Should We Downsize Or Not?
‘To downsize, or not to downsize, that is the question…..’.
Whether to downsize your home or not is one of the main questions that retirees face.
The sale of a property can release money to fund the retirement lifestyle you’ve looked forward to.
It is not that simple though.
It can be a daunting prospect and a difficult decision to make.
In this article we consider some factors to consider when deciding to downsize or not.
We also consider alternative ways of making your home work for you and save you money.
One of the main worries for new retirees and throughout retirement is money.
People worry that they may not have enough money to last them for the duration of their retirement.
They are also concerned about how much to spend each year.
If you have retired it’s now time to switch the focus away from saving a lump sum.
It’s now time to concentrate on how to make the money you’ve saved last.
Here we will highlight one of the major areas of expected expenditure for retirees – housing.
More specifically we will at the pros and cons of downsizing and the alternatives to downsizing.
There are a number of options to consider in trying to reduce the amount of housing expenditure.
Downsizing.
The first option to consider is whether you can downsize your property in the manner which is usually associated with downsizing.
This is where you sell up and move from a big house, where you’ve probably brought a family, to a smaller one which is more suitable to a retirement.
This has a number of advantages from a financial perspective.
It can release capital to invest elsewhere or add to your savings fund.
The extra money released can be used to invest in other income generating assets, such as stocks, bonds or even a small business or side hustle.
Downsizing can reduce property taxes and also the cost of maintenance and utility bills associated with a larger house.
After all, it’s much cheaper to maintain, furnish and heat a smaller home.
Another by- product of downsizing is that it forces you to declutter, see what you own, and consider what you need for your retirement lifestyle.
In downsizing you may find you have a lot of furniture and other items that you no longer need.
You can sell these, or give them away to charities, or your family to help them start out building their homes.
Downsizing also causes you to look at what you have actually spent your money on over the years before retirement.
You can then reassess whether these choices were sensible or not.
Most items we buy lose monetary value almost as soon as we buy them.
Having said that, some items, such as classic furniture, hold their value over time. They often increase in value too.
Taking time out to see what you got right and what money you wasted gives you a chance to reset your spending habits.
Don’t be disheartened if you realise how much money you have wasted over the years.
Retirement gives you a chance to start a second life in which you may be more cautious and canny in what you spend your money on.
You might even start making money by buying and selling items that you now know hold value.
Not to downsize.
Instead of selling up why not consider these alternatives.
Make your home pay you money.
If you can’t face the prospect of selling your home how about making it work harder for you?
There are a number of options where you can earn money from your house
Renting a room to a lodger can bring in extra money.
Turning one or more rooms into Airbnb bedrooms could also be a way to bring in extra cash.
Depending on the whereabouts of your home you might be able to attract tourists in the summer, winter, or even all year round.
City based houses or flats are ideal for this.
If you prefer something more long term how about housing international students from a local college or university.
This has the added advantage of giving you some college staff support if you had any difficulties.
Rent out your home.
An alternative is to consider moving out of your house into a smaller house and then renting out your main house.
The extra rent you receive on your home should more than offset the smaller rent you will be paying in your new downsized home.
In this way you will also get all the other benefits of downsizing (smaller property taxes, bills etc).
This option allows you to try downsizing without giving up your main home.
If you find that you don’t like living in a smaller place then, with enough notice, you can take back possession of your main home and move back in.
This may be more a more difficult option on an emotional level.
It might not be easy to think of your previous home as a money making box rather than a home.
Although this may seem like a lot of hassle just to save money on a month to month basis it can be a good long term strategy.
By keeping your money invested in the main home you have a larger financial asset that should increase over time.
If the price of houses rise then you will be much wealthier over time by holding on to a more expensive home.
For example if your home is currently worth £40000;
You have the option of keeping this and renting it out or selling and move in to a £200000 home.
A £400,000 house increasing by 7 per cent per year would be worth £786,860 in ten years time.
A £200,000 house increasing by 7 percent per year would be worth £393,430 in ten years time.
When you consider these figures it makes the hassle of downsizing and retaining ownership more interesting.
You would have to use the extra cash released by downsizing well to make up for the loss of future capital appreciation.
If you consider a twenty year retirement plan there would be a great advantage in having this larger asset available to sell halfway through that plan (or at any other point you choose).
No doubt by then you will be more than used to living in a smaller home so the thought of selling would be easier.
In summary, there are a number of things to consider when deciding if you want to downsize in retirement.
There are advantages and disadvantages to each strategy.
The good thing is to know that there are options available to suit different needs.
Each of us has our own preferences.
There are no easy answers but housing is one of the main costs in retirement so is worth considering.
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