“Downsizing Before Retirement” generally refers to selling your current primary residence (often a large family home) and moving into something smaller, easier to manage, less expensive to run, or better located for retirement needs. This could be:
- Moving from a full house to a smaller home, townhouse or apartment
- Moving to a retirement village or over-55s community
- Choosing a dwelling with fewer maintenance requirements, or closer to services, family, or transport
In Australia, there is also a policy dimension (the Downsizer Contribution Scheme) which allows eligible people (aged 55+) to contribute up to $300,000 from the sale of their home into superannuation, bypassing certain contribution caps. (Nationwide Super | Small Business Super)
The potential benefits of downsizing before retirement
Here are the main advantages, with data or widely reported findings where possible.
| Benefit | What it is / how it helps | Supporting data or examples |
| Freeing up equity / boosting cash flow | The sale of a larger home often releases a large sum of money. That equity can be used to: pay off debt, invest (including into super), travel, or simply improve lifestyle. | NATIONWIDE SUPER noted that a Sydney home sold and downsized to Forster-Tuncurry could free up about $650,000 in home equity. Melbourne to Echuca-Moama could free $560,000. (Nationwide Super | Small Business Super) |
| Access to the Downsizer Contribution Scheme | For people aged 55+, it is possible to contribute up to $300,000 (per person) from sale proceeds into superannuation—these are once-off, and not subject to the usual contribution caps. Over a couple that’s up to $600,000. This can give a big tax-advantaged boost. (Nationwide Super | Small Business Super) | |
| Lower ongoing costs | Smaller properties often mean lower energy (electricity, heating, cooling), lower water, lower insurance, lower rates/council fees, reduced maintenance. Less gardening, less cleaning, less repair work. (Moneysmart) | |
| Simpler / more suitable lifestyle | Moving closer to amenities, family, medical facilities; selecting homes with accessibility features (fewer stairs, better layout); less effort in upkeep means more time for other interests. Also the possibility of “lock-and-leave” if travel is intended. (IRT) | |
| Potential to improve retirement security | Boosted super balances, lower fixed overheads, better alignment of housing to ageing needs can mean less financial risk in later years. For those who are “property-rich but super-poor,” this strategy can help balance their retirement resources. (The Australian) |
The drawbacks / risks of downsizing
Downsizing before retirement isn’t universally beneficial. Here are the challenges, with examples or data where available.
| Drawback / Risk | What it involves / how it hurts | Examples / evidence |
| Transaction and hidden costs | Selling and buying come with agent fees, legal fees, stamp/land transfer duty, removalist, “make-good” costs, possibly renovations on the new place, new utility connections, body corporate/strata fees etc. These can significantly reduce the net benefit of downsizing. (Retirement Essentials) | |
| Impact on Age Pension / government benefits | The family home, when it is your principal place of residence, is exempt from the assets test for the Age Pension. Once you sell, the proceeds can count as assessable assets or income (or be “deemed”) under Centrelink’s tests; this can reduce pension entitlements. Also, if funds go into super, super is treated differently under the means tests in older ages. (Nationwide Super | Small Business Super) | |
| Smaller space, less flexibility | Less storage, fewer rooms for visiting family or for hobbies; less garden; possibly less privacy; fewer places for entertaining. For some people these losses matter a lot. (Moneysmart) | |
| Emotional and social cost | Letting go of a home with memories; leaving a familiar neighbourhood; potentially losing proximity to friends or family; adjustment to a new community; possible feelings of loss or regret. (Retirement Essentials) | |
| Market conditions may reduce benefit | If housing prices are high, your new (smaller) property may not be “much cheaper” per square metre, or there may be scarcity of desirable smaller properties in good locations. Stamp duty or transfer duties may be significant. If you move within the same expensive suburb, the gain might be small after all costs. (Nationwide Super | Small Business Super) | |
| Suitability over time / aging in place challenges | A smaller home may not be built for accessibility or future needs (stairs, narrow corridors, etc.). Also, body corporate or strata fees may increase unexpectedly; ongoing upkeep (though reduced) still exists. (IRT) | |
| Possible tax implications | Though the home is exempt from capital gains tax while it is principal place of residence, after sale, investment of proceeds (or moving into super) can carry taxation or affect tax-exempt status of some parts of retirement income. Also, moving into a retirement village may have ongoing fees or levy increases. (Nationwide Super | Small Business Super) |
Key factors to consider before you downsize
To make a good decision, you’ll want to carefully think through a number of elements. These help you evaluate whether downsizing is likely to produce a net benefit for you, not just in money but in quality of life.
- Age and health status
- How mobile are you now, and how do you expect your mobility or health will change in coming years?
- Is your home currently suitable for ageing (e.g. minimal stairs, safe bathrooms, accessibility)? If not, are modifications an option instead of moving?
- Do you expect care needs later (home care, nursing home)? If so, location matters: proximity to medical services, public transport etc.
- Retirement goals and lifestyle priorities
- Do you want more travel, more leisure, more family time? Or do you value space for hobbies, gardening, entertaining?
- Is being close to family or community important, or do you want to relocate to a “lifestyle” location (beach, trees etc.)?
- How important are features like privacy, yard, storage, parking?
- Financial calculations
- Estimate the “all-in” costs (selling + buying + moving + ongoing costs) vs what you’ll get net. Get quotes or realistic estimates. Include stamp duty / transfer duty, agent’s commission, moving costs, legal costs, “make good” costs for the old home.
- Consider the effect on Cash Flow: how much more do you have after you move? Will you reduce household expenses (rates, utilities, insurance, maintenance)?
- Understand how the downsizer contribution to super works (eligibility, how long the money may be locked in, and how it interacts with pension / benefits / Centrelink means tests).
- Age Pension / Centrelink / Government Benefits
- Check how your assets can affect eligibility: the family home is exempt under certain rules, but funds released are not. Proceeds from sale, super balances etc may be “deemed” income or assets. (Moneysmart)
- Understand timing: there are rules about how long after selling you must buy another home to maintain some exemptions. (Moneysmart)
- Market & property-location conditions
- Is the property market favourable? Are sales and purchase prices stable, rising, or falling? In hot markets, downsizing may still be costly in high-price areas.
- Are suitable smaller properties available in your preferred location? If not, you either compromise location or quality, or accept a long wait. Nationwide Super reported that although many wanting to downsize for retirement found the process reasonably smooth, about one in four encountered problems, often with lack of suitable listings. (Nationwide Super | Small Business Super)
- Transaction costs including state stamp duty / land transfer duty can be steep in some states and suburbs. These may diminish your gains significantly. (Retirement Essentials)
- Emotional & social readiness
- Are you emotionally attached to your home, neighbourhood, friends, familiar services? Would leaving these cause grief or regret? Often these are underestimated.
- How easy or difficult will the move physically be? Sorting decades of possessions, moving, adapting to a new-space layout etc.
- Social ties: moving far away may affect your connection with family, friends, community networks.
- Future flexibility
- Will the new home suit you in 5-10-15 years? Think long-term: accessibility, medical services, proximity to family/support.
- Also consider property maintenance, strata/levies, possible increase in fees, unexpected costs, local council levies etc.
- Professional advice & planning
- Financial planner or adviser: to model scenarios (with vs without downsizing).
- Tax adviser: to understand tax consequences and interplay with super, capital gains, means testing.
- Real estate agents (for both current and potential new homes): to estimate sale and purchase prices, costs.
- Legal counsel: especially for contracts, strata/retirement village agreements, verifying title, fees.
How to estimate whether downsizing is “worth it” — a worked-through example
Here’s a simplified illustration of how someone might run the numbers. (Note: figures are illustrative; you would use your own specific numbers.)
| Item | Assumption | Dollars (AUD) |
| Sale of large family home | Value: $1,200,000 | |
| Minus selling costs (agent’s commission, legal, repair) | say 5-6% ~ $60,000‐$80,000 | |
| Purchase of smaller home / apartment in similar area | $800,000 | |
| Costs of purchase (stamp duty, legal, moving etc) | perhaps 5-7% ~ $40,000‐$60,000 | |
| Net proceeds leftover | $1,200,000 − $70,000 − $800,000 − $50,000 = ~ $280,000 | |
| Ongoing saved costs per year (maintenance, rates, insurance, utility etc) | $5,000-$10,000 depending on property and location | |
| Use of downsizer contribution into super | If over 55, up to $300,000 (you may use $280,000 in this case) — tax advantages may apply; but note super monies may be locked in or have restrictions. |
From that net leftover and ongoing savings, one can estimate how many years of “extra cushion” you gain (in income) or how much your standard of living could increase. But you must subtract what you might lose in Age Pension or government benefits if those are reduced.
Best timing & strategic considerations
- Do it before major health or mobility decline: It’s often easier physically and emotionally to move earlier rather than later. Many retirees regret “waiting too long.” (IRT)
- Watch interest rates, inflation, property cycles: A downturn might reduce sale price; a boom might make the cost of buying new high. Adjust expectations.
- Consider whether smaller property is readily available in the market you want. If not, compromises in location or amenities may reduce your satisfaction.
- Evaluate whether home modifications (ageing-in-place adjustments) are sufficient instead of moving. Sometimes installing a stairlift, modifying bathrooms, or adding accessibility features may cost less and preserve many non-financial benefits.
Overall pros vs cons: summary
Here’s a side-by-side snapshot to help with quick comparison:
| Category | Pros | Cons |
| Financial | Releases locked equity; boosts super via Downsizer contribution; lowers running costs; frees cash for travel, debt pay-off etc. | Costs of transaction; potential reduction of Age Pension / government benefit; ongoing fees (strata etc.); possible tax or transfer costs. |
| Lifestyle & Convenience | Less maintenance; more convenience in location; simpler living; potentially more leisure time; better alignment with ageing needs. | Less space; fewer rooms; smaller yard; possibly further from familiar community or services; adjustment period. |
| Emotional/Social | Opportunity to shift to preferred location; perhaps new experiences; relief from upkeep; simplification. | Loss of home of memories; grief of leaving familiar; disruption to routines; possible isolation or loss of connections. |
| Market & Legal Risks | Benefit if property market favourable; if buying in lower cost or growth areas; upside via property value increase. | Real estate downturns; scarcity of affordable smaller homes; high stamp duties or taxes; legal/contract issues; increasing fees in retirement villages or strata. |
Case for careful planning & professional help
Because of the number of moving parts, downsizing needs more planning than many expect. Some common mis-steps:
- Failing to factor in all transaction costs → overestimating net proceeds
- Underestimating ongoing costs in the new home (body corporate, strata levies, maintenance etc.)
- Overlooking impact on Age Pension / benefits / means test / asset test
- Emotional regret later because of giving up more than just space (neighbourhood, memories)
- Choosing a home that isn’t future-proof (for accessibility, health decline etc.)
A good adviser can help you model scenarios for your specific situation: how downsizing (or not) would affect your cash flow, taxes, super, government benefits over 5, 10, 20 years. Legal advice helps with contracts, retirement village agreements, strata documents, rights and obligations. Estate planning may also be relevant.
What research & data tell us
Some of the recent findings:
- Use of the Downsizer-Contribution Scheme has risen sharply since eligibility was lowered from 60 to 55. The Colonial First State (CFS) reported a fivefold increase between 2023 and 2024, with over 80,000 people using it since the scheme started. (The Australian)
- In AHURI data, among Australians who’d moved since turning 50, around half had downsized; motivations split between lifestyle and financial reasons. (Nationwide Super | Small Business Super)
- Research suggests that one in four downsizers run into problems, especially around finding suitable properties. (Nationwide Super | Small Business Super)
- Estimates in some sources that “hidden” costs of downsizing may reduce expected net gain by 12-15% (or more), once you add in all the transaction, legal, moving, and “make good” costs. (Retirement Essentials)
Final thoughts
Downsizing can be a powerful tool in the retirement strategy toolbox. It has the potential to release equity, simplify life, lower costs, and give a financial and lifestyle boost. But it’s not a one-size-fits-all solution. For some retirees the costs (financial, emotional, social) exceed the gains.
A decision to downsize should ideally be made well ahead of need: when you still have mobility, time to plan, and clarity about what you want in retirement. Stress and regret often come from rushed decisions or overlooking key costs.
If you are considering downsizing, the steps I recommend are:
- Get your full financial picture sorted: net home equity, super balance, debts, ongoing commitments.
- Engage a financial planner and/or tax professional. Model scenarios with and without downsizing.
- Visit potential new home types; check what you’ll lose or gain (space, amenities, maintenance, yard, etc.).
- Consider quality of life issues: proximity to family & friends; sense of belonging; emotional attachments; lifestyle.
- Factor in the Age Pension / Centrelink rules; check how your eligibility or payments might change.
- Look at property market conditions: is it a buyers’ or sellers’ market where you live? Are small homes in good condition and convenient locations available?
Conclusion
For many Australians, downsizing can deliver a boost to retirement funds and improve quality of life in retirement. But it’s not an easy choice. The trade-offs are real: financial, emotional, lifestyle. What works well for you will depend on your health, priorities, the local housing market, and how you envision your retirement.
If you combine good planning, professional advice, realistic calculations and emotional readiness, downsizing might be one of the best financial and personal decisions you ever make. If not, there are alternatives (e.g. modifying your existing home, renting out part, delaying the move) that may achieve many of the same goals with fewer downsides.
References
- “Pros and cons of Downsizing: Working out the real costs,” Retirement Essentials, January 14, 2024. (Retirement Essentials)
- “The pros and cons of downsizing,” Nationwide Super. (Nationwide Super | Small Business Super)
- “Downsizing in retirement,” MoneySmart, Australian Government. (Moneysmart)
- “Downsizing in Retirement: Pros, Cons & Financial Impact,” EPG Wealth. (EPG Wealth -)
- “Downsizing your home for retirement: where to begin,” IRT. (IRT)
- “What are the pros and cons of downsizing your home?” Lifestyle Communities. (Lifestyle Communities)
- “Downsizing From the Family Home,” Hometown Australia, 2024. (Hometown Australia)
- “Downsizing contributions use rises sharply, warns of pension implications,” The Australian / Colonial First State, May 2025. (The Australian)
