Selling up for retirement

There are many other practicalities to consider — financial and emotional.

"In theory, the idea of selling your home for $800,000 and buying a property worth $500,000 frees up $300,000 to invest," says Dante DeGori, technical manager at ClearView Retirement Solutions. "But many people don't want to move away from their family and friends, and they don't want to downsize to a villa or townhouse."

Michael Lim is a good example. He retired six years ago at the age of 55 but remains in his family home in Turramurra, Sydney, with wife Anita.

"There are benefits to downgrading to a smaller, more modern home," Lim says. "It can improve your cash flow and deliver capital growth if the property rises in value, so if you're looking to downsize it's best to do it now rather than later when housing demand and prices start to rise."

Nonetheless, after assessing his options, Lim decided to set up his own super fund, which enables him to negatively gear property investments and borrow money for additional investments — an alternative he finds preferable to selling the family home.

At the end of the day, converting property into pension payments depends on individual circumstances.

"A lot of our clients want to stay close to their friends, sporting clubs, doctor and family, so they won't sell their family home unless they have to," Skeen says.

DeGori saysmany retirees prefer to sell off other property investments to boost their super payments, which can be less volatile than rental income.

"It all comes down to planning," DeGori says. "Planning for retirement doesn't happen one year before you retire; it needs to happen several years in advance. If you're selling your family home, make sure you understand super contribution limits and rules, and invest some of your money in growth assets. If you don't, the money you make won't last; it will get eaten up by inflation."

The first step, says Lim, is to seek trusted advice. "Be wary of financial planners who encourage you to sell your house to invest in managed funds, because they may be looking to boost their commissions," he says.

He estimates most retired couples require income of at least $1000 per week to cover living expenses, travel and unexpected costs like illness or emergencies, so it pays to invest in long-term strategic advice from an accountant or financial advisor.

It's wise advice. After all, the decision to sell up to fund your retirement will affect the rest of your life.

This story is the first in a three-part series on property and retirement.

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