In this guide
Downsizer webinar
Learn about downsizer super contributions in detail in our webinar, including how the eligibility rules work, plus timing, Centrelink and strategy considerations.
Lee and Mandy’s example below shows how a downsizer contribution could work in a real-life scenario.
- Lee (76) is retired with a current super balance of $100,000 invested in a simple account-based pension.
- Lee’s wife Mandy (75), also retired, has a current super balance of $80,000 invested in a simple account-based pension.
- They receive the full Age Pension from Centrelink of $47,070 per year (combined).
- They have been drawing sufficient pension payments from their super to bring their total annual income to $75,000 (drawing almost $28,000 from super in the last year).
- Lee and Mandy are now concerned that their super balances are dwindling and can’t support continued withdrawals at the same level.
- They want to know whether their super will run out soon if they continue living on $75,000 a year, leaving them completely reliant on the Age Pension. They also want to know if they have options to make their income more sustainable without compromising their lifestyle.
They have the following assets:
- Primary residence: $1,100,000 (four-bedroom home, bought when they were 40)
- Home contents: $10,000
- Cars: $10,000
- Cash savings: $5,000
- Total superannuation: $180,000.
It’s important to them to continue receiving their current income to support their active social life. They remain fit and well and don’t want to compromise. While they’re no longer travelling internationally, they do want to enjoy local trips.
Using Mercer’s retirement income simulator, they discover that if they continue living on $75,000 a year, their super balances are expected to have run out by the time Lee turns 84.
Initial estimated annual retirement income
Source: Mercer retirement income simulator
Lee and Mandy are disappointed by the result. They don’t want to draw less from super, but the thought of running out of savings so quickly is daunting. Living on the Age Pension in their early–mid 80s with no other income to supplement their needs doesn’t feel appealing. They expect to live well into their 90s in good health based on their family history and personal fitness.
Since their adult children left home long ago, they don’t need such a big house and the maintenance costs that go with it. They’re considering selling their home and buying a smaller one. They have made enquiries and found the following:
- Their current home could sell for around $1,100,000
- They can buy a suitable new home for around $800,000 (including stamp duty and other costs).
The remaining $300,000 could then be used to make a downsizer contribution into either Lee’s or Mandy’s super account.
What is a downsizer contribution?
If you are aged 55 or older, you can make a downsizer contribution into your super of up to $300,000 each ($600,000 for a couple) from the proceeds of selling an eligible property.
The property must have been owned by you or your spouse for at least 10 years before the sale and used as your primary residence for at least part of that time. You do not need to be working to make this contribution, and it does not count towards the non-concessional contribution cap.
Generally, you cannot make personal contributions more than 28 days after the end of the month in which you turn 75. The downsizer contribution can only be used once per person, but there is no maximum age limit.
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Find out moreLee and Mandy are both past the age limit for other personal super contributions, so the downsizer contribution is their only option.
New position after downsizer contribution
After making their downsizer contribution, Lee and Mandy’s asset position would be:
- Primary residence: $800,000
- Home contents: $10,000
- Cars: $10,000
- Cash savings: $5,000
- Total superannuation: $480,000 (current balance of $180,000 + $300,000 downsizer contribution).
They revisit the Mercer retirement income simulator to see how long they could afford to live on $75,000 per year if they go ahead with moving and adding a downsizer contribution to super.
Revised estimated annual retirement income
Source: Mercer retirement income simulator
Their super balances are now expected to last well into their old age, and within a few years their retirement income is projected to be slightly above their target of $75,000. The rising income is a result of the annual minimum withdrawal percentage from simple account-based pensions, which increases with age.
While their Age Pension is initially a little below the maximum due to their increased assessable assets and income, it continues to provide significant income support and returns to the full rate within a few years.
Lee and Mandy can choose to use the entire $300,000 towards a downsizer contribution for one of them. The other person will then have the option to use the downsizer rules later if their new property is sold 10 years or more down the track.
If their total net proceeds from the move exceed the $300,000 per-person limit, Lee and Mandy can both add downsizer contributions to their super right away.
For example, if their net proceeds are $400,000, they could contribute $200,000 each, $300,000 for Mandy and $100,000 for Lee, or any other combination they choose so long as neither of them exceeds the $300,000 limit. Remember, each person can use this measure only once, so if they both make contributions from the sale of this property, neither of them can add a downsizer contribution to super in future when another property is sold.
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