The ups and downs of downsizing


As published in Hawke's Bay Today. Canny View by Nick Stewart, Authorised Financial Adviser.

If your family has grown up and flown the nest and you're moving closer to retiring, it's likely that you've at least thought about downsizing your home.

For some, downsizing can be for practical reasons. For others, it might be a desire to be closer to their children if they've relocated, or it might simply be the desire for a change of scenery as they move into the next chapter of their life.

But there are pros and cons to downsizing, which need to be considered before you make what is always going to be a major personal and financial decision.

The potential benefits of downsizing are numerous.

Living in a smaller home means you're likely to save money on energy bills, house insurance, council tax and many other costs, allowing you to spend more of your retirement income on enjoying life after work.

It can also make looking after your home much easier, so you're spending less time and effort on cleaning, maintenance and repairs as you get older.

In the current economic climate, many older people are choosing to downsize to free up funds.

For some, this might be with the aim of boosting their own nest egg to increase their income over and above NZ Super. For an increasing number of people, this is done to help their children get on the property ladder themselves.

A loan or gift from the "Bank of Mum and Dad" must be funded somehow, and if much of your capital is tied up in your home, downsizing often seems like a good way of obtaining the funds needed for a deposit on a first home.

Sadly, many overly generous parents find that their own lifestyle needs to be trimmed in their later years as the initial gift was too large against the size of their total wealth, nor did they account for inflation. And they are too proud to ask for the gift back from their children.

As New Zealand society ages at 1.2 years every decade and the retirement age seems unlikely to move past 65 any time soon, most retiring Kiwis haven't accumulated sufficient capital for their own needs through to 90 years and above, let alone be in a position to give away a precious component required to live.

However, just as the housing market is making it increasingly difficult for first-time buyers to secure a home, it's also making it more challenging for those who want to downsize to be able to do so.

Many who want somewhere smaller to make maintaining their property easier are finding that the cost of moving simply means staying put, and paying for a cleaner or handyman is the more sensible option.

For others, the shortage of houses means that finding a smaller property, which suits their needs while providing the financial benefits, is simply too tall an order in 2017.

Not everyone can move into a new, warm, single-storey, easy-access, close-to-town home that meets their wallet.

Many that do then find they have little surplus after the sale and subsequent purchase.

So, while there are definite potential benefits of downsizing, which can potentially help you and your family as you reach your retirement, it's also worth remembering that those positives are not guaranteed.

Moving to a new house is both a major financial and emotional consideration at any point in your life, so make sure you have considered exactly what you will get out of downsizing before making the decision to do so.

• Nick Stewart is an authorised financial adviser and executive director of Stewart Financial Group. Stewart Group is a Hawke's Bay-owned and operated independent financial planning firm based in Hastings. The advice given here is general and does not constitute specific advice to any person. A disclosure statement can be obtained free of charge by calling 0800 878 961.

• The views expressed in this article are those of Stewart Financial Group Ltd.  The disclosure statement for Stewart Group is available free of charge by contacting us on 0800 878 961.  This article contains class advice only and does not consider objectives or situation of any particular investor. It should not be construed as a solicitation to buy or sell any financial product, or to engage in or refrain from engaging in any transaction.  We recommend that you consider the appropriateness of information to your situation.