Nearly two in five over-55s – up to 2.3 million homeowners – plan to sell their houses and expect to raise around £85,300, according to a report by a major insurance company.
More than three quarters (77%) of the over-55 homeowners who are planning to sell say that they aim to release equity from their home by downsizing.
Read our downsizing tips.
While the average amount they hope to release is around £85,300, nearly one in ten are expecting to raise £200,000 or more.
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What are people doing with the money raised from downsizing?
The downsizers are equally as likely to splash out their lump sum on a one-off purchase (42%) as they are to save or invest a sum (41%). Nearly a third are planning to put some of the money into their pension pots.
They also say that they are not planning to keep all the money to themselves. One in eight (12%) plan to use some of the money to help their children get onto the housing ladder while 15% say they will use some of the money to assist their offspring with other financial issues.
Why do people downsize?
The most common reason for trading down cited by 60% of the over-55 downsizers is the convenience and the ease of running a smaller home.
A third say the reason for downsizing is to raise money, while one in five want to save money on the cost of running their home.
Read our guide to things to consider before downsizing.
Retirement income expert Vince Smith-Hughes said: "Homeowners who have been lucky enough to gain from the long-term strength of the housing market should exercise caution if they are banking on downsizing to be the magic wand that provides a decent retirement income.
"In some cases the amounts of cash realised can be lower than expected and the cost of moving house should not be underestimated."
Indeed, the research highlighted that the costs involved with moving house are a significant barrier to downsizing – more than a quarter (28%) of over-55 homeowners say they are likely to be deterred from downsizing by the total bill for buying, selling and moving home.
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Equity release is another option
One alternative to downsizing is equity release, which is popular among those who want to stay in their own home. These schemes allow homeowners to release cash by borrowing against the value of their properties.
The Equity Release Council’s code of practice includes a "no negative equity guarantee", which means borrowers will never owe more than the value of their property.
Nigel Waterson, Chairman of the Equity Release Council, said: “With the average value of over-55s' homes at its highest point for over three years, there is plenty of incentive for people to consider releasing a proportion of that housing wealth and give themselves greater access to funds in later life.
"Rising house prices help to keep the cost of interest in check and the ‘no negative equity guarantee’ protects them against ever owing more than the value of their home.
"Involving family members is a key part of the decision making process for anyone taking this step.
"Advisers who sign up to the equity release code of conduct not only ensure their customers are fully aware of the implications both for them and their family, but also encourage customers to have a conversation with those closest to them before making a final decision."
The changes to pensions and how people can take their retirement income announced in the Budget in March will provide savers and retirees with increased choice when they plan their finances in retirement.
From July next year, anyone who is aged 55 or over will be able to take their entire pension fund as cash – although only the first 25% will be tax-free.
The remaining 75% of the fund would be taxed at the saver’s marginal rate, rather than the current 55% charge for full withdrawal.
With new avenues opening up, those approaching retirement should consider taking professional financial advice.
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FAQs
Downsizing your home in retirement can reduce your housing expenses including mortgage payments, property taxes, insurance, and maintenance costs. Additionally, a smaller home often means less upkeep and maintenance, freeing up time and resources for other retirement pursuits.
Why more retirees are going back to work? ›
The reasons many retirees return to work come down to their retirement lifestyles and financial lives. In fact, roughly half (48%) of those working in retirement felt they needed to work for financial reasons, while a similar portion (45%) chose to work for social and emotional benefits.
What is the 70% rule for retirement? ›
The 70% rule for retirement savings says your estimated retirement spending will be 70% of your pre-retirement, post-tax income. Multiplying your post-tax income by 70% can give you an idea of how much you may spend once you retire.
What is a good monthly retirement income for a couple? ›
The average retirement savings for a person about to retire are approximately, $225,000, equal to $450,000 combined for a couple that has saved equally. Following the conservative rule of thumb and withdrawing 4% a year will provide this couple with another $1,500 monthly or $18,000 a year.
At what age do most seniors downsize? ›
This question has no definitive answer, as it depends on individual circ*mstances and lifestyle. However, research suggests that many people contemplate downsizing as they approach retirement, typically around their late 50s to early 60s. A Zillow report found that on average, most people who downsize are 55 years old.
Do most people downsize when they retire? ›
Many people choose to downsize for retirement. Now that the kids are grown and you simply don't need as much space, downsizing is a great way to boost your retirement fund and make your living situation more comfortable.
What is the biggest retirement regret among seniors? ›
Retirees who were less confident about their financial situations say not saving was a major regret. Other savings regrets included not making the most of their 401(k) plan, not enrolling in the plan early enough, and not saving the maximum amount allowed by their plan.
Is it healthier to keep working or retire? ›
Many of these cognitive processes are maintained and strengthened by staying in the work force. Consequently, some people decline mentally and physically when they stop working. One study even found that delaying retirement was associated with a decreased risk of death, regardless of health before retirement.
How many people have 1 million dollars in retirement accounts? ›
If you have more than $1 million saved in retirement accounts, you are in the top 3% of retirees. According to EBRI estimates based on the latest Federal Reserve Survey of Consumer Finances, 3.2% of retirees have over $1 million in their retirement accounts, while just 0.1% have $5 million or more.
What is the $1000 a month rule for retirement? ›
One example is the $1,000/month rule. Created by Wes Moss, a Certified Financial Planner, this strategy helps individuals visualize how much savings they should have in retirement. According to Moss, you should plan to have $240,000 saved for every $1,000 of disposable income in retirement.
If you're naturally frugal and you plan to live a low-key, minimalist lifestyle in retirement then $150,000 might serve you well. On the other hand, if you'd like to enjoy a more lavish lifestyle or you have a serious health issue that results in high out-of-pocket costs, $150,000 may not go that far at all.
Can I retire at 70 with $300 K? ›
If you've managed to save $300k successfully, there's a good chance you'll be able to retire comfortably, though you will have to make some compromises and consider your plans carefully if you want to make that your final figure.
How much does the average retired person live on per month? ›
According to the Bureau of Labor Statistics (BLS), the average income of someone 65 and older in 2021 was $55,335, and the average expenses were $52,141, or $4,345 per month.
Can a retired couple live on $3,000 a month? ›
Top the amount with 401(k) savings, living on $3,000 a month after taxes is possible for a retiree. For those who only have social security benefits to rely on, there are many places where they can retire on their checks both in the USA and around the world.
What is the average social security check? ›
Social Security offers a monthly benefit check to many kinds of recipients. As of December 2023, the average check is $1,767.03, according to the Social Security Administration – but that amount can differ drastically depending on the type of recipient. In fact, retirees typically make more than the overall average.
Is there a downside to downsizing? ›
CON: You'll have less storage space.
If you downsize from a 3,000-square-foot home, for example, to a 1,500-square-foot one, you need to reduce furniture and other possessions to account for the loss of nearly half your space.
At what age should you downsize? ›
Key Takeaways. Most adults age 50–80 want to stay in their homes as they grow older. Moving to a smaller, more manageable home as you grow older is known as downsizing. Exploring the financial, social, and safety outcomes of downsizing is crucial before you make the decision to move.
What are the cons of downsizing? ›
Moving to a smaller home also has some potential downsides, including:
- Mortgage Costs. ...
- Costs of Buying or Selling a Home. ...
- Moving Expenses. ...
- Potential Fees. ...
- Possible Storage Costs. ...
- Limited Work-at-Home Options. ...
- No Extra Space. ...
- Lifestyle Creep.
What are the disadvantages of downsizing? While downsizing can increase profitability and productivity, it doesn't always yield the expected benefits. Quite the opposite. It causes companies to lose skilled workers, decrease customer service, and lose morale.
