Moving to a smaller house in retirement can be a natural and positive step towards downsizing your lifestyle.
According to a new study, however, not many people are convinced of the benefits of going down this route. But what’s the reason for this? Why are so many people not willing to give up the ‘race for space’ in retirement? Let’s find out.
Are Brits willing to downsize in retirement?
The Covid-19 pandemic has fuelled something called ‘the race of space’. Basically, people want larger homes with more space to live and work, as well as a garden.
According to new research by Hargreaves Lansdown, many people who have already managed to secure such a home are unwilling to give it up in retirement.
The research shows that only one in five (20%) homeowners plan to downsize in retirement. Almost twice as many (38%) have completely ruled out moving to a smaller house in retirement, while 42% are unsure.
The research further shows that people seem to get less interested in downsizing as they approach retirement. While 27% of those aged between 35 and 44 said they would downsize, only 17% of those aged 45–54 and 14% of 55–64-year-olds said they would consider moving to a smaller place.
At 39%, London has the highest proportion of people who may consider downsizing in retirement, while the South East has the lowest at 19%.
Why consider downsizing in retirement?
Downsizing in retirement can have a number of great benefits.
For example, by downsizing your home, you can expect to pay off or at least significantly reduce your mortgage, save money on utilities, save money and time on maintenance, and possibly even purge a lot of the clutter that you may have accumulated over the years.
It’s also worth considering that if your home’s value has increased significantly, then downsizing can provide you with more cash to fund your retirement.
What are the downsides of downsizing?
According to Helen Morrissey, senior pensions and retirement analyst at Hargreaves Lansdown, it’s not entirely surprising that most Brits are not planning to downsize.
“The pandemic has reminded people how valuable it is to have room to roam at home, and the prospect of giving that up at a time when they may be spending more time at home isn’t appealing,” says Morrisey.
Downsizing also comes with several risks. For example, you might not be able to sell your house at the price you want. Additionally, moving can be costly. There may be fees and costs to consider, including estate agent fees, legal fees and Stamp Duty.
What are the alternatives to downsizing?
As Morrissey says, “If you choose not to downsize but still need more money to fund retirement, you need to consider how you will raise the money you would have got from downsizing.”
So, what are your options in this case? Well, one is equity release. This refers to a range of financial products that essentially let you access the equity in your home in the form of cash. Like downsizing, however, equity release is a big decision, and it’s a good idea to speak to a qualified adviser first before you pursue it.
Another option is to delay your retirement. This can give you more time to save money. Furthermore, delaying retirement means you will not have to rely on your savings for as long as you would if you retired at the usual age.
Ultimately, the best way to secure your retirement and avoid difficult decisions later in life, such as whether to downsize or even delay your retirement, is to start saving early.
This will allow more time for the compound growth of your money, resulting in a relatively large nest egg by the time you retire.
Right now, interest rates on savings accounts are hovering around historic lows, so if you are looking for higher returns on your savings, you may want to consider other options.
One option is the stock market. Although past performance is not a reliable predictor of future returns, stocks have historically outperformed traditional savings accounts. The value of returns from the stock market is particularly enhanced when you invest through a tax-efficient vehicle such as a stocks and shares ISA.
That being said, stocks are inherently risky, so if you decide to go down this route, make sure you do your homework first.
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About the author
Sean is a personal finance writer with a strong passion for helping others become more financially literate and make better financial decisions. He covers everything from credit cards to savings to investing.
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