Is now the right time to downsize?

If you’re concerned about rising prices eating into your retirement savings, you might be wondering whether this is a good time to downsize your home.

Moving to a smaller property could free up cash, perhaps helping to alleviate your worries about running out of money in retirement and enabling you to continue with the lifestyle you’ve become accustomed to.

Yet downsizing isn’t just about the money. It can be a huge emotional decision that needs to be carefully considered. To help you get started, here are some questions to ask yourself.

Could downsizing help me financially?

If you have a large family home and your children have flown the nest, downsizing might make sense. Smaller properties typically cost less than larger properties do, which means selling up and moving to a smaller home could generate a cash windfall. You could then use this extra cash to boost your retirement savings or build up an emergency fund.

Downsizing your home could also result in lower monthly bills, as smaller properties tend to be cheaper to run. This may mean you’re able to weather the impact of rising prices, or even have more money to put towards the things you enjoy.

There are situations when moving to a smaller property actually costs more. For example, bungalows can be costly if they occupy a large plot of land, a property that has fallen into disrepair could prove expensive to fix up, and sheltered housing often comes with service charges and ground rent. You might also have to pay stamp duty, estate agent fees and general moving costs – these can quickly add up and eat into any cash you’ve freed up.

How could downsizing affect my lifestyle?

Often, the practical and emotional aspects of downsizing are just as, if not more, important as the financial implications are.

One non-financial advantage of moving to a smaller property is that it could be easier to maintain, meaning you have more time to spend on the things you enjoy the most. It may also suit your lifestyle better now that your children have flown the nest.

Like many people, however, you might feel a strong attachment to your family home, or be reluctant to move away from your friends and support network. It may also necessitate lifestyle changes, such as less room for entertaining or putting up guests. On a practical level, think about whether a smaller property would leave enough room for your possessions, or if you’d simply miss the extra space and storage.

What would I do with a cash windfall?

If you’ve decided to downsize and expect to make a profit, it’s important to consider what you would actually do with the money. If you haven’t already got an emergency cash fund, this would be the time to start building one up. Having a pot of easily accessible cash savings could help you cover a large, unexpected bill, while reducing the risk of drawing on investments that have fallen in value.

For money over and above your emergency fund, leaving it in a cash savings account could see its real value decline over time as inflation erodes its purchasing power. Your money may need to last for decades in retirement, so it’s important to look for ways to help it grow over the long term.

Although the stock market is volatile, history shows that, over long periods, it tends to perform more strongly than cash and above the rate of inflation. A financial adviser can help you build an investment portfolio that gives your money the opportunity for long-term growth without taking on undue risk.

Could I boost my retirement savings in other ways?

If you’ve decided downsizing isn’t for you – either due to financial or emotional reasons – there may be other ways you could bolster your retirement savings.

If you haven’t retired yet, think about whether you could pay extra money into your pension. You’ll continue to benefit from tax relief on personal pension contributions until age 75 (subject to limitations). Other options may include delaying your retirement by a few years, consolidating old pension pots, and assessing where your pension is invested.

For those who are already retired, speak to a financial adviser about whether your money could be working harder or structured more tax efficiently. Where your money is invested and the way you draw income from your portfolio could make a big difference to how long your pension lasts in retirement.

Next steps

Selling your home and moving to a smaller property isn’t something to rush into. The first step is to get a clear understanding of your existing retirement savings – and that’s where getting some smart advice can help.

A financial adviser will be able to demonstrate how long your savings are likely to last and, if necessary, look at some of the ways you could make up a shortfall. They’ll check your money is invested in a way that suits your needs and that your finances are structured in the most tax-efficient way possible. If you do decide to downsize, they’ll be able to advise on what to do with the profits, so you can feel confident your money is working as hard as it should be.

The value of investments, and any income from them, can fall and you may get back less than you invested. Tax treatment depends on the individual circumstances of each client and may be subject to change in the future. Information is provided only as an example and is not a recommendation to pursue a particular strategy.