Downsizing the family home is the retirement saving option of choice for 2 million homeowners aged over 55, according to industry experts.
Around 40% of over 55s plan to sell and move into a smaller home to boost their pension income, says a study by financial firm Prudential.
On average, they expect to stash around £85,000 from the sale to make up for a lack of saving during their working lives.
What’s happening to the cash
Most expect to make the move within the next five years so they have the cash in the bank for retirement.
- Around 10% of over 55s taking part in the study hope to realise more than £200,000 from downsizing.
- Many over 55s have different plans for spending the money:
- More than three-quarters want to sell to release equity to improve the pension finances
- 42% plan a big one-off purchase like a car or mobile home
- 41% will invest the cash for a more comfortable retirement
- 30% want to put the cash into a pension for an immediate uplift from pension contribution relief. Basic rate taxpayers will pick up a 20% top-up from HM Revenue & Customs (HMRC), while higher rate taxes will get a 40% top up
- 27% intend to give all or some of the money to children and loved ones to help ease their financial problems
Nearly two-thirds of downsizers explained they wanted smaller, a third wanted cash for their later years and a fifth wanted a home that was cheaper to run and maintain.
Cost of moving
The main problem envisaged by over 55s in downsizing is the cost and disruption of moving.
Vince Smith-Hughes, retirement income expert at Prudential, said: “Anyone has owned a house for a long time should have plenty of equity to make downsizing worthwhile, but those expecting to raise relatively small sums should consider the costs of the move, which can take a significant bite out of the cash they hope to raise.”
He also explained that the Budget 2014 pension drawdown changes might affect the downsizing plans of many over 55s as well, so they should consider the impact of those changes before committing to sell.
“Dealing with these complicate issues and making the right financial decisions is really a job for a financial advisor, and we would suggest that anyone considering downsizing for retirement should speak to an advisor to make sure all their options are properly covered,” said Smith-Hughes.