Using the downsizer rules to retire sooner

If retirement feels years away, you may have more options than you realise. Many Australians work longer than necessary, but financial strategies like the downsizer rules could help you retire sooner, depending on your circumstances. Understanding the eligibility criteria and benefits is essential.

At First Financial, we tailor retirement plans to suit each client’s unique circumstances. The downsizer rules may be a valuable tool, but determining whether they apply to your situation requires professional advice.

Your financial adviser can help assess your options, however, here’s what you need to know about how these rules can support a seamless transition into a comfortable next chapter.

Australia introduced downsizer contributions to give those approaching retirement more financial flexibility. Eligible homeowners can put proceeds from selling their primary residence into superannuation, bypassing standard contribution caps. This option helps those with significant home equity boost their retirement savings and create a more secure future income stream.

To qualify for a downsizer contribution, you must be 55 or older and have owned your home in Australia for at least 10 years. The property must have been your primary residence for some or all of that time, ensuring the scheme benefits long-term homeowners rather than short-term investors.

Those who meet the criteria can make a one-time contribution of up to $300,000 from the sale of their home directly into their superannuation.

For couples, this means a combined total of up to $600,000, regardless of who owned the property. Unlike other super contributions, downsizer contributions are not subject to annual caps. You have a one time ability to use the downsizer rules.

Unlike other assets, money held in superannuation benefits from tax advantages that can make a significant difference long term. Once you reach preservation age (60) and meet certain conditions, you can withdraw superannuation as a tax-free income stream that allows your savings to last longer while maintaining a comfortable lifestyle.

For those downsizing to a smaller property, lower living expenses can be an added benefit, as a smaller home often means reduced utility bills, maintenance costs and council rates. Eliminating the upkeep of a larger property can also bring greater peace of mind for retirees.

To see how downsizer contributions can accelerate retirement plans, let’s consider fictional couple Neil and Vicki.

Both in their early 60s, they sell their family home for $1.5 million and purchase a manageable unit for $750,000.With the $750,000 profit, they each contribute $300,000 to their superannuation accounts using the downsizer rules, adding the remaining $150,000 through non-concessional contributions.

Before selling, they had a combined super balance of $1 million ($500,000 each). Now, their total has grown to $1.75 million—an amount that could bring retirement within reach, depending on their lifestyle goals.

While downsizer contributions don’t count toward annual contribution caps, they are still subject to the superannuation balance transfer cap, which limits how much can be moved into a tax-free retirement pension account. As of 2023-24, this cap is $1.9 million per person, meaning any excess funds must remain in an accumulation account where earnings may be taxed at 15%.

Downsizing can also impact Age Pension eligibility. Centrelink assesses superannuation differently from the family home, meaning once sale proceeds are moved into super, they may be counted as assets and could reduce or eliminate pension entitlements.

However, having more in super can offer greater financial security and flexibility than relying on the Age Pension. Professional advice can help assess whether this approach aligns with your long-term financial goals.

Whether downsizing is right for you depends on your goals and personal circumstances. What are your long-term plans? Do you want to travel? Defining this brings you a step closer to understanding the amount needed for a comfortable retirement.

When it comes to your home, are you sentimentally attached, or would you prefer to reduce upkeep? Can you stay in the same neighbourhood to maintain family and social connections? There are many factors to consider.

To determine whether downsizing makes financial sense, a financial adviser can assess your superannuation position and project both your income needs and how long your wealth will last in retirement.

While the downsizer rules can be a powerful way to boost super and retire sooner than expected, careful planning is essential. Every financial situation is different, and what works for one person may not be the right choice for another.

At First Financial, we tailor every retirement plan to suit individual goals and circumstances. We understand that retirement is something you’ve looked forward to, and we’re here to help you make your dreams a reality. Whether you’re eager to retire early or content to keep working until life dictates otherwise, having the right strategy in place ensures you’re prepared when the time comes.

If you’re interested in exploring downsizer contributions as a means to expedite your retirement, speak to a friendly, experienced member of our team today.

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