By Connor Almond.
It is not unusual to see retirees with four or five times more capital in their home than in their retirement savings, yet this often gets overlooked as part of the financial plan.
A good starting point is to ask yourself “Will your main residence no longer be suitable for you at a certain time in your life?”. If the answer is yes, then you may wish to consider the impact of selling it and when would be the right time to do so.
The next question I ask clients is: do you plan to downsize or release equity?
Downsizing simply means buying a smaller more manageable home. However, with bungalows often costing more per square foot, it can result in purchasing a retirement home for a similar or greater value to the one you sold.
If your plan is to release money from your home, I refer to this as ‘down-valuing’. This involves moving to a cheaper home with lower overall costs, allowing you to release funds for retirement. This might mean relocating to a more affordable area or reducing your land size, but more importantly, it does not necessarily mean moving to a smaller property.
If you plan to ‘down-value’, then this is something that could be considered as part of a broader financial plan. Some individuals consider this when thinking about how to balance current and future spending, though outcomes will depend on personal circumstances. After all, you don’t want to look back and regret not spending in your 60s, only to receive a large influx of funds in your late 70s – you can’t get that time back.
What should you consider when considering selling your home in retirement?
- The emotional burden – This is likely a home you have lived in for decades; moving may not be as easy as you think.
- Changes to outgoings – Your new home might result in lower monthly outgoings, which could result in more disposable income to enjoy your life.
- Tax considerations – Freeing up a large amount of money can impact your tax position and/or your ability to claim means-tested benefits.
- Timescales – Selling a home can take months. Be ready for a long process.
- The cost to move – Stamp duty, solicitor fees, moving costs, and estate agent fees can be significant. Don’t forget to factor them in.
- Is it worth it – Before committing to a move, consider how much capital you are likely to free up and how long those funds might realistically last.
With any major decision, there are always alternatives. In this case, you might choose to adapt your existing home to make it more suitable for your age, or a popular choice is to consider equity release through a lender.
There is no right answer for everyone, but understanding your options is key. A well-structured financial plan can help you make an informed decision, giving you the confidence to balance enjoying your wealth today, avoiding the risk of leaving it too late.
*Risk Warning: The value of your investments can go down as well as up, so you could get back less than you invested. Raymond James Wealth Management Limited is a member of the London Stock Exchange and is authorised and regulated by the Financial Conduct Authority. Registered in England and Wales number 1903304. Registered Office Ropemaker Place, 25 Ropemaker Street, London, EC2Y 9L.