Downsizing your home and its impact on the age pension

Senior woman holding a small house in her hands

Image: Marmion/

Downsizing into an apartment or independent living unit is an attractive option for many retirees. And it may mean having cash to spend on travel and lifestyle. Or it could help escape the nightmare of not being able to meet monthly mortgage payments from the Age Pension.

Your dream downsized home could be a family-sized, suburban townhouse, a former holiday house, a city apartment or an independent living unit in a retirement lifestyle village.

Of course, your dream home might be smaller, but just as expensive as your former home, depending on what it is and where it is.

Is this your dream?

You may want to downsize by selling the family home on a big suburban block and buying a compact home unit. This could release finances to free you from the budget constraints of merely having the Age Pension.

Perhaps you imagine that the difference between the sale price and the cost of the new home will give you cash to spend on other things. Don’t forget, though, that, in Australia, Centrelink counts the released equity as part of your financial assets.

Bob and Belinda’s story

Bob and Belinda were on a full Aged Pension when they sold their family home for $1 million. They used $500,000 to buy a stylish new apartment. Another $100,000 was spent on a touring caravan plus a vehicle strong enough to tow the caravan.

They were surprised when Centrelink cut their Age Pension payment rates. At Centrelink, Bob and Belinda are still ‘homeowners,’ but their assessable assets increased in value by $500,000.

The additional $400,000 of ‘financial assets’ and $100,000 of vehicles and leisure items reduced their combined Age Pensions by about $600 per fortnight.

They now need to spend some of their own wealth on living expenses. Their pension payments will increase as their financial assets decrease.

Lifestyle community option

Other seniors might still have a home mortgage, but with a limited capacity to keep working to pay it off. Downsizing into a modest retirement lifestyle community could allow indebted seniors to retire into a home they own.

Keep in mind, though, you’re a ‘homeowner’ if your principal place of residence is valued at more than $207,000. In other words, Age Pensioners who paid less than $207,000 to purchase their homes may be considered ‘non-homeowners’ with their homes counted as ‘assessable assets’.

That means that, in a retirement village, they can claim rent assistance from Centrelink, which can help with the cost of service fees for their retirement village units.

Freda’s story

At age 65, Freda still owed $100,000 on her home loan, but her superannuation was only $57,000. She needed to spend at least $20,000 to fix the roof and bathroom plumbing before she can either sell her home or live in it comfortably.

Her home has a market value of about $350,000.

She plans to use her superannuation to fix her home and then sell it. With $280,000 in hand after the sale of her house, she could pay an in-going amount of $200,000 for a modest outer suburban retirement lifestyle village unit.

That allows her enough to buy a small car and some new furniture while retaining some ‘rainy day’ money.

Freda thinks that she could live on the full Age Pension with the rent assistance money helping with the weekly service fees for her retirement village unit. Importantly, downsizing allows her to escape her mortgage.

Downsizing can be a helpful option for many pensioners. As pensioners, though, it’s best to check with Centrelink about how it impacts financially in your specific situation. The scenarios above were correct at the time of writing.


This is part of a continuing series about Centrelink by Christine Hopper the Director of Financial Care Services, an independent advisor. Financial Care Services is focused on mature people considering a change of lifestyle including retirement and particularly new living arrangements in: retirement lifestyle community villages; granny flats; supported or assisted living, and Commonwealth regulated aged care. She can be contacted through

Christine talks to Centrelink as a customer and on behalf of clients. She understands the range of Department of Veteran Affairs and Centrelink income support benefits, their relevant means tests and eligibility conditions. She’s an actuary who also holds a Bachelor of Science, a Diploma of Financial Planning and a Certificate of Theology.

To receive a free copy of Three Things that Really Matter (in retirement) sign up here for the weekly email.

Category: Finances, Lifestyle, Where to Live

Leave a Reply

Your email address will not be published. Required fields are marked *

Retire Notes