When you get to a certain age or shade of grey the inevitable topic of downsizing comes up in conversation. You could be sick of living in an empty nest, or maybe you’re tired of all the housework a bigger property requires.

Maybe you just want to save some money. Well, there’s something crucial Baby Boomers need to consider before downsizing.

Can downsizing impact your pension?

Downsizing your family home for a less expensive property might free up a small fortune – but a word of warning – this may affect the amount of government benefits you get.

Your eligibility for Age Pension depends on the value of your assets and income you receive.

RELATED

• OPINION: Why Baby Boomers should give up their family homes

• Side hustle earning Aussie retiree extra $750 a week: ‘Terrific’

• Aussie family fleeing cost-of-living crisis saves $40,000 a year by moving to Bali

While your wealth is in the asset of the family home, this asset is exempt from affecting your pension.

So, let’s say you sell your home for $1 million and you’re planning to spend $700,000 on a new place— the leftover amount of $300,000 will be treated as an asset right away and counted under the asset test.

The portion you plan to spend on buying or building your new home remains excluded as an asset for up to two years.

So, it’s possible to have a large portion of money temporarily not counted, which could mean you’re still eligible for Age Pension during that time, even with significant funds from the sale of your home.

Although exempt under the assets test, sale proceeds are considered a financial asset and will have deeming applied at the lower deeming rate.

Deeming is used to work out income created from your financial assets and is added to your other income to determine your rate of Age Pension.

Another option could be to contribute this $300,000, to your super, but I’ll explain more on this later.

How much will you have left over?

It’s usually a good idea to check out the asset test limits to do some quick maths and see how much of the proceeds will not be used to purchase or build your new home, this way you can get an idea of the impact on your pension eligibility.

Don’t forget you’ll likely have to pay for moving costs, real estate agent fees and if you’re buying again, you’ll need to factor in stamp duty, insurance, and conveyancing fees.

Some people might also splash some extra cash on buying, building or renovating their property, which will further reduce the amount of liquid assets readily available to them.

You can see the assets limits for full and part Age Pension below.