Diary of a self-funded retiree: Entry 4

Welcome to the fourth update in my retirement journey diary. In this series, I'm sharing how my wife and I are planning for the transition into retirement, and how we'll manage our finances and lifestyle once we get there.

If you're just joining, so far I have covered:

• Entry 1: How we've simplified our financial lives.
• Entry 2: Our investment strategy and asset allocation both now and in retirement.
• Entry 3: Our retirement budget, including how we plan to adjust our spending if markets shift.

Diary entry 4: Downsizing, aged care, and how much to give the kids (and their kids)

In this new diary entry, I'm covering a number of important issues, including working out when the time is right to downsize, whether it's too early to start thinking about aged care and how we can help our children and grandchildren.

Is now the right time to downsize?

There's a lot to like about the idea of downsizing: lower maintenance costs, reduced power bills and less time spent organising tradies to fix things. It would also make it easier for us to travel for long periods without having to worry about the house, pool and garden. And a unit with a lift can make things easier when we're older.

Then there's the potential financial benefit of unlocking equity. But if we want to stay in our neighbourhood, there aren't many places that are much cheaper - even with fewer bedrooms and no garden. I think that may change as developers take advantage of opportunities to build higher-density units near our transport hubs, but that hasn't happened yet.

If we move to a unit, we'll be up for body corporate fees, which are probably about the same as the maintenance costs we pay now. We have friends who moved to units some years ago, and they've had little control over the increases in those fees. Living in a unit also means we'll be much closer to our neighbours - sharing walls, floors and ceilings - which might take some adjustment.

The big issue for us with downsizing now is that our children still come to stay - albeit for longer periods than we expected - while they renovate their homes or to spend Christmas with us. My parents downsized to a small unit in Glasgow and had few family members come to stay, whereas my wife's parents kept a big house with a pool in Spain and had visitors all the time. 

For the time being, we will keep the big house (and the pool and garden), but we're open to looking for something smaller in the next five years or so.

That does leave the question of renovating - something we have heated debates about. Our kitchen is 20 years old; do we really need a new one? According to my wife, we do! I'm being pragmatic about any renovations - if it adds value or helps maintain the current value, then we'll do it.

Aged care - is it too early to think about it?

My father moved into a care home at 94 and lived there until he was 99. He was fortunate to have a very good pension that covered the costs. My wife's parents, on the other hand, had a large home in Spain and could afford live-in carers for the last couple of years of their lives.

Staying at home and getting carers to visit (or live in) would be the ideal choice, but that would be very expensive in Australia.

We believe we're still a good few years away from having to make a decision about aged care and many things are likely to change in the next decade or so. It's also a conversation we need to have with our children, as it will affect them too. The challenge is finding the right time.

We've also considered an interim step - downsizing to a unit block with a lift, and a flat walk to the shops. That said, our nearly 99-year-old neighbour still walks up the stairs at her house every day and treks up a fairly steep hill to the bus stop to do her shopping - it keeps her young she says!

Giving money to our kids now vs later - and thoughts on charity

As mentioned previously, we helped our children buy property in Sydney - it was the only way they could afford to. Do we give them more now? We think giving them more money to buy a bigger property would just add fuel to the property price frenzy.

Our daughter has set up an InvestSMART account for our first grandson, which we and his other grandparents regularly contribute to. We also think of it as encouragement for our other daughter to start having children.

One suggestion I heard a few weeks ago was to contribute money to their super, and if they have enough, to encourage them to set up their own self-managed super fund (SMSF). This has two advantages:

• They can't access the money easily to spend on a lavish overseas trip (we don't think they would but just in case).
• Having an SMSF would help teach them about investing and providing for their own retirement.

Our current super system is likely here to stay, so they'll need to learn how to grow and spend their own super pot at some point - and the earlier the better, in my view. There's plenty of online help available and investing for the long term (30 years) means they won't be tempted to speculate.

SMSFs can be run relatively cheaply, and around $200,000 is now considered the minimum balance to keep costs comparable with big super funds. It's a conversation we've started, and a topic I'll come back to in the future.

On the topic of giving, one of our daughters recently asked what we thought was the right amount to donate to charity each year (we have obviously raised that one well!). We contribute to a few charities on a regular basis, and I estimate it's about 3% of our income from salary and investments. 

When we're fully retired, I'd like to be more involved with a charity, and we might consider leaving a bigger sum in our will - with our children's agreement.

A quick thought on allocated pensions...

If we were close to the $3 million cap for the new super tax, we'd start an allocated pension so we could withdraw money to help our children boost their super balances (and get them closer to having enough for an SMSF). 

As it stands, we're not at that threshold of $3 million each, and our investments are liquid, so we can easily sell assets to withdraw money when we need to - using an allocated pension to minimise the tax.

My top tips

• Downsizing may allow you to free up capital for retirement, but it's important to consider the trade-offs.
   
• It's never too early to think about what happens when you need care - just make sure you discuss it with your children.
   
• Giving some of your savings to your children or grandchildren now may help them more now than it would later.
   
• Consider using your SMSF, or setting one up for your children, to give them experience in managing retirement finances.
   
• Think about giving both money and your time to charity. It can be very satisfying emotionally, and is a reminder of just how lucky we are in this country.

What's next?

I'll cover how we manage the compliance parts of our SMSF and what I've done to reduce its costs. Plus, how we plan to keep our brains and bodies active in retirement.

Thanks to everyone who took the time to offer feedback on the earlier instalments. I hope you enjoyed this diary entry.

Diary entry 5 will be published on 7 August 2025.