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Speaker 1: Welcome back to start Here, the very special mini series

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Speaker 1: within Sugar Mama's Fireplay, where I answer your real life

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Speaker 1: money questions with practical, empowering steps to help you get

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Speaker 1: started and have financial security and confidence in your life. Now.

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Speaker 1: Today's question comes from a lady named Pamela, who wrote, Hi, Canna,

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Speaker 1: I've been a stay at home mother for most of

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Speaker 1: my life, but now I'm working part time at my

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Speaker 1: local public school, so I only have seventy seven thousand

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Speaker 1: dollars in super. It's better than nothing, but I know

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Speaker 1: that I need more money in my super if I'm

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Speaker 1: going to be able to retire in three years time

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Speaker 1: at age sixty five. All of my money, except for

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Speaker 1: eighty thousand dollars in savings, is tied up in my home,

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Speaker 1: which is worth three million dollars and no mortgage. So

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Speaker 1: I'm considering downsizing to help free up some of this

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Speaker 1: money in order to help cover my retirement needs. So

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Speaker 1: my question to you is what do I need to

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Speaker 1: think about and know to help make this money last

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Speaker 1: as long as possible for retirement. Okay, First of all, Pamela,

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Speaker 1: thank you so much for your message. This is such

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Speaker 1: an important and a really common question. So many Australians

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Speaker 1: nearing retirement are in such a similar position. Their asset rich,

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Speaker 1: you know, great home, no mortgage, but they don't actually

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Speaker 1: have the cash flow in order to be able to

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Speaker 1: support their retirement and support their retirement in the way

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Speaker 1: that they want. So in today's episode, to start here,

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Speaker 1: I want to talk you through this thing called the

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Speaker 1: downsizer contribution and how the rules work so that you

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Speaker 1: can have a much clearer understanding as to how this

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Speaker 1: may help you. Also the practical and financial steps to

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Speaker 1: take before you make any major decision, and also how

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Speaker 1: much to estimate or how to estimate what you need

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Speaker 1: in order to be able to free up and make

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Speaker 1: this money last as possible. And of course, with all

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Speaker 1: of my episodes, everything is general in nature. This is

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Speaker 1: really for educational purposes and also to help give you

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Speaker 1: that clarity to help you get started, So please always

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Speaker 1: bear that in mind. This is definitely not strategic advice

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Speaker 1: or personal advice. All right, let us begin, because this

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Speaker 1: is a really important episode. All right, let's not waste

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Speaker 1: any time at all and get straight into this. So

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Speaker 1: why can downsizing the family home be a really smart

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Speaker 1: financial move? So when most of our wealth sits inside

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Speaker 1: the family home. Particularly there's no mortgage, it can be

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Speaker 1: really difficult to actually generate any come once you stop working.

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Speaker 1: You know, the only way to earn money off a

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Speaker 1: family home is if you say renting out, say a

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Speaker 1: bedroom now downsizing that is obviously selling the home and

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Speaker 1: buying something smaller and cheaper obviously helps release some of

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Speaker 1: that equity and that money that you get left over.

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Speaker 1: The difference between selling the old home and buying the

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Speaker 1: new home, you know, can help give you greater flexibility,

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Speaker 1: It can help boost your super and potentially help provide

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Speaker 1: you with money that you can help live off or

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Speaker 1: even passive income to support your lifestyle. It's not about

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Speaker 1: losing a home, it's about turning part of that wealth

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Speaker 1: that you've built into I guess accessible resources that can

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Speaker 1: now work for you in a more financially efficient way

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Speaker 1: when it comes to those retirement goals and dreams. So definitely,

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Speaker 1: by planning early, you can actually make a far more

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Speaker 1: informed decision about when to sell and also how to sell,

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Speaker 1: and you'll have such a greater idea as to what

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Speaker 1: you actually need for your retirement goals and also how

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Speaker 1: to make sure that you make that money really work

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Speaker 1: for you in a really efficient way so that you

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Speaker 1: can save tax and get that money lasting for you

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Speaker 1: as long as possible. So this is what I'm going

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Speaker 1: to recommend you do. I am going to recommend you

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Speaker 1: do two budgets, so before you make any sort of

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Speaker 1: financial moves, I really want to make sure that you

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Speaker 1: have a really clear understanding on your spending. So I

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Speaker 1: recommend you do a budget for your living expenses right now,

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Speaker 1: so work out what you actually spend your money on.

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Speaker 1: You know, it might be your food, transport, maintenance of

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Speaker 1: the family home, car regio rates, absolutely everything. Because this

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Speaker 1: actually shows you what your life costs are right now,

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Speaker 1: and it can be really helpful to give you a

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Speaker 1: bit of an insight as to how much you're going

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Speaker 1: to need going forward, especially when you retire. Once you've

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Speaker 1: done that, I then want you to do a future

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Speaker 1: retirement budget, So we're going to start projecting forward now.

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Speaker 1: I want you to write down what your expenses might

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Speaker 1: look like in three years time when you do go

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Speaker 1: and retire. And the reason why I want you to

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Speaker 1: do this is because you have even more clarity as

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Speaker 1: to any shifts either up or down with your income

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Speaker 1: and how you actually need, so we can plan and

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Speaker 1: prepare it around that. So for example, you might think, well,

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Speaker 1: look my family home. At the moment, it's going to

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Speaker 1: swing pool and a really big garden. It's very expensive

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Speaker 1: to maintain. If I downsize, I'll probably buy a townhouse

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Speaker 1: and apartment, I won't have those expenses anymore. But also

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Speaker 1: on the flip side, you might think, well, when I retire,

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Speaker 1: I want to go traveling and see the world. And

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Speaker 1: you know that might involve say two international holidays a

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Speaker 1: year and say two domestic holidays a year, So you

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Speaker 1: need to factor this in your future retirement budget and

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Speaker 1: also take into consideration healthcare. You know, as much as

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Speaker 1: we want to think that we're going to be fit,

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Speaker 1: strong and healthy throughout our lives, the reality is is,

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Speaker 1: you know, we may need to go and see a specialist,

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Speaker 1: we may need particular types of medication, may need to

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Speaker 1: even have to go overseas for some of that. So

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Speaker 1: take that into consideration, possible changes in the cost of

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Speaker 1: healthcare and obviously medical advice. And by having these two

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Speaker 1: different budgets side by side, you can get a much

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Speaker 1: greater sense as to how much income you're going to

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Speaker 1: need or you actually want each year in order to

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Speaker 1: be able to live comfortably. Because then when we have

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Speaker 1: that figure as to you know, for example, is it

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Speaker 1: eighty thousand dollars year or seventy thousand dollars a year.

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Speaker 1: Having that figure as to how much you need to

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Speaker 1: live off each year for your retirement goals and your

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Speaker 1: retirement lifestyle goals, we can then work out, actually, how

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Speaker 1: much money do you really need at age sixty five

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Speaker 1: to achieve this? So once you've done that, I wanted

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Speaker 1: you to do some research. Okay, before you even think

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Speaker 1: about listing a property. You want you to do some

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Speaker 1: important groundwork and really understand your numbers with confidence and certainty.

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Speaker 1: So the first thing I would be doing is getting

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Speaker 1: some appraisals. Speak to at least three, if not five,

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Speaker 1: local real estate agents to get a realistic market valuation

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Speaker 1: of your family home. You might think it's three million dollars,

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Speaker 1: but an agent might come through and say, actually it's

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Speaker 1: three point three or three point five. There's a big

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Speaker 1: difference in numbers here, or it might be two point eight.

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Speaker 1: You need to know because two three hundred dollars one

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Speaker 1: thousand dollars up or down is a big amount of money.

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Speaker 1: That we need for your superinnuation and for your retirement goals.

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Speaker 1: And of course you know, by getting a range of

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Speaker 1: different quotes, it's going to give you much greater idea

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Speaker 1: as to how much your home is really worth and

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Speaker 1: also how long it might may take to actually sell.

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Speaker 1: And of course you want to keep your head screwed on,

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Speaker 1: you know, look for the conservative numbers, not a real

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Speaker 1: estate agent trying to win you and win their win

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Speaker 1: the business. You know, don't just go with the highest estimates,

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Speaker 1: because that can sometimes be fraught with danger and huge disappointment. Okay,

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Speaker 1: So once you've got a clear idea as to what

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Speaker 1: you can realistically sell your home for, then I want

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Speaker 1: you to go and do some research on the cost

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Speaker 1: of your next home. Look at what type of property

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Speaker 1: you'd like to move into. You know, if you're living

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Speaker 1: in a big home, you might want still a house,

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Speaker 1: a free standing house, but maybe it's smaller, or perhaps

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Speaker 1: you want a townhouse, or perhaps you're quite happy with

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Speaker 1: an apartment, you know, with all level one level living,

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Speaker 1: or maybe you won't even buy into a different area.

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Speaker 1: You've got to look at what these properties are listed for,

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Speaker 1: but also what these properties actually end up selling. We

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Speaker 1: all know that you know, a real estate agent will

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Speaker 1: quote a property for say a million dollars, but it

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Speaker 1: ends up selling not for a million dollars, it ends

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Speaker 1: up for selling for over one point one. So you

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Speaker 1: want to look at the prices these properties are actually

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Speaker 1: selling for, not the advertised prices, because they can be

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Speaker 1: a little bit misleading. You also need to factor into

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Speaker 1: your numbers the costs, so things like stamp duty, you know,

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Speaker 1: legal fees and those moving costs. They can really add up,

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Speaker 1: particularly stamp duty. Then I also want you to do

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Speaker 1: some numbers around the costs of selling. When you go

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Speaker 1: to sell your family home, you're going to have to

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Speaker 1: pay agents commissions, which is going to be a lot

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Speaker 1: on a three million dollar home. You know, you can

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Speaker 1: be writing a big check once you sell it, so

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Speaker 1: that's got to come off your top line. You're also

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Speaker 1: going to have to pay for marketing, you know, a

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Speaker 1: photographer to come through, someone to probably style the home.

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Speaker 1: You might even have to rent some furniture, you might

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Speaker 1: even have to move out temporarily. You might have to

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Speaker 1: do some you know, improvements to the home. You know

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Speaker 1: the agents might come through and say, look, you need

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Speaker 1: to spend twenty thousand dollars fixing up the garden and

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Speaker 1: the fences, or you need to get the house painted,

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Speaker 1: or you need to get the bathroom touched up. And

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Speaker 1: then of course you're going to have legal fees as well. Now,

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Speaker 1: all these expenses can quickly add up. Selling is expensive.

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Speaker 1: No one really talks about this, And of course when

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Speaker 1: you have all these numbers, you can then subtract these

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Speaker 1: from your estimated sale price to see exactly how much

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Speaker 1: money will you be walking away. Is it three million dollars,

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Speaker 1: is it three point one million dollars? Is it two

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Speaker 1: point seven million dollars? You want that clarity. And then

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Speaker 1: of course you can compare that expected sale price with

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Speaker 1: your possible new purchase price and all those associated costs

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Speaker 1: that come with it, and you have a much clearer

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Speaker 1: picture of the net amount that's available for you to

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Speaker 1: start putting towards your retirement goals. All right, next, okay,

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Speaker 1: this is where you need to understand how this downsizer

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Speaker 1: contribution opportunity may work for you. Now, the downsizer contribution

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Speaker 1: is an incredibly effective way to help boost your super

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Speaker 1: You know you've flagged it's Scott, You've got seventy seven

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Speaker 1: thousand dollars in super so far and because you're aged

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Speaker 1: over fifty five and you've sounds like obviously I'm not

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Speaker 1: sure about this, but I'm going to assume this to

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Speaker 1: be careful. If you've owned your home for at least

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Speaker 1: ten years, you can potentially contribute up to three hundred

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Speaker 1: thousand dollars of the sale proceeds from selling your home

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Speaker 1: into your superannuation. Now, if you're a couple, it's actually

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Speaker 1: three hundred thousand dollars each, So that would mean have

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Speaker 1: a partner or a husband, you could potentially put six

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Speaker 1: hundred thousand dollars into super so three hundred thousand dollars each.

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Speaker 1: But there are lots of finer details that come around

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Speaker 1: this opportunity, so I'm going to focus on the top

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Speaker 1: line ones, just to give you a bit of a background.

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Speaker 1: So the first thing is the property must have been

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Speaker 1: your main residence, I should say at some point. The

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Speaker 1: second thing is, and this is an important one to

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Speaker 1: be aware of, you have to make that contribution into

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Speaker 1: super if you're going to use this downside a contribution

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Speaker 1: window within ninety days of settlement. So this is where

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Speaker 1: people can get caught out they sell a family home,

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Speaker 1: but then they take six seven months to find a

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Speaker 1: new home. In the meantime, that money sits in a

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Speaker 1: savings account and they completely forget to do that important

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Speaker 1: part of getting that money in. So now that window

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Speaker 1: has closed, they can't actually put their money into SUPER

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Speaker 1: using this. It's got to be ninety days within settlement. Also,

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Speaker 1: the other thing to point out is you only get

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Speaker 1: one shot at this. You can't do this in say

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Speaker 1: three years time well obviously under current legislation. So this

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Speaker 1: opportunity for you to get a bonus three hundred thousand

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Speaker 1: dollars into SUPER is once and once only. So make

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Speaker 1: this decision, and make it with confidence. And I'll come

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Speaker 1: to all with some more details in a part second.

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Speaker 1: And there's no upper super balanced limit that can actually

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Speaker 1: stop you from doing this. But from what you've said,

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Speaker 1: I think you're okay within your your seventy seven thousand

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Speaker 1: dollars limit. Now, once that money is in SUPER, it's

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Speaker 1: in what we call a low tax environment. I think

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Speaker 1: superannuation is a very powerful way to build assets in

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Speaker 1: the long run. So what that means is that three

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Speaker 1: hundred thousand dollars with your existing seventy seven thousand dollars

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Speaker 1: is being taxed at a maximum tax rate of fifteen percent,

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Speaker 1: and capital gains tax can be as little as ten

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Speaker 1: percent depending on how long it is how long you've

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Speaker 1: held assets for. Also, once you go to retire and

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Speaker 1: you move your money from accumulation phase into pension phase,

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Speaker 1: potentially that can drop to zero percent. However, you've got

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Speaker 1: to remember whilst three hundred thousand dollars is a very

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Speaker 1: powerful boost and definitely one not to be disregarded, it

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Speaker 1: may not necessarily close your entire retirement gap. What I'm

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Speaker 1: trying to say is that three hundred thousand dollars with

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Speaker 1: your seventy seven still may not be enough to meet

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Speaker 1: your retirement needs. So this will then obviously depend on

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Speaker 1: what your retirement income needs are, what you're spending is like,

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Speaker 1: so you may still need to draw income from other

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Speaker 1: investments or look at additional superannuation strategies in order to

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Speaker 1: I guess help reach your ideal level of retirement comfort.

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Speaker 1: This is not, you know, a magical solution that's going

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Speaker 1: to fix all of your retirement problems. It definitely is

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Speaker 1: going to help, but I'm warning you it may actually

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Speaker 1: not be enough, So don't think Okay, this will fix

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Speaker 1: it and take care of it. I'm just going to

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Speaker 1: simply use this and I'll be fine. There's going to

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Speaker 1: be more work and more advice required. Okay, now I

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Speaker 1: need to now let you, I guess, make sure you

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Speaker 1: know and understand some key considerations and trade offs from

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Speaker 1: doing this. You know, before you go and sell, before

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Speaker 1: you go and put money into SUPER, you need to

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Speaker 1: be aware of the finer details that are actually could

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Speaker 1: work against you. So the first thing you really need

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Speaker 1: to be aware of is the age pension eligibility. So

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Speaker 1: your family home isn't counted as an asset test in

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Speaker 1: order to qualify for the age pension, which is the

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Speaker 1: government pension. So once the pro seeds are moved into SUPER,

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Speaker 1: they now become accessible. So you do run the risks

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Speaker 1: depending on other contribution strategies that you may actually end

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Speaker 1: up impacting your age pension entitlement. It may reduce what

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Speaker 1: you're entitled to or may wipe it out completely where

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Speaker 1: you're not even entitled to an age pension at all,

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Speaker 1: so be very careful and aware of that. The second

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Speaker 1: thing is health cards. So if you would have qualified

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Speaker 1: for a Commonwealth Senior's health care card. The deemed income

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Speaker 1: from your new superbalance could actually impact your eligibility for

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Speaker 1: discount of medicine and services. And you know those pension

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Speaker 1: cards senior health cards are really valuable. The other thing

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Speaker 1: is capital gains tax. If your home has always been

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Speaker 1: your main residence, it's likely it's exempt from CGT, so

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Speaker 1: you don't need to worry. But if there is any

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Speaker 1: stage where your family home was rented out, you may

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Speaker 1: be up for some capital gains tax, so please check

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Speaker 1: with your accountant. And then so you need to think

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Speaker 1: about the timing of your contribution. You only get one

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Speaker 1: downsizer contribution your retirement, so make sure you strategically work

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Speaker 1: it out and you're comfortable with that money being in

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Speaker 1: Super even though you are only sort of three years

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Speaker 1: away from retiring, and it's really important, all right. The

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Speaker 1: next thing is to think about is how to plan

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Speaker 1: to allocate the proceeds, all the proceeds, so if you

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Speaker 1: do decide to go and sell, it's essential that you

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Speaker 1: know how to use those that money properly so that

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Speaker 1: it's working for you and it's working for you efficiently

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Speaker 1: in the way that you want it to. So a

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Speaker 1: really smart approach to consider would be. Obviously, as we've

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Speaker 1: said topping up, you're super using this downsize a rule

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Speaker 1: to boost your balance and help set yourself up for retirement,

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Speaker 1: and of course you know making the most of that

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Speaker 1: tax free income on you once you meet the conditions

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Speaker 1: of release and retire. And I should really remind everyone

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Speaker 1: you know when you have no tax from your allocated pension.

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Speaker 1: The impact of this from a longevity point of view

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Speaker 1: is really a powerful because you're not having to pay

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Speaker 1: as much tax or any tax, so therefore the funds

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Speaker 1: will last a lot longer. This is why I say

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Speaker 1: super sexy. The other thing to really think about is

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Speaker 1: making sure you've got enough cash set aside. I always

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Speaker 1: say to people who are approaching retirement or retired, please

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Speaker 1: keep two years with a living expenses in a high

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Speaker 1: ter of savings account or maybe even a term deposit,

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Speaker 1: so that if there's ever a situation where your superannuation

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Speaker 1: investment portfolio is experiencing severe market fluctuations which are normal

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Speaker 1: or natural, you're never forced into a position where you

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Speaker 1: have to start selling and crystallizing losses. You can use

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Speaker 1: the money set aside and live off that to allow

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Speaker 1: time to let them your portfolio recover and obviously you'll

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Speaker 1: make also make the most of you know, reinvesting dividends

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Speaker 1: at a lower share price. The other thing to think

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Speaker 1: about is your investment portfolio. I don't know if you

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Speaker 1: have any investments, but if there's going to be a

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Speaker 1: significant amount of money left over after downsizing putting money

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Speaker 1: to super, you know, you may want to look at

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Speaker 1: topping up some investment portfolios or starting an investment portfolio,

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Speaker 1: obviously under the strategic guidance of a financial planner, because

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Speaker 1: you might have your super, you might have some savings,

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Speaker 1: and then you also might want to have say an

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Speaker 1: investment portfolio such as you know, dividend paying shares with

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Speaker 1: you know, frank dividends. It can be really effective, like

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Speaker 1: through a listed investment company or ETFs. And this could

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Speaker 1: also be really helpful if you want a little bit

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Speaker 1: of liquidity before age sixty five, depending on obviously how

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Speaker 1: important accessibility is to you. Then you've got to start

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Speaker 1: building your advice team. Finally, like Pamela, you're at a

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Speaker 1: point a crossroad in your life where it is now

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Speaker 1: time to bring in professional support. You need a qualified

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Speaker 1: licensed financial planner because they're going to help you model

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Speaker 1: your retirement cash flow and actually estimate how long this

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Speaker 1: money could potentially last. They're also going to identify whether

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Speaker 1: your downsized FI will actually meet your needs. You know,

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Speaker 1: I've spoken about this, it may not be enough and

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Speaker 1: if not, they can help you come up with different

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Speaker 1: ideas to bridge this shortfall. And you know, these might

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Speaker 1: be things like, you know, considering salary sacrificing or making

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Speaker 1: additional after tax contributions whilst you're still working part time

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Speaker 1: and you know you've got a good cash flow happening.

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Speaker 1: They'll also a review whether you know you need to

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Speaker 1: look at investing, you know, investing that additional funds in

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Speaker 1: a way that will help support your your income needs

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Speaker 1: for retire and also help protect your capital. You know,

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Speaker 1: one thing I would really be thinking about is do

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Speaker 1: you want to leave money to your estate or are

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Speaker 1: you happy to eat into all of your superinnuation over

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Speaker 1: a thirty thirty five year period. These are things that

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Speaker 1: you need to talk about with the financial planner in

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Speaker 1: those projections and ensuring that you're super your savings, your investments,

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Speaker 1: they're always aligned to your goals, but also your risk tolerance.

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Speaker 1: I don't know where that seventy seven thousand dollars is

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Speaker 1: invested in your SUPER, so you should find out where

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Speaker 1: it is and get some advice around that so that

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Speaker 1: you're money is invested in your risk comfort level. And

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Speaker 1: when you do this, you know, see a financial partner.

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Speaker 1: They will coordinate with your accountant. They can also speak

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Speaker 1: with your real estate agent to ensure that every step

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Speaker 1: of the way, from the selling, the timing of putting

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Speaker 1: money to super to you know, buying the new home,

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Speaker 1: everything happens smoothly and strategically with your best interests at heart.

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Speaker 1: You know, this is really an opportunity for you to

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Speaker 1: trans transform I guess the value of your home into

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Speaker 1: long term sustainable income and independence and allow you to

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Speaker 1: have that secure but also enjoyable retirement that you deserve.

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Speaker 1: So Pamela, Yes, downsizing can be an excellent way to

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Speaker 1: unlock all that equity within your home and strengthen your

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Speaker 1: financial position, particularly for retirement. And you know, using this

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Speaker 1: downsize a contribution rule or opportunity is very, very valuable

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Speaker 1: and this is definitely not an automatic solution. The real

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Speaker 1: success comes from planning mindfully, intentionally and proactively planning, knowing

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Speaker 1: all your numbers, knowing exactly what you want per annum

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Speaker 1: to live off, how much you want to leave in

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Speaker 1: your estate, all the things that you might need and

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Speaker 1: want during retirement, and getting that professional guidance and putting

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Speaker 1: every dollar of work really for you intentionally. So thank

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Speaker 1: you so much for such a thoughtful question that I

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Speaker 1: know so many people will value hearing about. And if

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Speaker 1: you're listening to this yourself thinking okay, I'm in a

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Speaker 1: similar position, can you please take this as your sign

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Speaker 1: to start here, that is, to review a super get

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Speaker 1: really clear on your living expenses and how much you

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Speaker 1: want to be able to retire and retire on each year,

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Speaker 1: whether you want to leave money in your a state

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Speaker 1: or not, and then go and seek professional financial advice

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Speaker 1: from a financial planner. And if you need a recommendation,

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Speaker 1: just send me a DM on Instagram and I can

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Speaker 1: give you a couple of contacts with people that I

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Speaker 1: know are real good at that job. Now, if this

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Speaker 1: episode helped you, can you do me a huge favor

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Speaker 1: and just send it right now to any family members

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Speaker 1: or friends who might be thinking about dan sizing too.

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Speaker 1: And of course, if you want your own question featured

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Speaker 1: on Sugar Mama's Start Here episode, just send me a

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Speaker 1: DIM on Instagram at Canna Campbell Official or sugar Mama TV.

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Speaker 1: All right, until next time. This is start here as

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Speaker 1: part of Sugar Mama's fireplay Chow for now, Hong Ko