Millions of people who are pinning their hopes on funding their retirement by moving into a smaller property risk their downsizing dream becoming a nightmare.
As many as three million people aim to use the value of their home to fund their later years - moving to a smaller home on retirement to free up capital according to a report, written by former pensions minister Steve Webb.
But while some may believe that house prices are a one way bet, Mr Webb, now director of policy at Royal London, said relying solely on the value of a home to fund retirement was an “incredibly risky strategy”.
The report said: “For too many people, the ‘downsizing dream’ could turn out to be a nightmare.”
The report, titled the Downsizing Delusion, estimated the income that people who downsize may expect to generate from swapping an average detached home for a typical semi-detached property.
A typical detached home is worth around £310,000, while buyers can expect to pay around £197,000 for a semi-detached house - meaning someone may expect to raise a pot of around £113,000 from downsizing.
Someone using this cash to buy a retirement income called an annuity may end up with an annual income of around £13,700, made up of their annuity income and the full state pension, the report found.
But the typical worker earns £27,400 a year - so an income of £13,700 would mean their income had halved on retirement and an unacceptable slump in living standards for most.
Mr Webb said: “Hoping to live off the value of your home could be a downsizing delusion for millions of people.”
He continued: “Even with today’s record house prices, very few people could fund a retirement by selling up and moving to a smaller property.”