After the kids have grown up and left, selling the family home to free up some extra money for retirement sounds like a good plan.

However, before you put your house on the market, there are some important things to consider. 

Impact on the age pension

The amount of age pension you are entitled to depends on your assets and income, calculated according to the assets test and income test. While your home and the two hectares surrounding it are exempt, if you sell your house, any profits you make could count towards the assets test. This means your age pension and other entitlements could be reduced.

If you do sell your home, the government allows a 12-month grace period when the profits will be exempt from the assets test, if you plan to buy another home. If you buy a cheaper house, any surplus will be counted in the assets test.

So if you’re thinking about downsizing the family home, you might want to consider whether there are suitable alternatives.

Alternatives to selling

Selling the family home and moving to a different area can be a very emotional and stressful experience. But there are alternatives to selling that you could consider:

  • You might be able to convert your home to a dual occupancy so you can live in one half and rent or sell the other half.
  • There's been an increase in homeowners building granny flats around Australia. These offer many benefits including accommodation for your extended family, providing a home office, or generating rental income.
  • Perhaps you could rent out a spare room or two. This has tax implications and may affect your age pension so seek financial advice if you’re interested in this option.
  • Maybe a reverse mortgage could work if you need extra cash and have solid equity in your home. It’s a type of home loan that allows you to borrow money using the equity in your home as security. The loan can be taken as a lump sum, a regular income stream, a line of credit, or a combination of these options.

Don’t forget that any additional income could affect your age pension entitlements. Centrelink offers a Financial Information Service that can help you find out how your entitlements may change.

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