Renting vs Buying After Downsizing for Retirement

Everyone’s downsizing these days when they retire, and why not? You can clear your debts, bank a sizeable sum and improve your lifestyle during retirement. Of course, some people are even deciding they would rather rent than buy when they retire, and you could be better off without the financial burden of being a homeowner.

Downsizing for retirement and later life

The benefits of downsizing (moving into a smaller home) as you get older

The main benefit of downsizing is that you will be releasing funds that can become part of your retirement financial plan. If you no longer need to live in a large home, downsizing is a great way to become more comfortable in retirement. For example, if you sold your home for £500,000, and moved into a smaller property that only cost £250,000, that extra equity of £250,000 is yours to spend as you wish! A smaller home will also have lower utility bills and expenses, adding to the savings you can make.

Choosing a location for retirement

If you’ve taken the decision to downsize because you’re nearing or considering retirement, choosing the right location is key. Do you want to move to somewhere to be closer to family, especially next of kin or people who could provide care and support to you? You might prioritise your quality of life, your independence, health or a specific kind of location. Many people like to retire to the coast, or rural areas where the pace of life is slower, and the environment is safer or has health benefits. But you should also consider whether there are enough services, shops and public transport to meet your needs, not only now but in the future.

Managing downsizing for later life

To downsize successfully, you’ll need to do things like:

• Fix your budget
• Work out how much space you’ll need in your new home
• Declutter effectively
• Consider whether it’s better to rent or buy
• Search for properties
• Arrange removals and packing of your possessions
• Get settled in your new area

You might want to read our dedicated downsizing guide for more ideas on how to manage moving into a smaller home.

Legal and financial considerations for seniors

People on the verge of retirement will need to consider a range of financial issues, mainly concerned with income planning, and how to take their pension. Some people choose to buy an annuity (a yearly, guaranteed income), or take a tax-free lump sum from their pension. You’ll need to work out how much income you’ll need throughout your retirement. It is generally accepted that for a comfortable retirement with a reasonable standard of living, you should plan to have an income which is around two thirds of what you needed pre-retirement, when you would have had significant financial commitments like a mortgage.

The ‘3% rule’ is often cited as a guide for planning your pension pot. For your first year of retirement, take 3% of your total retirement funds as your income, then add an estimated rate of inflation (eg. 3%) for every additional year. You’ll be able to see how long your money will last, over a 30-35 year period. 

Also, the age at which you can claim your state pension may not be the same as the age you actually want to retire. It’s likely to be later.

Downsizing to unlock equity and financial security

Saving money long-term through downsizing

While you may have been saving for your retirement for decades, or even most of your working life, it still might not be enough to meet all your needs. Downsizing is a quick way to release significant funds that can be used to top up your pension pot. Depending on the difference between the property you sell and the one you then buy, you could make quite a difference to your standard of living and income in retirement, by downsizing.

Downsizing as part of a retirement plan

It’s possible to plan ahead and make downsizing the way to bridge the gap to a more comfortable retirement. You’ll have to assess whether it truly works for you, however. There will still be costs associated with downsizing, like stamp duty, legal fees, estate agent fees and moving costs.

Investing in a smaller home

You’ll see some significant gains from buying a smaller property. For example, water, gas and electricity bills will be lower, as well as council tax. It will cost less for maintenance and repairs, and there will be fewer jobs around the home for you to do, especially the ones that become less convenient the older you get! The cost of living in your home is going to fall. So you will have more time to live the retirement life on your terms.

Downsizing for a more minimalist lifestyle

Living sustainably through downsizing after retirement

By living in a smaller property when you retire, you’ll also be reducing your carbon footprint – using lower amounts of energy, you could cut annual utility bills by 10%. If your new home is tailored to the needs of retired people, perhaps as part of a bespoke development, these properties are also likely to be more energy efficient. You may be driving considerably less too, especially if you’ve moved closer to family members.  

Balancing minimalism with practicality and comfort

People who downsize have to do quite a bit of decluttering – but that doesn’t mean your new, smaller home has to be short on creature comforts. Prune your furniture and possessions down to the items that will make your life easier, while maximising the space you have. Your home still has to feel like a home.

Renting rather than buying?

Of course, downsizing doesn’t always mean buying a property. You could decide to bank the funds from the sale of your home and rent, rather than buy, as a long term solution. This could bring greater flexibility, because while rental payments would gradually see your equity funds eroding over time, you would have a larger disposable income. Many retirement communities have rental options, giving residents the security of long term tenancies, and fully serviced properties.

Anyone considering renting in retirement will have to balance the risks over the rewards, but it is definitely a trend on the increase.

Frequently asked questions

Should I downsize when I retire?

Downsizing is a very popular way for people nearing retirement age (or already retired) to use equity from the sale of a large home no longer suitable for their needs to boost their pension pot.

How do I start to downsize?

Work out what type and size of property would meet your needs in retirement, and how much it would cost in your desired location. You will need to balance this with the equity you are looking to release from the sale of your existing property.

Does downsizing save you money?

Yes, downsizing does result in significant funds being released that can make a difference to your income in retirement. However, there are still costs associated with downsizing, which you will have to consider before taking the decision to downsize.

Should pensioners downsize?

It is very much up to the individual, but downsizing does bring benefits to people wanting to make their retirement more comfortable.

haart is on a mission to get you moved

haart has plenty of advice about downsizing and the options available for people planning their retirement. If you want any advice, get in touch with us today.