As your spring chicks grow up and fly the coop, a big empty nest in your autumn years need not be inevitable or desirable.
Stretching back for generations, government policies have encouraged Australians to tie up the bulk of their wealth in their family homes.
But with the earliest of the 4 million-strong Baby Boomers having started retiring this decade,(1) governments are beginning to reassess the economic and social burden of pensioners living in over-capitalised houses. This was part of the thinking behind this year’s federal budget proposal to allow retirees selling into smaller homes to have up to $200,000 of excess sales proceeds quarantined from the pension means test.(2)
If it takes off, the concept to incentivise retirees to downsize is going to be a significant windfall for many and provide opportunities for them to make other investments outside their primary home.
For many approaching or in retirement, however, downsizing is not attractive.
Perhaps they want the extra space of a big house to help look after grandchildren or maybe they have more than enough cash for potential investments or to help support their adult children, without having to move to a small home.
Empty nesters young enough to still be earning an income may find that without having to pay for the living and education expenses of their children, their savings grow quickly.
In this scenario, it is important to discuss with your financial adviser how you can build some wealth with the new disposable income.
There are many types of investments with tax incentives to encourage Australians to build savings and pay extra amounts into superannuation.
An investment in managed funds, or a balanced portfolio of direct shares are other options.
Paying off debts, whether they be credit card balances or a mortgage, could be a priority for some.
If you have had a mortgage with an expensive line-of-credit facility, that gave you flexibility to draw down money when the kids were growing up, now is the time to review your home loan and perhaps find one that is less costly to service.
Alternatively, empty nesters comfortable with having a mortgage may be willing to use the equity in their homes to fund other money making ventures.
In all cases, professional advice is recommended to ensure any new investment matches your changing risk profile as you age.
- Retirement intentions, Australian Bureau of Statistics, 6105.0 – Australian Labour Market Statistics, Jan 2009, viewed May 30, 2013. http://www.abs.gov.au/AUSSTATS/abs@.nsf/Previousproducts/6105.0Feature%20Article3Jan%202009?opendocument&tabname=Summary&prodno=6105.0&issue=Jan%202009&num=&view=
- “Budget upside for family home downsizers”, May 15, 2013, Sydney Morning Herald, viewed May 29, 2013. http://www.smh.com.au/business/federal-budget/budget-upside-for-family-home-downsizers-20130515-2jltz.html
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