Once many seniors reach retirement age, they find themselves stuck with a home that is too large and too hard to maintain.
Once many seniors reach retirement age, they find themselves stuck with a home that is too large and too hard to maintain. After all, their children have moved out of the home and now have homes of their own. At this point, many seniors consider downsizing to a smaller home that cost less and is easier, and cheaper, to manage.
Unfortunately, the problem that many seniors face is that if they downsize to a smaller home, the profit they make from selling their current home could negatively affect their age pension payments. Typically, the profits made from the sale of a home are used as part of the income and assets tests for age pension eligibility. This has forced many seniors to remain in their homes rather than risk losing these crucial payments. However, the government has set up a new program designed to help seniors downsize, without it affecting their age pension.
Trial Three-Year Program
This trial three-year program will begin on 1 July 2014 and will be tracked to see if it is able to make a positive impact on seniors’ lives. The new program will allow seniors who have owned their home for at least 25 years to sell their home and invest any profits earned from the sale into a special savings account.
Seniors will be allowed to deposit up to $200,000 into this special account for up to ten years, and this amount will not be used as part of the age pension means test. In addition, senior must deposit at least 80 percent of the profit from the sale of their home, up to the $200,000 threshold.
This will allow many seniors to sell their home, with no affect to their age pension for up to ten years. The only hitch is that the seniors will not be able to withdraw any of this money from this special account for at least ten years. If they do make a withdrawal, then the entire amount in the savings account will be used as part of the pension means test.
The Australian government is hoping that this will be a big enough incentive to encourage some seniors to downsize to a smaller home. However, many critics do not think the program goes far enough because the seniors are still required to pay the high stamp duty when they sell their home. ACT (Australian Capital Territory) has devised a plan to help fight this program. It has reduced the stamp duty concessions amount for seniors. This program will require seniors over 60-years old to only pay a $20 tax duty for the sale of a home up to $595,000. Homes that sell for higher than this amount may still be eligible for a reduced stamp duty amount. If this program proves to be successful, other states and territories may offer similar programs.
State and Territory Initiatives
Several other Australian states and territories are also coming up with ideas to help seniors who want to downsize to a small home. For example, South Australia is now giving $8,500 to any senior over the age of 60-years old, who wants to downsize to a smaller home. This Senior Housing Grant program begins on 1 July 2014 and is for seniors who downsize to a home value at $400,000 or less.
These special initiatives may be enough to encourage some seniors to downsize to a smaller, more manageable home. If you have been considering downsizing, but have been worrying about your age pension or the high stamp duty fees, now may be the perfect time to reconsider. These special programs will definitely help you save money, while moving to a home more suitable to your retired lifestyle. You may also want to seek at the advice from a professional financial counsellor before making your final decision to downsize.
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