Could you sell your house to fund retirement?

If you’re a homeowner, you might be sitting on a small fortune. Or, at least, that’s how it feels. Indeed, that equity is what many people hope will fund their retirement or long-term care.

Downsizing to a cheaper property will, they hope, release enough cash to provide a decent top-up to the state pension. But is this a realistic plan? How much money would you need to make it worthwhile? And what are some of the potential pitfalls to downsizing? Let’s investigate.

Do you really want to downsize?

First, consider your motivation for the move. Is it purely financial? If so, downsizing might make your retirement an unhappy one. Ask yourself:

  • Can I really manage with less space? – are you expecting grandchildren or friends to stay frequently? Do you have planned retirement activities that’ll take up space? If you’re longing to play the drums, you’ll need to keep that detached house or garage.
  • What are the implications of moving to a cheaper area? – could this mean fewer amenities or public transport links? This perhaps doesn’t seem so important in early retirement but becomes crucial in your 80s and 90s when possibly you’re no longer able to drive.
  • Are there alternatives to downsizing? – examples include taking in a lodger or signing up for the Shared Lives scheme. Equity release is an option in some circumstances, but you need to consider prospective schemes very carefully. Downsizing doesn’t necessarily release as much money, but you retain more control.

If you decide to stay in your current house, there are other questions to ponder:

  • Will I be able to manage a property this size? – can you afford the upkeep?
  • Could you adapt it to suit your needs? – maybe you’ll need a stairlift or a downstairs bathroom
  • Does it rely on your having a car? – what happens if you can no longer drive? Can you afford cabs?

How much money could you release through downsizing and is this enough?

Naturally, this depends on the value of your current property, what you buy, and how much you need to live on. It’s time to do a few sums.

As you’ll know, moving house is an expensive business. You’ll need to factor in the following costs:

  • Estate agent’s fees
  • Solicitor’s fees
  • Stamp duty on the house you’re buying
  • Survey fees
  • Removal firm

To get an idea of the figures involved, take a look at this calculator. For example, if you downsize from a £600,000 4-bedroomed semi to a £300,000 2-bedroomed house, it’s likely to cost you around £15,000 in fees.

There are also some invisible costs involved:

  • Getting your house ready to sell
  • Buying smaller furniture for the new house
  • Maintenance and decoration of the new house

Four in ten people spend more than they expected on their new property. So, you might round up the total cost to £20,000.

Remember that your house is only worth what someone is prepared to pay for it. If you retire during a recession or economic slowdown, you might have to accept a lower price or stay put. A tough market is good when we’re upsizing, but it squeezes the profit for downsizers.

Let’s assume, though, that you’re left with £280,000. What income does this provide?

Drawing an income from a lump sum

How long your money lasts depends on inflation and stock market performance. Both are impossible to predict. If you keep your money in cash, its purchasing power will slowly diminish over your retirement. The only solution for long-term growth is to invest it.

The Which? Drawdown Calculator gives you an idea of how long your money will last. £280,000 could potentially provide an annual income of £20,000 for 17 years, based on a moderately cautious portfolio and a pessimistic outlook on the stock market (the best one to adopt for retirement planning).

This income is in addition to your state pension, which is currently £8767.20 per year.

It’s important to consider that your income from that lump sum is finite. Once the pot is empty, you’ll need to find alternative sources.  As none of us knows how long we’ll live, the challenge is to achieve a trade-off between drawing a decent income and making it last.

Next Steps

Anything that affects your home is a big decision. Spend some time considering what you want. Downsizing could feel like a simple step now, but how would it feel in 20 years’ time when you’re settled? Moving house is a slow process and involves considerable emotional upheaval.

If retirement is a least a couple of decades away, you have time to build alternative retirement savings. Read my guide for building your pension to get some ideas. As a financial coach, I can help you talk through your needs and calculate the implications of different scenarios.

Perhaps you don’t yet know what you’ll want in your 60s., but it’s likely you’ll appreciate some options.

This post is for information only and does not constitute financial advice.

Image © cunaplus – stock.adobe.com

Catherine Pope

I'm a financial coach who loves Victorian novels, technology, and big books about pensions.

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