Downsizing for retirement can be a good strategy to stay afloat financially, but it entirely depends on your own financial situation, lifestyle, health, and future plans. It can release equity tied up in the home to help make ends meet each month, especially for those whose personal pension pot is not as robust as potentially needed.
Selling your larger home and moving into a smaller one can be used to supplement retirement income, build an emergency fund, pay off debts, help family members, or cover future care costs.
What is downsizing?
It is essentially if you decide to sell your current home and move into a smaller, less expensive, or more manageable property after you retire. The main goal is usually to free up money that is tied up in your home. For example, if your house is worth £500,000 and you move to a property worth £350,000, you could potentially release around £150,000 before accounting for moving costs, legal fees, and other expenses. That money can then be used to supplement your retirement income, build savings, pay off debts, or cover future care needs.
Checking the value of your home
If you decide to go down this path, the first and most vital thing to do is check the value of your home. Thankfully this is rather easy to do, as both Rightmove and Zoopla offer free online property valuation tools. Estate agents can also offer free evaluations, with most recommended at least three opinions before you settle on the value of your home.
Downsides of downsizing
Selling and buying a property involves costs, including estate agent fees, legal fees, moving expenses, and potentially stamp duty. In some areas, suitable smaller properties can be surprisingly expensive, reducing the amount of equity released. You may also lose a home and community that you enjoy, which can have a significant emotional impact. Some retirees choose to take in a lodger, move to a less expensive region, use part of their savings instead, or explore equity release. Each option has different financial and lifestyle implications.
Boosting your pension
For those that do not wish to part with their home, boosting their pension pot is the best way to secure a comfortable retirement. There are plenty of options out there, with many listed in our retirement guide. The two biggest contributors are state pension and pension credit. To qualify for the full state pension, you need 35 qualifying years on your National Insurance (NI) record and must have reached your State Pension age. The full new State Pension rate is £241.30 per week.
Pension Credit is a means-tested benefit designed to top up the income of pensioners on low incomes. It can also unlock access to additional support, such as help with housing costs, council tax, and heating bills. Many people assume they do not qualify because they own a home or have some savings, but they may still be eligible.
