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Is retirement really the time to downsize?

We look at why downsizing might not live up to your expectations, and how your pension could help you retire on your terms.

Important notes

This article isn’t personal advice. If you’re not sure whether an investment is right for you please seek advice. If you choose to invest the value of your investment will rise and fall, so you could get back less than you put in.

Selling up and moving into a smaller property is a serious consideration for many at retirement. Of the people who haven’t yet retired that we surveyed* in April 2021, one in five say they plan to downsize and another two in five are unsure.

It’s easy to assume that downsizing is standard practice in retirement. But unless you plan carefully and think about the reasons behind your decision, you might find that the reality doesn’t live up to your expectations.

To avoid any nasty surprises, we delve deeper into two common reasons for downsizing and the pitfalls you might not have considered.

This article isn’t personal advice. If you're not sure what's right for you, get free impartial guidance from the government’s Pension Wise service, or you could get expert financial advice.

Reason 1 – downsizing to free up cash

When we surveyed people in April last year**, nearly one in three of those owning a property said they thought of it as a way to fund their retirement.

On paper, downsizing might seem to make sense financially. If you have a large family home and the kids have flown the nest, you could make a significant profit. Selling your main home and downsizing normally doesn’t result in a tax bill, but you could be liable for stamp duty on the new property.

While selling up and moving into something smaller could generate extra cash, relying on downsizing for your retirement income has serious risks. The main one being that you might not get as much cash as you expect. In fact, industry research has found that movers aged 50-59 only released around £4,000 cash from downsizing – not exactly a comfortable pension fund.

There’s also the fact that moving house is expensive. According to Compare My Move, the estimated average cost of moving house in the UK in 2021 is £8,951. By the time you’ve paid all the legal fees, stamp duty and moving costs, you might find that downsizing wasn’t the lucrative financial venture you’d first hoped.

You can download our guide for a breakdown of the costs and tax implications, as well as a look at the risks and benefits of using your property to fund your retirement.

Pension and tax rules can change, and any benefits depend on your circumstances.

GET THE PROPERTY VS PENSION GUIDE

Reason 2 – downsizing to improve your quality of life

Of course, there are some benefits to downsizing. Once you’re done with work, you might want to move somewhere you can relax. If you picture your retirement in the countryside or by the sea, downsizing could free up the extra cash you need to make it happen.

Choosing a smaller property could also improve your standard of living later on in retirement. Plus, it’s much easier to look after than a house with lots of empty rooms.

But moving house can be an emotionally charged decision. Of those who didn’t want to downsize in our survey*, nearly two in five people said it was because they were too attached to the family home.

You could also consider whether moving away from family and friends as soon as you retire is right for you. Especially if your new property doesn’t have space for them to stay over. A smaller property might be better suited to late retirement when you’re less active.

Are you retirement ready?

If you’re starting to plan for life after work, try our countdown to retirement guide. You’ll learn how to get your pension retirement-ready in three steps.

DOWNLOAD GUIDE

How to retire on your terms

There’s a lot of positives to downsizing at retirement. But rushing in too early or relying on property for your retirement income can have serious downfalls.

If you’ve been focusing on your property for income, now could be the right time to take a closer look at your pension.

Pensions can seem more complicated than property, especially if you have multiple pension pots held with lots of different providers. But consolidating them could make life easier. You’ll have a better overview of what your pension is worth and only need to deal with one provider at retirement.

You might want to consider HL as the new home for your old pensions. Transferring old workplace or private pensions to the HL Self-Invested Personal Pension could mean :

  • Better control – pick investments suited to your own values and income strategy with a wide selection to choose from
  • More freedom – take your tax-free cash and choose from the full range of retirement options including flexible access from age 55 (57 from 2028)
  • Expert insight - view our latest investment research and market updates to help you with your decisions

If you’re considering transferring, check for exit fees and make sure you won’t lose any valuable guarantees or benefits.

Pensions are usually transferred as cash. This means your pension won’t be invested in the stock market for a period. While this might work in your favour if the market falls, you won’t benefit from any growth if it rises.

Learn about transferring

*HL Survey of 2,000 UK adults conducted by Opinium, April 2021.

**HL Survey of 2,000 UK adults conducted by Opinium, April 2020.

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Important notes

This article isn’t personal advice. If you’re not sure whether an investment is right for you please seek advice. If you choose to invest the value of your investment will rise and fall, so you could get back less than you put in.

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