In this article:
By Lyndsey Douglas
Many Australians choose to downsize later in life to free up equity in their homes, but how do you know when it's the right time to make the decision?
Freeing up more money in retirement is a major part of the financial planning process for Australians. Although you'll probably have your superannuation to fall back on, there are other ways in which you can make sure you have sufficient money to enjoy your later years.
A bigger property can not only feel empty, but also be more expensive to maintain.
Downsizing is one method you can use to make this happen. Simply put, it involves moving into a smaller home that's valued at less than your current property in order to free up equity.
This can be a big decision to make, so here are just some of the questions to ask yourself in order to determine whether this is the right piece of financial advice for you.
Do you have more space than you need?
One of the main motivations for downsizing is when a property simply becomes too big. This often occurs when the children leave home to live in their own property.
Figures from the Australian Bureau of Statistics show the average age men left home in 2006-07 was 20.9 years, or 19.8 years for women. Only around 3 per cent hadn't moved out by the time they reached the age of 34.
A bigger property can not only feel empty, but also be more expensive to maintain. Which leads us onto our next point.
Are your bills spiralling out of control?
Energy and water bills have been rising for some time, and you're likely to be feeling the pinch more if you live in a house that's quite simply too big. The ABS revealed that Australians are typically paying more for less water - around $584 a year for the average household.
Although there are some facts that won't change - such as the amount of electricity you use to boil the kettle, or litres of water to take a shower - there are areas that will once you downsize. For starters, larger properties are more expensive to heat and cool!
If you decide to buy a newer property than the one you've been living in, there's a strong chance it will have been built to stricter environmental standards, also saving you money in the long run.
Do you need a more manageable space?
Aside from the expense of running a large property, there's also the fact that it will need to be maintained. Earlier this year, the Housing Industry Association revealed that repairs and maintenance are the two most popular renovations in Australian homes.
DIY tasks and other chores can soon start to take their toll - and wouldn't you rather spend your retirement doing something more enjoyable? Downsizing can go some way towards ensuring this is the case.