When the kids have grown up and left home and you have moved into retirement (or some form of it), selling the family home and moving into retirement accommodation can make a lot of sense. There is a vast range of potential choices available for people wishing to downsize their living accommodation, and there are a few pitfalls which can be encountered along the way. Here are our top tips:
Think about how you will be living your life in the future, and be practical.
Different accommodation offers different lifestyle opportunities and also different responsibilities. It is also likely that things will change for you over the next 10 or 20 years, so think long term. Do you really want somewhere with stairs, or a garden or pool which you have to look after but may not use? Will you be close to support networks and services which you might need?
Should you follow the kids?
Being physically close to family can be important, but with society being increasingly mobile, that is not always possible. The cost and stresses associated with moving are always significant, and even more so as you get older. What if you move close to your children, and then they get a great career opportunity elsewhere, and move away? It may be better to stay in your own neighbourhood and within your own networks, if you can.
Choices, choices…
These are some of your options:
- Renting – this frees up capital, and allows flexibility, but comes with less security in the longer term;
- Buying a smaller home – you still have an asset, but hopefully one more suited to your new lifestyle. For the past 25 years or so, we have been building lots of large houses and not many small ones, so options other than a unit might be pretty limited. You will also have to organise and pay for your own repairs, maintenance etc and any support services which you may require.
- Manufactured home parks (“Over 50’s Resorts”) – these are properties where you lease a house site and build your own home on it. They typically are less costly to get into because you do not own the land. Often communal facilities are provided, such as pools, sports centres, meeting rooms and sometimes restaurants. The operator will maintain the communal facilities, but you will need to maintain and repair your own house and garden. Support services are not offered, so you would need to arrange your own, if needed.
- Retirement villages – these are properties which are specifically established for retirees and administered by the owner under the Retirement Villages Act. The operator will maintain the buildings and grounds, and they usually offer a degree of support services (sometimes meals, emergency call systems and so forth) in exchange for fees. Within the retirement village sector, there are different models on which different villages work. In some, you will own your home. Others are based on a long term lease, and others simply a “right to reside” in which you do not actually own anything. One thing which they have in common is that they are generally poor financial investments due to the exit fees which you pay when you leave. They can, however, still be an attractive option because they are usually much cheaper than buying an equivalent unit or villa in the general market, you will not need to worry about building or garden maintenance, the services that they offer can be very helpful, and you are part of a community of similar aged people. Careful research and professional advice before you commit is very important.
“They’ll carry me out of here in a box“
Many people assume that their next move will be “forever”, but none of us can control our futures completely. Sudden changes in health in particular can dramatically impact on how and where you live in the future, so think about what you might need. Are support services available in the area if you need them? Is the property designed for easy access for people with reduced mobility? Is a hospital or aged care facility co-located or nearby? Will you have enough money for services and admission to aged care, if required?
“What do I do with the money?“
Downsizing often frees up a significant amount of capital. That capital will usually be exempt from tax and means tests if you have sold your principal place of residence, but it will lose that status once you invest it elsewhere (even in the bank). Depending on what you do with it, it could impact on how much tax you pay in future, when you can access it to spend it, your eligibility for a pension, and the amount which you may have to pay if you need to go into aged care. Careful planning, supported by good professional advice is important before you commit to any particular course of action.
Need expert guidance? Contact Miller Harris Lawyers today for assistance planning your next steps.