This pensions giant has just warned downsizing your home to fund your retirement is a terrible idea

Emma Haslett
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£13,700 won't fund that grey gap year... (Source: Getty)

Planning on downsizing and relying on what's left over to fund your retirement? Don't bother, Royal London has warned. Get a pension instead.

According to the pensions and investment giant, roughly three million people of working age are planning to use the value of their home to fund their retirement.

But a new report by the company has suggested that's going to lead to a shock for many. The average person downsizing from the average detached house to a semi-detached (so going from a home worth £310,000-odd to £197,000) and using the proceeds to buy an annuity would end up with just £13,700 a year - half the average annual salary of £27,400.

Read more: Podcast - has Brexit ruined your pension?

The report also suggested downsizing is easier said than done for many. That's thanks not only to the fact children are living at home for longer - thus making moving to a smaller home more difficult - but one in three mortgages now last beyond retirement age, meaning an increasing number of people will still need income to service a mortgage beyond the traditional retirement age.

It also pointed out that the planned retirement date may coincide with a period of low house prices (which may have already begun...).

“Hoping to live off the value of your home could be a ‘downsizing delusion’ for millions of people," said Steve Webb, director of policy at Royal London.

"In most of Britain, the amount of money you could free up by trading down at retirement to a smaller property would generate a very modest income. Someone who chose to save for later life through their home rather than through a pension could easily see their income halve at retirement.

"Even with today’s record house prices, very few people could fund a retirement by selling up and moving to a smaller property. In addition, house prices can be volatile, not least in the light of the recent Brexit vote, and depending on the value of a single asset – your home – to fund your whole retirement is an incredibly risky strategy.”

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