If your children have flown the nest and you find yourself rattling around a house that’s bigger than you now need, you may have floated the idea of selling up and moving to a smaller or cheaper property.
According to a report from Savills, downsizing could help you increase funds for your retirement – in some cases, to the tune of more than £1,200 a month. The research revealed that, by moving from a large four-bedroom house to a more manageable two-bedroom house, downsizers could “unlock an average £305,090”.
The large estate agency crunched the numbers and found that, based on this sum and the expectation that a 65-year-old could live for another 20 years, on average, downsizing could provide a tax-free income of £1,218 a month, sustainable for the rest of your life.
Of course, the amount you can save each month by downsizing depends on where in the UK you live and the size of your property.
Before you rush ahead and booking an appointment with your local estate agent, there are several pros and cons to consider.
Emotional and financial pros and cons of downsizing
Common benefits of downsizing
- Release equity
- Smaller homes are often cheaper to heat and maintain
- Opportunity to move closer to friends and family, or an area you love
- May allow you to remain living independently for longer – moving to a bungalow or flat, for example
- Could allow you to move to an area that is closer to hospitals and GP surgeries, leisure services, and transport links.
Common drawbacks to consider
- Smaller space to accommodate visiting guests or family
- Less storage space may require a big declutter, requiring difficult and potentially emotional decisions about what to keep and what give away
- Moving further away from the community you know and love could be a wrench
- Costs of moving could be more than you bargained for – remember to factor in estate agency fees, Stamp Duty, solicitor fees, and removal services.
Before you commit to downsizing, talk about the idea with your friends and family and make your own list of pros and cons to see how a move would stack up for you.
If downsizing doesn’t appeal, equity release could offer a different solution
If downsizing feels like too big a step, you could consider releasing equity from your home through an equity release plan, or lifetime mortgage.
This is a significant financial decision and talking to a financial planner about your options could help reassure you and help you decide the best course of action based on your circumstances.
Although the final decision is yours, we’d strongly encourage you to discuss your plans with your family and beneficiaries, as a lifetime mortgage could affect any potential inheritance.
We’d also recommend you invite them to join any meetings with your financial planner, so they can ask questions and join in the decision. Ultimately, it is often better to discuss your decision with them before you go ahead.
3 key financial reasons you may need to boost your retirement pot
1. Increasing cost of living may mean you need more money to maintain your desired lifestyle
Due to factors like the Ukraine war and the Covid-19 pandemic, inflation has been making the headlines for two years. While inflation is finally falling, the price of goods and services is unlikely to return to pre-pandemic levels.
While your desired lifestyle will dictate the amount of income you need, in February 2024, the Moderate Retirement Living Standard level, calculated by Loughborough University, increased from £23,300 to £31,300 for a single person and from £34,000 to £43,100 for a couple.
If you’re concerned about how the rising cost of living could affect the sustainability of your retirement savings, we can help.
We’ll use clever cashflow modelling software to illustrate how sustainable your desired retirement income may be. If your ideal lifestyle isn’t realistic, we can discuss your options and guide you towards the retirement you hope to enjoy. There’s no guarantee that this will require you to sell up and downsize, so don’t jump the gun and put your house on the market before you’ve talked to us!
2. Longer life expectancy may mean you need more funds to provide a sustainable income
According to the Office for National Statistics (ONS), a healthy 55-year-old man has an average life expectancy of 84, and has a 1 in 4 chance of living to age 92. Meanwhile, a 55-year-old woman can expect to live until age 87 on average, with a 1 in 4 chance of celebrating their 95th birthday.
If you retire at age 55, this could mean that your retirement may last 30 years, or more.
It’s important to know how much you’ll need for the retirement you want. Fortunately, financial forecasting tools can help you plan for every eventuality. We’ll work with you to ensure you’re confident that you’ll have enough money to last your lifetime.
3. Later-life care is costly, and you can’t rely on state care
As life expectancies rise, the number of years spent in ill health is increasing too. So, you may want to factor in how you’ll fund potential care costs.
According to carehome.co.uk, the average weekly cost of living in a residential care home is £1,160, while the average nursing home cost is £1,410 a week across the UK. That’s £60,372 and £73,320 a year, respectively.
While the government’s social care cap might help, if you have assets above £100,000, you’ll still need to cover care costs yourself. The cap covers “personal care” only, so doesn’t include costs such as rent, food, or utility bills.
If you’d like to discuss how to plan ahead to cover the cost of later-life care, while also ensuring it can be channelled elsewhere or passed on tax-efficiently if care isn’t needed, please get in touch.
Get in touch
If you’d like help working out whether your home could be part of your retirement plan, please get in touch.
We can provide personalised financial advice that takes your circumstances and goals into account and help you understand whether downsizing is the right choice for you.
Email contactme@kbafinancial.com or call us on 01942 889 883.
Please note
| Think carefully before securing other debts against your home. Your home may be repossessed if you do not keep up repayments on your mortgage. |
HM Revenue and Customs practice and the law relating to taxation are complex and subject to individual circumstances and changes, which cannot be foreseen
A lifetime mortgage is not suitable for everyone and may affect your entitlement to means tested benefits, so it is important to seek financial advice before taking any action. If you are considering releasing equity from your home, you should consider all options available before equity release.
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