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  • Writer's pictureAndre Dirckze

Downsizer Contributions - A great opportunity to boost your retirement nest egg.

Securing your own home has long been a large part of the Australian dream, and it's also a pivotal element in crafting a sound retirement strategy, especially for those aged 55 and beyond. With Australia grappling with a housing shortage and escalating rental costs, having a place to call your own can truly determine whether your retirement is a contented one or a more challenging and uncertain journey.

Remarkably, your home can serve as a valuable asset to bolster your retirement income.


If you're contemplating the idea of downsizing to a smaller or better-located residence for your golden years, selling your family home can emerge as a superb means to unlock the equity you've diligently accrued over the years, offering a substantial boost to your superannuation.


Moreover, the government stands ready to extend a helping hand by offering enticing incentives. Their rationale is to facilitate older individuals in 'right-sizing' their homes for retirement, thereby freeing up larger residences for young families aspiring to enter the property market. So, what exactly are these downsizer contributions?


In simple terms, the essence of the downsizer contribution rules lies in enabling older Australians to sell their current homes and utilize the proceeds to purchase a smaller dwelling, subsequently channeling the surplus into their superannuation accounts.


Effective from January 1, 2023, the revised rules have lowered the minimum eligibility age, making it possible for individuals aged 55 and above to access downsizer contributions. This marks a significant shift from the original minimum age of 65, as it progressively reduced to age 55.


Importantly, the lower age threshold (55 years) pertains to your age at the time of making the contribution, and there is no upper age restriction. Typically, once you reach the age of 75, superannuation regulations tend to curtail voluntary contributions. Hence, the opportunity for a downsizer contribution represents a rare chance to bolster your superannuation holdings.


Starting an Allocated Pension: Supercharging Your Retirement Finances


As you contemplate the prospect of downsizing your home and boosting your superannuation, there's another essential strategy to consider: starting an allocated pension. This financial move can be a game-changer for anyone heading into retirement or already retired, offering remarkable tax benefits that complement your downsizing efforts.


When you've taken the step to sell your family home and potentially release a substantial amount of equity for your superannuation, you'll want to ensure that these funds work efficiently to secure your retirement. Here's where an allocated pension comes into play:


1. Tax-Free Earnings: The earnings generated within your allocated pension account are typically tax-free. This means that as your investments grow over time, you won't be subject to income tax on the returns. This tax advantage can significantly boost the growth of your retirement nest egg, especially when combined with the proceeds from downsizing your home.


2. Capital Gains Tax Exemption: Capital gains realized within your allocated pension account are generally exempt from capital gains tax (CGT). If you decide to sell investments within your pension account for rebalancing or to fund your retirement expenses, you won't incur CGT liabilities, making it a tax-efficient choice.


3. Tax-Free Withdrawals: Once you start drawing income from your allocated pension, the payments you receive are typically tax-free if you're aged 60 or over. This means you can enjoy the benefits of your investments without worrying about tax deductions, providing financial security in retirement.


By integrating the advantages of an allocated pension into your downsizing strategy, you can create a more robust retirement plan. The equity released from downsizing can be invested within your allocated pension, and the combined benefits of tax-free earnings, CGT exemption, and tax-free withdrawals can help you make the most of your newfound financial resources.


This dynamic combination of downsizing and starting an allocated pension allows you to harness the potential of your assets while minimizing tax liabilities, providing peace of mind as you approach retirement or enjoy your post-retirement years. To tailor this strategy to your specific circumstances, consult with WE. financial advisor or retirement planning expert who can guide you in making the best choices for your financial future.



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