Retirement planning guide: Pros and cons of downsizing your family home – Diana Clement
The promise
The Financial Services Council (FSC) released research in 2017 surveying 2200 people, finding that 54% of Kiwis planned to downsize in retirement, but on average this would release just 3.3 years of living costs. This should be treated with some caution. Housing equity is only one part of a retiree’s financial picture, alongside NZ Super, KiwiSaver and other investments. It is also worth noting the FSC has a clear interest in promoting retirement savings products such as managed funds.
The reality
It’s horses for courses. If you’re downsizing from an upmarket home in an expensive area, you will release a bigger chunk of money, than if you’re somewhere with modest house prices to start with like regional centres. Downsizing to a cheaper city or town will release more money.
Homes suitable for a downsize are in short supply in some areas, such as heritage suburbs which means buyers sometimes pay a premium for them.
It’s not cheap to move, either. Real estate fees, valuation, staging, storage, pre-sale maintenance, and moving can together chew up $50,000 to $70,000 or more.
If the new home needs lifestyle upgrades such as a new kitchen, bathroom, curtains, carpet, landscaping, heat pumps, DVS, solar power, double glazing and EV chargers, that eats into the equity released from the sale. On the positive side, people who do downsize often benefit from cost savings such as reduced maintenance costs and household operation costs such as rates, electricity, water and insurance.
The risks
For many people, the big downsize means moving to an apartment or townhouse, which can work well. It also comes laced with risk. Ask anyone who bought a leaky apartment. Even properties built since the leaky era have in some instances had problems such as weathertightness defects, fire-rating compliance issues, and poor ventilation and moisture control.
If the three-storey apartments mushrooming across New Zealand turn out to be the next building crisis then downsizers could have their options curtailed further. There have also been complaints of townhouse owners sweltering because of overly sunny and poorly ventilated buildings.
However, I spoke with Duncan Colebrook, of Stamford Insurance, whose company sells building warranty insurance, so he hears when there are issues. Nonetheless, Colebrook says the modern townhouse would be his choice of home for a downsize.
“They’re a relatively simple construction usually. Timbers are all treated these days so they are resistant to water damage.”
One downside of a townhouse for an older person is trudging up and down the stairs. Some modern townhouses come with lifts installed. Another issue is party walls and joint roofs. If something goes wrong and you’re 80, you might not have the fight in you to negotiate with your neighbours.
The lifestyle
Leaving the family home can be emotional. I know. But if you’ve seen a 95-year-old trying to live in a two-storey, six-plus bedroom home that hadn’t been maintained for decades like I have, you’d downsize young.
Probably the best piece of advice I was given in my downsize was: buy three bedrooms. That way there is room for the [non-existent] grandchildren to stay and space for the 21st century toys. Then TVs, electric bicycles, windsurfers, lawnmowers, weedeaters, golf clubs, and more have to go somewhere.
Finally, if you’re going to downsize, be prepared, do it early, and have a good financial plan.
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