Retirement Planning: Is downsizing right for you?

Are you thinking of downsizing? After living in a society where going large is almost a status symbol, the idea of going small may seem a little odd – and may leave you feeling a little uncomfortable. But in middle age and on the approach to retirement, more and more people are finding it not only necessary but beneficial both socially and financially to downsize. 

What is downsizing?

The natural goal throughout our lives in western society is to aim big and get bigger. It is a sign of status when we have more possessions, more property, and more space. Also, traditional progression in age suggests that as we marry, have children, and become more experienced in our careers, houses need to be bigger and our possessions greater.

In middle age, our children leave the nest, and we are also perhaps not so obsessed with the latest technologies, expensive cars and gadgets. As we get older, our lifestyle tends to mirror our health needs – so it makes sense to start chasing smaller rather than bigger. This is called downsizing and it can offer great financial rewards, a less stressful life and a lifestyle that is directly about you and your partner.

“Therefore, this is not about pulling in your belt to make ends meet – this is more about re-evaluating expenditure to match the new phase in your life.”

What are the possible benefits of downsizing?

The first major benefit is you will be giving your life a close inspection. This may sound ridiculously simple, but it is so easy sometimes just to trundle on in our busy lives, sucking up our creature comforts and giving little thought to whether we have the best options for us (rather than the expected ones).

Financial rewards
Naturally if you have lived in your home for some time, it is likely that the value of your house has increased. So, selling your home could result in a nice profit – you could even finally get rid of a burdensome mortgage (or at least make it smaller). Have you too many cars, or is your car too big for your needs? Finding a car which suits your lifestyle can help you save on all the heavy vehicle expenses.

“With a greater amount of money at your fingertips you can consider paying off debts, reducing bills and living a life which is freer of stress and unneeded responsibilities.”

You can also consider financing quality rather than quantity or giving yourself a well-earned treat with the financial rewards from downsizing.

The long-term future
As much as the advances in medical science, technologies and communications have enhanced our lifestyles and lifespan, we are still likely to suffer from those aches, pains and restrictions in our later years. So as retirement becomes more and more on the agenda, it is likely we will be considering a home environment which allows us to live a comfortable and easy life (e.g. a bungalow rather than a house).

What should I take into consideration before downsizing?

All this sounds great but you need to be careful you think through how it will affect your life overall before making any quick decisions.

• Downsizing because you want to give your finances a boost is all very well, but don’t forget the impact of practical issues. Moving home, even if it is to the house of your dreams is likely to come loaded with stress as you go through the process. Is it worth the hassle?

• After enjoying living in a big space, it may be difficult to adapt to a smaller though more appropriate lifestyle. Think how you will feel without that extra bedroom and that extra TV room – will it be detrimental to your feeling of comfort?

• If you have been living in your home for some time, it will no doubt hold great memories for you and your family. How will you feel letting those feelings go?

• Moving house is not just about bricks and mortar. Don’t forget you may well be contemplating moving to a new area where there is a different culture and community. Also, what about those neighbours you know so well and will leave behind? Can you remain in contact?

• If you move to a smaller place then there probably won’t be as much room for all your prized possessions. You are already thinking about downsizing anyway so that’s ok but get a clear idea in your mind which valuables you want to keep and how that will fit in the new location.

• The most popular choice of abode for people in retirement is a nice little bungalow. But because they are popular – that makes them scarce and also expensive. Make sure you understand what prices you are likely to be coming up against if you try to move.

Using available money for your retirement

After methodically thinking through downsizing, you want to make sure any money you make from the project does not go to waste. So have a clear understanding in your mind how your savings can be used.

“You may have downsized simply to experience a new lifestyle. However, it may be that the primary need was to free up finances.”

In the short term it may allow you to live a cheaper lifestyle, pay off burdensome debts and may be even get you some of those dreams you have been promising yourself.

But don’t forget your retirement years. Is your pension still performing well? Do you know what kind of pension income you would be looking forward to after you have finished working? One of our regulated pension advisers will be pleased to go through your pension with you to determine the options available.

Increasing contributions to your private pension will obviously lead to a greater pot in the future. Check out how much State Pension you will be receiving. Is it worth adding a lump sum to ensure you receive the maximum amount?

Conclusion

It is natural as you grow older and considering retirement that you may be looking to downsize property to reflect your lifestyle in your later years. This concept is often at odds to the way we tend to think throughout our lives (i.e. bigger is better). Before downsizing it is worth thinking about how this mindset will affect you and your family. It is also important to also think about how practical changes will impact upon your life in the first instance.

One of the greatest benefits from downsizing is financial reward and whereas it can be invaluable for short-term savings, debts and treats it can also help secure your long-term future. Check out your State Pension to ensure you are receiving the maximum amount (you can always add further contributions through National Insurance) and you may be able to add to (or enhance) your private pension too. One of our regulated financial advisers can walk you through your options.

Taking pension money early is not right for everyone as it will leave you worse off in retirement. Also, tax treatment depends on your circumstances and is subject to change. That’s why it makes sense to get help from a regulated specialist.