Downsizing and Your Age Pension: What You Need to Know Before You Sell
- Bill Savellis
- Mar 25
- 3 min read
Selling the family home is one of the biggest financial decisions you'll make in later life. For many people, it's the single largest asset they own - and the idea of unlocking that equity can feel like a welcome relief after years of maintenance costs and an increasingly quiet house.
But before you sign with the agent, it's worth understanding how downsizing can impact your Age Pension. The decisions you make - and the order in which you make them - can have a significant impact on your entitlements, sometimes for years to come.
Here's what you need to know.
Your Home is Exempt From the Assets Test - Until You Sell It
Under the current rules, your principal place of residence is not counted in Centrelink's assets test. This is one of the most valuable financial protections available to retirees, and it's one that disappears the moment you sell.
When you sell your home, the proceeds become assessable assets. That means if you sell a home worth $1.2 million and move into something worth $600,000, the $600,000 difference is counted as part of your asset pool. Depending on your other assets, this could reduce your Age Pension or, in some cases, affect your eligibility altogether.
The timing of when you purchase your new home matters too. Centrelink expects you to use the proceeds to secure a new principal residence within a ‘reasonable’ timeframe. If there's an extensive and unexplainable gap between selling and settling on your next property, those funds may be assessed.
The Downsizer Contribution: A Valuable Super Opportunity
If you're aged 55 or over and selling a home you've owned for at least 10 years, you may be eligible to make a Downsizer Contribution into your superannuation.
This sounds like a straightforward win, and often it is. But moving money from the exempt family home into super doesn't automatically protect it from the assets test.
There are a number of circumstances where a Downsizer Contribution is genuinely beneficial. Which is why it's worth modelling your specific situation to understand the big picture before acting.
The Income Test Matters Too
It's not just assets. Once proceeds from a sale are held in cash or investments, they may also generate assessable income - which is subject to Centrelink's income test. Even a conservative investment can produce income that affects your pension rate.
This is one of the reasons why you should have a clear plan when it comes to how you structure the remaining funds after downsizing. This can be just as important as the decision to downsize itself.
Downsizing and Aged Care: An Added Layer of Complexity
For some people, downsizing to a more manageable property is a step taken in anticipation of an eventual move into Aged Care, and you may look to move into a retirement village, or rent a low maintenance apartment as an interim measure. Everyone’s circumstances are different, and particularly when it comes to understanding your options or preparing for an Aged Care transition - specialist advice pays for itself many times over.
What To Do Before You Sell
There's no single right answer when it comes to downsizing - everyone's situation is different. But there are questions worth working through before you commit:
How will the sale proceeds affect your Age Pension entitlements?
What is the most tax-effective way to structure the remaining funds?
Is a Downsizer Contribution right for your circumstances?
If aged care is on the horizon, how does this decision affect your future costs?
What is the timing risk between selling and settling on a new property?
Getting clear answers to these questions before you act - not after - is where a specialist retirement financial adviser can make a real difference.
At Olive Grove Financial Advice, we work with people navigating exactly these decisions - from Age Pension planning and downsizing through to aged care transitions. Our approach is end-to-end: we don't just give you a strategy document, we work with Centrelink and service providers to put your plan in place.
If you're thinking about selling and want to understand what it means for your Age Pension before you do, we'd love to chat.
