Millions risk ‘downsizing retirement disaster’

Up to three million aim to use the value of their home to fund their later years

Up to three million aim to use the value of their home to fund their later years

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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.”