Australian Bureau of Statistics recently released data revealing that 1/3 of older Australians in lower-income households had less than $5,000 in liquid assets (cash or shares). However, once their property was accounted for, 54% of these same individuals jumped to the top 40 percent of Australians in terms of wealth.
What this revealed was that older Australians have capital, they just don’t have access to it. To unlock it, they could either refinance or sell their current home and downsize. What makes downsizing challenging, however, is the way that means testing works for pensions.
By downsizing to a more age appropriate accommodation and accessing their equity, older Aussies will actually be hit with a decrease in their pension income despite the fact that they own the same amount of assets.
It’s not a good situation and it impacts more than just retirees. Many parts of the Australian real estate market have a limited supply in larger homes for young families and high demand due to rising populations. Downsizing by retirees and older Australians would open up these larger family homes for young families, but the incentive isn’t there resulting in a stand still in many areas.
Without downsizing, the property market is unable to churn consistently forward like it could be. What do you think – is it time to adjust the means test for older Australians to encourage downsizing while preserving their pension?
For further reading, check out our post, “5 Proven Tips to Make a Good Property Purchase in 2016.”
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