I got $700,000 from downsizing my home. How should I invest it?

September 7, 2025 — 5.01am

My mother, who is 67, has just downsized. The difference between the sale and purchase price has left her with about $1 million. She is planning to put $300,000 into her super as per the rules.

That leaves her with about $700,000. Keeping this money in the bank means she is no longer entitled to the pension she was previously getting of about $1100 a fortnight. Is she better to live off the balance or should she invest the money in some other way?

Downsizing can be a great way to free up some cash but it can be difficult to know what to do with the proceeds.Credit: Simon Letch

Your question raises a couple of interesting elements. The first is that downsizing, while typically an excellent idea, does have the negative consequence of harming your pension entitlement.

Whether the proceeds go into super, the bank or some other investment makes no difference, they are all treated the same way under the asset and income test. The $1 million that your mother has managed to free up in making the downsize was previously ignored because of the family home being exempt from means testing.

Using the $300,000 downsizer provision to boost your mother’s superannuation likely makes a lot of sense. However, you also have available the non-concessional contribution cap, which is $120,000 a year.

You can do three years’ worth of contributions in a single year, a provision that exists precisely for situations like these. So she could put in $360,000 if she wishes. This would preclude her from contributing for the following two financial years but that is unlikely to be a problem in this instance.

Having $660,000 in superannuation, drawing the minimum 5 per cent (based on her age), will produce an income of $1269 a fortnight, more than covering the pension she has lost. Plus you still have $340,000 to allocate.

As for what to do with the remaining proceeds, a term deposit, annuity, or high-interest account could be a possibility. The funds could then be added to super in three years’ time if she wished. Your mother can contribute into superannuation until she turns 75, so there’s plenty of time.

She could also create a new non-super investment portfolio and either draw a regular monthly income from it, or let it compound if she wanted to set that pool of funds aside for later life.

Earnings would be taxable (as would interest from a bank holding), however, given the normal tax-free threshold, plus the seniors and pensioners tax offset, it would have to grow quite substantially before she would need to worry about lodging a tax return.

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We have $5k a month we can contribute to super or the mortgage but not both. Are we better off reducing the home loan versus topping up super, or just focusing on enjoying life with the kids?

It need not be an either/or here. You could salary-sacrifice to super up to the concessional contribution cap of $30,000 each, then send your remaining savings to the mortgage – perhaps an offset account for maximum flexibility.

Super will likely produce a greater return than the interest on your mortgage, but money put into super is inaccessible until you reach age 60, so is not helpful were you to become unemployed or suffer some other adversity.

Accelerating the clearance of your mortgage produces a guaranteed outcome, being the savings of the interest cost, and is therefore risk-free. Plus psychologically it’s a great weight off the shoulders once you reach the point of owning your home debt-free.

Paul Benson is a certified financial planner at Guidance Financial Services. He hosts the Financial Autonomy podcast. Questions to: [email protected]

• Advice given in this article is general in nature and is not intended to influence readers’ decisions about investing or financial products. They should always seek their own professional advice that takes into account their own personal circumstances before making any financial decisions.

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