How to stash up to $200k into your nest egg by downsizing, without leaving your suburb

As the cost of home ownership continues to rise, older Australians are contemplating whether downsizing could bolster their retirement savings.

It's a fair question. With housing affordability remaining a national challenge, downsizing is becoming not just a lifestyle choice, but a practical strategy for many households.

The move could also enable downsizers to tip as much as $200,000 - or even more - into their retirement nest egg, bringing you closer to retirement.

But moving into a smaller property doesn't have to mean leaving a favourite suburb or neighbourhood.

If you keep an eye on new real estate listings, something smaller nearby could suit you better as you near retirement.

New research from Muval has calculated where downsizers can gain the most, analysing both the average dollar savings and the percentage of property value when moving from larger to smaller homes across 50 of the nation's most populated cities.

The moving and storage service company CEO James Morrell says downsizing is increasingly a financial strategy, not just a lifestyle choice.

The Muval research found that on average, downsizers opting for a smaller property with fewer bedrooms can reduce costs without necessarily leaving a neighbourhood they love.

"With property values rising, many homeowners are sitting on substantial equity. Moving to a smaller home, even within the same suburb, could unlock significant cash."

Unit move not popular

The move from a larger house to a smaller house is still a very popular move for downsizers according to the new report.

It highlighted how few are making the move to an apartment when downzising.

Brisbane saw the biggest percentage of house-to-unit downsizers, with 10.6 per cent making the move.

Meanwhile in Canberra, there were just 3.4 per cent making such a move.

Wollongong meanhwile saw 2.8 per cent giving up their backyards in fabour of apartment living for downsizers.

Lifestyle and liquidity

But there is lots to consider, so make sure you speak to a financial expert before making the move.

Finance broker Nick Lim, founder of Switchboard Finance, says whether done before or after retirement, downsizing is often less about timing and more about borrowing flexibility, sale and purchase sequencing and how much certainty the homeowner wants around cash flow.

The biggest mistake is treating downsizing as only a property decision, when in reality it's usually a liquidity, timing and lending structure decision as well.

"One point often missed is that downsizing isn't always the only lever. Some retirees look at home equity release options, including reverse mortgages, instead of selling immediately.

"But that's not a simple substitute for downsizing - it can create flexibility, but it also comes with long-term cost and needs to be weighed carefully against the benefits of a clean sale and a simpler structure.