Sir John is being generous, but they still have to pay rent at the cottage. At the end of Ch. 4 :"The house, too, as described by Sir John, was on so simple a scale, and the rent so uncommonly moderate, as to leave [Elinor] no right of objection on either point;"

No, they are not going to be living in poverty. However, it is quite a sizeable drop down in the world to have one's income reduced by more than 80% of what it used to be. That would take some getting used to for anyone. They were in a huge house with many servants and now they are in a tiny cottage with three servants. They used to have horses and a carriage, now they have none.