Downsizing: Why the dream rarely matches reality

The downsizing dream 

There’s a simple logic to ‘downsizing’ - the process of moving from a larger home to a smaller one, typically in later life. 

You’ve spent years in the family home and, with the children grown and years of retirement still stretching before you, you no longer need such a big property. Why not move to somewhere smaller where running costs are lower and the upkeep is more manageable, with the added bonus of a big windfall from selling a big house and buying a smaller one? 

It works perfectly in theory - which makes it strange that so few people actually do it.  

Since the start of COVID-19, people value extra space at home, with many opting to spend money improving the family home rather than move. 

If the pandemic has put a pause on downsizing plans, it only increases a trend that was in place in many countries before COVID-19. Many were already finding that, once they ran the numbers, the reality of downsizing seldom lived up to the dream. 

Firstly, moving is an expensive business and any potential windfall is chipped away at by the cost of preparing the house for sale, sales taxes, estate agent fees and home inspections - it all adds up. 

Moreover, you simply may not be able to find a suitable property to downsize to. The downsizing dream is based on selling a bigger house and buying a smaller one - and pocketing the difference in price. But that only works if you’re comparing like with like. 

Their real dream is to trade their existing home for something that, while smaller, is more desirable in other ways – for example, it’s in a beautiful location, hundreds of years old and/or renovated with a dream kitchen and bathroom. 

Tax considerations may also be a factor in their reluctance to move. Some countries may offer bigger tax break for wealth held in property than in other assets, so families may reason that staying in their family home is the best way to pass on wealth to children. 

Property wealth can be an important part of retirement financial planning, particularly in meeting the costs of long-term care (if relevant in the country where you live). But assuming that value can be released by downsizing may be a mistake. It is still likely to be assets held in pensions - which may also enjoy some tax benefits - that offer the most flexible retirement income; don’t bet on housing wealth to bail you out. 

If you need help planning your retirement income or legacy wealth, professional financial advice may be able to help. If you’re starting to think about your retirement, in many countries there are public services that offer free, impartial guidance to help you understand your options at retirement.