Will Downsizing After Retirement Affect My Pension UK?
Looking at why people downsize for retirement, the pros and cons of downsizing in retirement and how we can help sell your house and boost your pension.
Alexandra Ventress ★ Digital Content Writer
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Retirement can be a very exciting part of life. You finally get to stop working, take things a bit easier and enjoy the fruits of your labour, surrounded by your loved ones. One aspect of retirement that a lot of people decide to tackle is downsizing. By downsizing after retirement, people are able to ease the maintenance of their property, move into more accessible properties, as well as boosting their retirement fund.
In this blog post we are going to look at downsizing after retirement, the pros and cons of downsizing, and answering the question ‘does selling my house affect my pension?’
What is downsizing in retirement?
Downsizing is the process in which someone moves out of their family home in order to move into a smaller, cheaper property that they can grow old and retire in. People often move in order to save money, boost their retirement fund, and be closer to family, friends, and local amenities.
Downsizing sounds as though you are moving to a smaller property, sometimes people will downsize to a cheaper house or flat to release equity in their current property.
How to know when it's time to downsize?
If you are thinking about downsizing after retirement but are unsure whether it is the correct move for you, then there may be warning signs popping up to tell you it may be a route you wish to explore:
If you are fast approaching your retirement, then you may have already given some thought to downsizing. It is a great way to help set yourself up for your retirement, especially if your current property has steadily risen in value over the last few years.
If you have finally reached the milestone in every parent’s life that they both crave and dread in equal measure, then you may start thinking about selling up and moving to a smaller property. You may find that your family home feels quiet and empty now your children have left, and that moving yourself to a smaller property closer to family and friends may be the way to go.
When walking around your property, you may begin to notice that you have more unused space than you do used space, then it could be time to consider downsizing. You may as well save your money rather than heating empty rooms.
A great sign that downsizing is for you is that day-to-day maintenance of your home is becoming too much of a chore for you to complete on your own.
Why do people downsize?
There are many different reasons why you may be considering downsizing. Below are some of the most popular reasons people have for taking the plunge and moving to a smaller property:
- Want better amenities
- Change in lifestyle/health
- Financial reasons
- Wish to be closer to family
- Looking for a better location
Should you want to rent or buy a smaller home?
When you are deciding to downsize, you will need to decide whether you will rent or purchase a new property. Below we take a closer look at the two housing options:
Buying a property is a long-term commitment no matter how old you are. If you are unsure about the property you are planning on purchasing, it may be a good idea to spend some time in the area and get to know whether the location and property type are compatible for you. You will also need to consider the extra costs you may have to face, such as:
- Mortgage fees
- Moving costs
- Stamp duty
- Estate agent fees
- Solicitors fees
- Survey costs
These costs can add up, so it is important to factor them into your budget.
Depending on the property that you choose and the location that you move to, renting can work out as either more or less expensive. By avoiding maintenance costs you may find yourself saving money. However, it is less secure than owning your own home outright. If your landlord decides to sell up or increase your rental payments, you may find yourself in a tricky situation.
Will selling my house affect my pension UK?
One of the biggest questions you may have when it comes to downsizing after retirement is ‘if i sell my house does it affect my pension’. The selling of your property should have no effect on your state pension as any capital that you have released from the sale of your home will only be relevant to your PensionCredit entitlement. This is because your State Pension is based on contributions and is not affected by any savings you may have.
As far as your Pension Credit entitlement current legislation allows the DWP to ignore the proceeds you gain from a house sale for up to 26 weeks if you plan to use the proceeds to purchase another property. If you need to extend this period due to renovations then you may be able to do so.
Pros and cons of downsizing for retirement
As with any buying or selling decision, there are pros and cons to selling your current property for a smaller home. Below we take a close look at the advantages and disadvantages of moving to a smaller home for those who want to downsize…
Benefits of downsizing your home in retirement
One of the main reasons people wish to downsize is to increase their retirement income. Many people wish to sell house and retire to a smaller house close to family or friends. By moving into a smaller property, they should have cheaper bills and lower maintenance costs as well. It is also a means for people to move closer to family and friends, ensuring they have a good support network as they get older.
It also means that you are able to keep your independence for longer. By moving into homes that are better suited for your needs as you get older, such as assisted living, sheltered housing, retirement properties and bungalows, you are able to keep your independence for longer.
Other positives to moving into a smaller property can be:
- it’s easier to maintain
- It’s closer to family and friends
- It’s a way to get extra support and help as you get older
- It’s a more accessible property
Cons of downsizing in retirement
However, when you downsize you may have to give up some of the luxuries you have grown accustomed to in your family home. For example, you may find that your new home:
- is further from shops, doctors, and leisure centres and facilities. If you have already given up driving, or think you may need to in the future, you will need to factor in how you will get about as well as visit people
- is further away from your family and friends than you previously were
- smaller and with less space
There is also an issue with people overestimating exactly how much their property is worth and not fully understanding the cost of moving.
At what age do most seniors downsize?
It is widely believed that the best age for most seniors to downsize is 64. This is according to data from Retirement Move, where half of those over 60 admitted that they struggle when it comes to the day-to-day maintenance of their property. Furthermore, a third of those asked could not keep up with maintaining their gardens.
Although there is no right or wrong answer to this question, 64 tends to be the age that most people will start to consider the possibility of downsizing, although some may consider it earlier and others may decide to do it a little later.
Inheritance tax implications
You may also wish to look at how downsizing after retirement can affect any inheritance tax on your estate. The inheritance tax threshold currently stands at £350,000 but this number can increase if you decide to leave your home to your children or grandchildren by using the Residence nil rate band (RNRB). If you are concerned about your children and grandchildren being unable to use the full tax-free allowance, you may be bale to add a ‘downsizing addition’ to the RNRB.
Is it worth downsizing to be mortgage free?
Becoming mortgage-free is a dream for most people, and those who are looking at downsizing for retirement are no exception. Downsizing is a great way to fund your retirement as well as helping you to achieve your goal of becoming mortgage-free, but is it worth it?
Downsizing can help you to achieve mortgage-free status if the remaining balance on your mortgage is less than the value between your current and new house. So if you currently have £110,000 left on your mortgage and the difference between your current home and your potential retirement home is greater than this number, then you will be able to pay off your mortgage.
Will the council pay me to downsize?
If you live in a council house and have one or more spare bedrooms, then depending on your council you may be able to move to a smaller and cheaper property through a Smart Move scheme. Through this scheme, eligible people will be able to get up to £1,000 for each bedroom they give up in their property.
In order to check your eligibility for the Smart Move Scheme, you will need to fill out an online housing application form from your local council’s website.
Can I sell my house and live off the money?
If you decide that you wish to downsize to fund your retirement, then this is a selling avenue that you can explore. Whilst selling can be a great way to boost your retirement fund unless you are in a property that has risen in value considerably and is worth a lot, you may struggle to live off the profits of you’re house sale alone. Retirement is a long time, and you don’t want to run out of profits and be left struggling. You may wish to explore releasing equity or working for longer in order to increase your savings.
If you decide that you want to take the plunge and boost your savings for retirement, have a look through our checklist below to make sure you are ready to go:
- You should first look at your reasons for downsizing. Are you feeling positive about this change or are there other routes you would rather explore?
- If you decide that downsizing is a route you wish to go down, then you will need to start thinking about places you will want to move to. Do you want to stay close by or are you looking for a property that is further afield?
- You will next need to think about the property type you wish to move into. Take a look at different property types, locations, and amenities nearby.
- You will also need to think about your mortgage. Do you plan on paying it off in full?
- You will need to start decluttering as soon as you can. Not only do clean tidy homes sell quicker, but if you are downsizing you will not have the same space that you have in your current home.
Should you move house when you retire?
Whether or not you should move house when you retire is a decision that only you can make. As a homeowner, it is a good idea to weigh up the pros and the cons of your move to decide if it is the right move for you. Downsizing is a big decision, and it is not one that should be rushed into. However, if you decide that it is an avenue that you wish to explore, then we may be able to help you get the ball rolling…
How can we help?
If you are looking to downsize your property, we are here to help. Whether you are looking to sell your current home to downsize or you are looking to purchase a new home to grow old in, we’ve got you covered.
We are an estate agent with a difference, making it our mission to change the ways that you sell houses. In fact, we believe that selling your house should be three things: fast, effortless, and free.
Whether you are buying or selling your home, The Property Selling Company is here. Our dedicated team of property experts are here to support you every step of the way, helping you sell your family home in as little as 28 days and get your downsizing journey underway.
If you are ready to downsize get in touch today by filling in one of our free no obligation online valuation forms!