Downsizing – is it right for you?

Luxury inner city apartments marketed as ‘perfect for empty nesters’. TV shows where cool older divorcees live in luxury on the waterfront. The ‘grey nomads’ community selling up and taking off in their camper vans. 

Even twenty years ago, the idea of downsizing wasn’t really part of our culture. The parental home was something to be cherished and kept in the family as long as possible. Now, if the aforementioned signs are anything to go by, downsizing to a smaller property is completely normal. 

Naturally, the idea doesn’t resonate with every retiree – or even with every person actively planning for retirement. The truth is, everyone’s circumstances are vastly different. Even amongst those who do choose downsizing, the reasons for doing so vary dramatically. 

Common reasons for downsizing

A publication from the Australian Housing and Urban Research Institute (AHURI) reported that 43% of survey respondents had downsized in some way since turning 50.i They also found that downsizing was most likely to happen between the ages of 65-74. 

Of the older Australians surveyed by AHURI, 37.9% said they downsized for ‘lifestyle’ reasons, 17.2% moved because their children were out of home, 26.6% moved because they could not keep up with the maintenance on a big house and garden, 10% moved for financial gain. 

Financial implications

While improving your lifestyle is given as the primary motivating factor for downsizing, the financial implications also need to be considered and recent changes to legislation make downsizing more financially appealing. 

Under the new Downsizer Super Contribution Scheme (DSC), as of 1 July 2018, individuals aged 65 and over will be able will be able to put the proceeds from the sale of their family home of up to $300,000 into superannuation, or $600,000 for couples. This is intended to encourage baby boomers to downsize to release equity to fund their retirement and free up larger homes for younger families. To qualify for the downsizer contribution you must meet the following criteria: 

• you must be over 65 years old;
• the contract of sale must exchange on or after 1 July 2018;
• you must have owned your home (excluding caravan, motorhome or houseboat) for at least 10 years; and
• your home must qualify at least partially as your main residence.

The downsizer contribution can still be made if an individual has a total super balance greater than 1.6 million. The contributions are not tax deductable and will be taken into account when determining for the age pension. 

An emotional time

Even if the financial and practical reasons for downsizing stack up, there are emotional considerations. It can be hard to let go of the family home as every room is full of memories. As well as your attachment to your home you’ve built, think about the feelings of children and grandchildren. Your home could represent stability, safety and tradition to them. Dealing with emotions around the family home can take time and should be planned for. 

If you have been living in the one suburb or town for many years, you will have put down roots, made friendships and forged deep connections within the community. A new start can be quite intimidating and it’s important to make sure you are comfortable, both with the idea of starting anew, as well as the culture of the community you are moving to. 

There are a lot of things to consider if you are thinking about downsizing and we are here to help. Make an appointment today to discuss the financial pros and cons of moving to a smaller home. 

i http://www.ahuri.edu.au/-data/assets/pdf-file/0012/2181/AHURI-Final-Report-No214-Downsizing-amongst-older-Australians.pdfutm-source=website&utm-medium=report.PDF&utm-campaign=http://www.ahuri.edu.au/research/final-reports/214

Honesty the best policy with life insurance

Life insurance is one of the most important investments you can make to protect your family’s future wellbeing. And like any investment, it needs careful consideration.

Taking out too little or too much insurance can be costly. Failing to disclose all relevant information to an insurer could result in a claim being denied – possibly after years of paying premiums – just when you need help most.

Negotiating in good faith

Heartbreaking stories about insurance companies failing to pay out when a policyholder suffers an illness or injury get plenty of media attention. What’s often glossed over in these reports is that the company is within its legal rights to deny the claim.

There are several reasons a claim can legitimately be denied: unpaid premiums; exclusion periods or clauses; or a medical condition not being severe enough to qualify for a payout. But non-disclosure is the most easily avoidable reason for claims being denied.

An insurance policy is a contract, which means both parties are required to enter into it in good faith. That means you have to respond truthfully when your insurer asks you specific questions. You also need to volunteer any information, such as pre-existing health conditions, that would be relevant in deciding whether to insure you.

The good news is that most claims are paid out in full. That noted, one of the first things an insurer will do on receiving any claim, particularly a life insurance claim that’s likely to involve a substantial pay out, is double check the policyholder didn’t misrepresent their circumstances when taking out the policy.

Getting assistance

Non-disclosure issues are one reason it pays to choose a retail product rather than a direct life insurance policy. As the name suggests, a direct insurance policy is sold as a one-size-fits-all direct to the consumer, rather than through an adviser. It’s easy to apply for online or over the phone, with little or no medical information required.

With a retail policy, an expert adviser will walk you through the application process, taking care to ensure you don’t inadvertently fail to disclose any relevant information. It may be a little more expensive but it can save you money in the long run. An Australian Securities and Investments Commission (ASIC) report found average declined claim rates were highest for non-advised policies (12 per cent), compared to 7 per cent for retail policies.” i

There are other reasons direct insurance policies can offer false economy. These include a basic level of cover with few extra benefits and a wide-ranging clause stating ‘claims due to pre-existing conditions are not valid’.

As life changes, so should your insurance

Another issue to be aware of is that your insurance needs will vary at different life stages. So it’s sensible to get into the habit of reviewing your insurance cover annually or, at the very least, whenever major life events, such as the following, occur.

• You welcome or farewell a child
  Kids are expensive, something to consider when calculating the income your partner would require should the worst happen. Alternatively, if your children have reached the age where they are independent, you may be able to scale back your policy and premiums.
   
• You welcome or farewell a partner
  As your relationship status changes, so might your main beneficiary and the amount you wish them to receive.
   
• Your income or debt levels fluctuate
  That payout of $80,000 a year, which seemed sufficient when you had the lifestyle of a young middle manager, might not be so livable when you’re a fifty something executive. On the other hand, once you own your home and your partner will not be left with the burden of a mortgage you may be able to reduce your cover.

The right insurance solution for you and your family will be as unique as you are. If you would like to discuss your insurance needs, don’t hesitate to give us a call.

i ASIC REP 498 ‘Life Insurance Claims: An Industry Review’, 12 October 2016