Can Downsizing Help You Fund Your Retirement?
Posted on: 07 August 2017 by John Bell
With more people struggling to save enough money for their retirement, many people are looking at downsizing as a viable option. But how effective if this approach?
When it comes to funding retirement, many people assume they will downsize their family home in order ensure they have enough money for their later years. But it's not always that simply. According to Legal & General, around a third of homeowners have considered downsizing in the last five years, but only 7% of those actually make the move.
Not only does moving to a smaller home mean a considerable upheaval, but there are numerous other obstacles preventing people from downsizing. These often include an unwillingness to move to a different area (particularly if it's far away from family members), worrying about feeling cramped in a smaller property, wanting a big garden and staying within walking distance to local amenities.
There's also the emotional element of the move too, with many people reluctant to leave a home filled with years of family memories. Similarly, many people don't want to downsize their possessions, many of which will hold sentimental value. Craig from Go Supply Chain has seen this regularly in recent years, noting that many retirees choose to store their possessions rather than getting rid of them altogether:
"Many people will look to store their cherished possessions if they can't fit them into their smaller home, particularly larger items such as furniture" said Craig, "but often the associated costs of storage and maintenance will offest a large chunk of the savings they gain from downsizing to a smaller property".
On top of that, the required properties can be difficult to find. Those downsizing find themselves competing with first-time buyers, small families and landlords, and - according to Legal & General - over 3.3 million people over the age of 55 would like to downsize at some stage in the future, 25 times the number of houses built in an average year in the UK.
Generally speaking, downsizing works best when you own your house outright, and don't need to get a mortgage on another property, which can be trickier as you get older. If you are able to sell your current home without having to pay off a mortgage, then buying a much cheaper home can be a good way to fund your retirement. However equity-release loans and new mortgages can make the whole process much more difficult, especially if you're forced to compete with other buyers in a particularly competitive market.
As always, the best course of action would be to get independent financial advice from a qualified professional before making any decisions.