The Ups & Downs of Downsizing for Retirement

Model houses getting smaller

As many as three million people in the UK are relying on downsizing their home to pay for retirement. 

In a report for Royal London, former Pensions Minister Steve Webb suggested that many would be worse off and that relying on this strategy to fund retirement amounted to a “downsizing delusion”. 

Downsizing could be a bad idea 

  • If you still have a mortgage.
  • If you still have your children living with you.
  • Because on average, those who do manage to downsize are likely to see a 50% cut in their income when they retire. (according to the report)

Depending on your individual circumstances, putting all your ‘eggs in one basket’ may not be the best solution from a retirement planning point of view. Instead, spreading your assets may be a better strategy as it allows you to hedge against volatility in property, shares and other assets.

For example, if you are solely relying on your home and a property fall diminishes your equity, your retirement plans could be severely affected without a contingency plan. The same could be true of stock market volatility, so by having a mixture of assets you are normally better protecting yourself for the ups and downs of investments.

 Other things to consider

Where you sell and where you plan to buy? Property prices vary considerably across the UK and this will affect the amount of equity you end up with. Will you have enough?

  • Your home is free of Capital Gains Tax if you sell it and the money you receive is not liable for income tax – both of which are plus points.
  • How do you plan to use the equity? Annuity rates have fallen so a robust investment and retirement plan covering a number of options is a sensible route. What’s your plan? Do you know when you want to stop work? What will you do then and how much will it cost?

So there are upsides to downsizing – if circumstances allow or even dictate it. It is not ideal to let situations dictate that you need to sell your home in order to retire. Our homes and where we choose to live are emotional choices that we make. Regarding a home as simply an asset may be fine at the time of planning but when the reality of moving kicks in, you may find yourself less keen to proceed.

The problem is that a little knowledge can be a bad thing. The media tend to pounce on generalisations – like “downsizing delusions”, but for each and every one of us we have to look at our financial situations in the context of where we are and what we want.  The important thing is to make financial decisions with as much knowledge as possible and not in isolation of our plans and circumstances.

Yes – there are many disadvantages to relying on downsizing to fund your retirement. But typically the type of people who do this simply haven’t planned properly or investigated other possibilities. By seeing a good Financial Planner early, you can educate yourself about what is possible, rather than jumping on a bandwagon based on anecdotal evidence. You can then plot a sensible course of action to achieve your goals in a considered manner, spreading your risk and tailoring your plans to you.

The main reason that downsizing is a potentially weak strategy is because it probably means that anyone relaying on it hasn’t got a more comprehensive plan than that and so probably isn’t aware of the wider opportunities and risks. Devising a retirement plan early can mitigate rash decisions based on anecdotal evidence. Here are some tips…

 The Golden Rules of Planning when to Stop Working

Retirement is a word that we often have to use but in reality most of our clients don’t identify with it. Our clients are usually active, aspirational people who simply want to start doing other things. Maybe it’s a new business, travel or a new hobby or simply working part-time to free up time to do other things. Whatever you’re planning, I recommend sticking to these basic rules…


  • Don’t put off getting a financial picture of yourself. Starting in your 30’s is ideal, 40’s normal and 50’s helpful to pilot you in to your “stop-work date” safely. 
  • Think of what you’d like to do when you’ll stop work and type of lifestyle you want. Will you be skiing, golfing, fishing, reading, playing in a band, spending time with family, travelling…?
  • Engage with a Lifestyle Financial Planner who can work with you over the years to help you achieve your goals.
  • Depending on your individual circumstances, don’t put all your eggs in one basket – spread your investment across the asset classes – property, shares, cash – and so on.
  • Always think of the long term and don’t react to short term ups and downs of property or stock markets.
  • Review your plan annually and make any relevant adjustments – ideally with your Financial Planner.