Business & Investment

Post-retirement downsizing: pros and cons

Image Source: Getty Images

If done correctly, downsizing can be a great solution for achieving a wealthier and less stressful retirement. But that doesn’t mean it works for everyone. Let’s analyze the strengths and weaknesses of post-retirement workforce reduction.

What is downsizing?

Retirement headcount reduction means selling the house you live in and moving to a smaller house. Or it could mean buying a home of the same size in a cheaper area.

The idea is that the price difference between the two homes will free up some money that can help your retirement.

Recent research by Hargreaves Slan’s Down We found that two-thirds of people are considering reducing their retirement work. Of these, 22% are fully committed to the idea, but 44% are uncertain.

But is downsizing the right thing for you? Let’s take a look.

Draw a path to financial freedom with us Heroes Journey Tool!

MyWalletHero helps you learn how to manage your money, whether it’s debt repayment, tackling short-term money goals, or investing in the future.

This tool will help you understand the next steps in your journey – Simply select a goal It best represents your current interest in getting started.

Advantages of downsizing

There are certain things about downsizing that make it look like an attractive option on paper. “At this point, you can rent cheaply with a mortgage, buy a big house, and make a lot of money if real estate prices rise,” said Nathan Long, a senior analyst at Hargreaves Slan’s Down. I am.

Now let’s analyze the benefits of post-retirement workforce reduction.

  • The first move is to release the cash.
  • Continuing costs and energy costs should be low.
  • A small house may be easier to handle.
  • The new property may be more suitable for your stage of life (for example, a bungalow may be more suitable than a double-decker house).
  • You can choose the area that suits you without being tied to commuting.

If done correctly, downsizing can play an important role in your retirement planning.If you have a well-guaranteed income from something like you National pension And pensions / final salary pensions, and freed money can help you enjoy Comfortable retirement..

Disadvantages of downsizing

Downsizing has an emotional component. Many cannot imagine moving to a new area or giving up on a family home.

But there are also economic implications. And if things don’t go as planned, you can find yourself with less money, less space, and less flexibility than you might expect.

Let’s take a look at some of the risks of downsizing:

  • It can come with compromises: either smaller properties or less desirable areas.
  • You may not be ready to miniaturize when you need the money.
  • It may take longer than expected to sell your existing home.
  • You may not be able to sell your property at the price you want or need.
  • High home prices can mean releasing less cash than expected.
  • There is a cost to move. Real estate agent fees, attorney fees, mortgage fees, removal costs, and stamp duty must be taken into account.
  • When your life is already fluid, it may be an emotional wrench too.

The last word

Retirement headcount reduction is a purely personal decision. For some, it can be a wise part of retirement strategy. But for others, it may be too emotional and the financial benefits may not stack up.

If you decide to shrink, it’s worth thinking about what to do with the cash pot. As a general rule of thumb, it makes sense to spend a year or three on retirement cash savings.

Therefore, the rest Stock market based investment.. Alternatively, you can consider paying some for your pension. Even if you are under 75 years old, you are still eligible for tax exemption.

If you have already withdrawn money from your pension, be aware of the annual allowance for purchasing money (MPAA) (excluding tax exemption lump sum payments). The MPAA limits the amount that can be donated to an annuity if it is flexibly accessed. This means that you are limited to a total annual payment of up to £ 4,000, including tax exemptions.

Was this article helpful?


4 iron wall rules to save money on everything

Our editor, Sam Robson, has fulfilled his personal cost-cutting mission for years – and it’s time to share his wisdom.

Check out his savings tips and tricks in this free report. “Sam’s Four Iron Clad Rules to Save Money on Everything”..

For immediate access to a free copy, enter your email address below.

Some of MyWalletHero’s offers are from our partners — that’s how we make money and keep this site going. But does it affect our reputation? No. Our commitment is you. If the product is not good, our rating reflects it or we do not list it at all. We also aim to showcase the best products available, but we do not review all the products on the market. Click here for details.. The above statement is for The Motley Fool only and is not provided or endorsed by bank advertisers. John Mackey, CEO of Whole Foods Market, a subsidiary of Amazon, is a member of The Motley Fool’s Board of Directors. Motley Fool UK recommends Barclays, Hargreaves Slan’s Down, HSBC Holdings, Lloyds Banking Group, Mastercard and Tesco.

Post-retirement downsizing: pros and cons Post-retirement downsizing: pros and cons

Back to top button