Retirement planning – should you sell your house?
With UK residents now living longer than ever before, retirement has become a stage in life that requires careful preparation and planning.
The better planned your retirement is, the more stress-free and enjoyable it’s likely to be, but how do you go about making a retirement plan?
In this guide
- What is retirement planning?
- I’m planning my retirement – what do I need to think about?
- How to prepare financially for retirement
- What will your social life look like in retirement?
- How to prepare emotionally for retirement
- I’m retiring – should I sell my home?
- Pros of selling your house in retirement
- Cons of selling your house in retirement
- How to turn your home’s equity into retirement income
What is retirement planning?
Retirement planning means thinking through the different aspects of your life and considering how they will be affected by stopping paid employment.
I’m planning my retirement – what do I need to think about?
When you’re thinking about how to plan your retirement it can be easy to focus purely on your financial situation, but there are many other areas you should consider as part of your retirement plan.
We’ve put together this checklist of different areas to consider to help with retirement planning:
- Financial planning – what will your budget look like?
- Social – what sort of lifestyle are you expecting in retirement?
- Emotional – how will you manage the transition from work to retirement?
- Housing – where will you live in retirement?
How to prepare financially for retirement
If you’re looking for some help with what your retirement will look like financially, the government’s website has a great resource for retirement financial planning.
Begin by checking when you will become eligible for your state pension and how much you will receive. You should also look at the details of any private or workplace pension you have. If you’re concerned that you won’t have enough income in retirement, you should speak to a financial adviser about the possibility of increasing your pension fund before you retire. The longer you pay into a private or workplace pension, and the more you’re able to pay in, the more financially comfortable your retirement is likely to be.
If you have multiple workplace pensions with previous employers, you may also wish to consider consolidating them.
You can use a pension calculator to find out what your likely pension income will be. Also consider making an income checklist, including any other sources of income, and a projection of estimated outgoings to look for areas where you can save or make additional retirement income.If you’re concerned that you will be in financial difficulty in retirement, you can check whether you will be entitled to other financial support in the form of Housing Benefit, Winter Fuel Payments or Pension Credit.
What will your social life look like in retirement?
When you’re busy working full-time, hobbies and social activities can be forced to take a back seat. You may find that a lot of your social connections are linked to your workplace. It’s important to think about what you want your life to look like, socially, once you retire. How will you prevent loneliness when you’re no longer going to work full-time? Do you live in an area that has a range of clubs and activities on offer? Do you have lots of friends and family close by who are available during the daytime? Will it be easy for you to take up new hobbies or spend time developing existing interests?
How to prepare emotionally for retirement
The transition from employment to retirement can be a tricky one to navigate emotionally.
According to Public Health England, the average retirement for a man lasts 19 years and the average retirement for women lasts 21 years. What do you want to do with that time? What are your priorities?
Retirement can trigger a feeling of loss of ‘identity’ and loneliness, but with the right mindset it can be a great opportunity for a fresh start. With British people working the longest hours in Europe, retirement can offer a unique opportunity to invest time and energy into something you’re passionate about, perhaps something you’ve had to neglect whilst working full time.
In order to limit any potentially negative emotional impact triggered by the change in lifestyle, it is important to make a positive, proactive plan for how you want to spend your time in retirement.
I’m retiring – should I sell my home?
Another important consideration when planning your retirement is where you want to live.
No longer tied to a certain location due to employment, retirement offers the opportunity to reassess your living situation and consider relocating. Moving to the coast in retirement is a dream for many, while others will choose to move to another favourite location or to be closer to friends or family.
Retirement is an opportunity to not only think about your location, but also about how suitable your current property is likely to be in retirement.
You may choose to downsize and move to a property that is significantly smaller than your current home, in order to access the money tied up in your property, or you may simply choose to move to a property that is likely to better meet your changing needs in retirement, eg. a bungalow.
Pros of selling your house in retirement
There are several benefits of selling your property and downsizing in retirement.
- Spending less time on property maintenance and cleaning – a smaller property will require less upkeep, which means more free time for you to spend doing things you love.
- Reducing your monthly household bills – downsizing to a smaller home is likely to reduce your monthly household bills, which means more cash in your pocket each month.
- Releasing equity from your old property – downsizing to a smaller property is also likely to enable you to release a lump sum of money at the point of sale. You can either choose to add this lump sum to your pension pot to increase your monthly retirement income, or can be taken as a cash lump sum to spend as and when you want to.
Cons of selling your house in retirement
Making the decision to move in retirement is not always easy. There are several things to consider.
- Downsize and declutter – Downsizing to a smaller property will mean less room for your belongings, so decluttering is essential. Although at first this may seem like a negative, it can end up being very positive in the long term. Unless you declutter regularly, it is likely that you will have accumulated a number of unwanted or unused possessions during your time in your current property. You could view the prompt to declutter and reprioritise your possessions as a positive step.
- Emotional ties – For many people, the real challenge when considering downsizing is the emotional connection they feel to the property and the area. If you’re feeling unsure about whether downsizing is the right move for you, it’s important to think about the lifestyle you imagine having in retirement, and whether your current property can offer you that lifestyle.
Things to consider when deciding whether to downsize:
- Social opportunities – are there clubs and daytime activities in your local area that you would want to get involved in when you retire? Will you feel lonely in your current property?
- Demands of current property – does your property require significant upkeep or maintenance? What could you do with the extra time and money you would have available if you moved to a smaller, more manageable property?
- Long-term suitability of your current home – could you adapt your current property to meet your changing needs as you get older?
How to turn your home’s equity into retirement income
If you’re concerned about not having enough retirement income, and are a homeowner with equity tied up in your property, there are several ways that you can use that equity to ease your financial worries.
If your concerns are purely financial, you can look at property equity release in the form of a lifetime mortgage. The main benefit of using a lifetime mortgage to access the money tied up in your property is that you don’t have to move out of your home. However, it is important to remember that you will be charged interest on the money that you borrow via a lifetime mortgage. Interest rates on lifetime mortgages are usually significantly higher than the interest rates applied to a standard mortgage, but similar to a standard homeowner mortgage, the more you borrow in relation to the value of the property, the higher your interest rate will be. You can either choose to make monthly repayments – as you would with a standard mortgage – or let the interest accumulate and settle the loan when the property is sold. Monthly repayments will be an extra cost to consider in retirement, when income is usually significantly lower, but leaving the interest to accumulate will have a big impact on any inheritance you are hoping to leave.
If you’re unsure about taking out a lifetime mortgage to raise retirement funds, downsizing your property may be a more simple and attractive way to release some of the tied-up equity. Accessing the cash tied up in your property directly means there will be no interest to pay on the funds you release. Purchasing another, smaller property means you will still have money invested in an asset that may later need to be released, or can be left as an inheritance to your loved ones, but you will also have access to a lump sum that you can invest to provide an additional retirement income. You will also have the added financial benefit of reducing your monthly bills and running costs too.
Downsizing and releasing equity to buy another property that can be rented out to generate a monthly income is a popular option for many homeowners, as is the option of using the equity accessed to boost existing pension pots.
Find out more about:
- Buying a house with subsidence
- Can I sell my home and rent it back?
- Structural survey – all you need to know
- What is a memorandum of sale when buying or selling a house?
- What are title deeds?
- When was my house built?
- Should I sell my house to pay off debt?
- Retirement planning – should you sell your house?
- How to stop house repossession
- Selling an inherited property