If you’re aged 65 or older, an announcement in the May 2017 Federal Budget could have a huge impact on how you retire.
If you’ve owned your home for 10 years or more and decide to sell up and downsize, you can use the proceeds to make a non-concessional (post-tax) superannuation contribution of up to $300,000 for singles, and $600,000 for couples.
The idea behind the incentive is to increase the availability of family homes in the market, and to help older Australians who may be struggling to fund a comfortable retirement to boost their super. So, if you’re approaching retirement, or are already a retiree, how can you take advantage of these new rules and get ahead financially? Here’s what you need to know.
The New Rules
From July 2018, there will be a significant change in the way over 65’s can contribute to their super. Here’s a summary of the key points:
- New rules apply to people aged 65 and over who sell their home to downsize
- Home must be principal place of residence and owned for a minimum of 10 years
- You can contribute up to $300,000, or $600,000 for couples, from the proceeds of sale
- Contributions are exempt from current voluntary contribution rules for those aged 65 plus
- Can be made in addition to other voluntary contributions allowable under existing rules.
What It Means for You
If you’re over 65, thinking of downsizing, and would like to top up your super, these changes make it easy to do so. Currently, to make voluntary contributions to your super when you’re aged between 65-74 you need to prove you’ve worked in gainful employment for 40 hours within a 30-day period during the year. And if you’re over 75, you’re unable to make super contributions whether you’ve worked or not.
The super contribution from the sale of your home is exempt from these rules, giving people who are over 65 and don’t meet the work test requirements a way to top up their super. You can make the new contribution even if you’re still working full or part-time, regardless of your account balance, plus, it’s exempt from the current $1.6 million balance transfer cap too. But be aware that while your family home is exempt from the assets test for age pension, your super is included, and this could affect your eligibility.
How it Will Work
Here’s some examples of how the new rules will affect people in different circumstances.
Ron and Patricia are aged 76 and 68 and decide to sell the family home of 30 years and move to a retirement community. The sale proceeds are $800,000, which means they can make a non-concessional contribution of $300,000 each ($600,000 in total), regardless of how much they have in their bank accounts. Under the existing rules they would be unable to make voluntary contributions, as Patricia no longer satisfies the standard contribution work test and Ron is over 75.
Helen is 65 and still working part-time. She decides to sell her home of 15 years and downsize to a smaller place in the country. The sale proceeds are $450,000 so she can contribute up to $300,000 of this to top up her super, regardless of how much she has in her bank accounts. Plus, she may also be able to make additional contributions using the leftover sale proceeds under the existing contribution rules.
There are plenty of people who can benefit from these changes, soit’s a good idea to get some independent financial advice to see if you’re one of them.If you do decide to downsize, the next step is to find a suitable and affordable home. A smaller house, apartment or unit are all options, but many over 65s will choose to move to a retirement village or community.
Over 55s communities are a great option for those looking for a low-maintenance lifestyle within a safe and friendly neighbourhood. Some, like Village Lifestyle Park do not charge exit or departure fees and offer both existing and brand-new homes on your own fenced block. When making your decision, be sure to research your options, inspect any homes on your shortlist, and speak to your family, friends, and financial advisor – they’ll help you make the right call.
Over to You
Are you thinking of downsizing and wondering if a retirement community is the right fit for you? We’d love to hear your questions and comments!
Want to know more about deferred management fees and other traps related to lifestyle villages? Download our FREE guide, 20 Questions You Must Ask BEFORE Choosing a Village.