People could cut housing costs to retire early

[ThoughtsQuestions]

The statement is "people could cut housing costs to retire early" but I'm not sure how much I believe myself and trying to figure out my priorities.

Here's my situation for context;

I paid off mortgage on a very small home in my late 30s. It's a safe area, close to shops and a park. It's cheap because it's small and not a fancy building. My living costs are quite modest because I don't need to pay for housing. But in some ways, I'd love to live in less cramped conditions

Our annual family income (pre-tax) is over 50% of the value of the house. People on a similar income live in much bigger places, with a big mortgage.

I changed sectors and pay went up more than expected. The big pay feels temporary, ie if I stop working, I doubt I'd be in the position again. But I don't get enough time with my young kids

I'm weighing up my priorities at the moment.
Pros : financially free, could retire early if trajectory is same for a few years.
Cons : work's very stressful for the high pay AND we have a v small space to bring up kids. But really the kids don't notice, yet!

Lots of questions.....
Is a home that's much cheaper than you can afford worth the freedom it enables?
Curious what others would do, I notice the mismatch in finances + stress + free time vs the quality of our living accommodation compared to the norm?
Have you been in this situation and gone through this phase? What did you think in retrospect?
Why are so many older people living in such valuable homes and not making this trade off? I always assumed that if your house went up by so much money (those in detached homes in SE worth close to or way over £1m), people might cash out more. Especially as children moved out.

I'm not sure, we could overpay our mortgage and this gets if paid off earlier if we don't move house/have an extension but where is the rest of the money coming from to fund the retirement?

At 40, my pension is terrible, my husband's is better but way could it fund us retiring at say 50 especially when the kids won't be fully fledged.

I would rather pay extra towards a bigger house and work part time if possible to keep me occupied. Early retirement would mean a lot of sitting around bored with no money to do anything.

Depends how small we are talking about. It is worth getting a bigger place if current place is a 40m2 one bed where kids share a room and you sleep on a sofa bed. Or if it is objectively a decent sized house with enough space but feels small just because others have bigger houses?

As for why old people live in big houses? Because it is their home. Why would they want to leave the space that has been theirs for decades if they can still manage there.

We still have a mortgage, but otherwise our numbers are about the same as yours. Haven't moved from our pretty cheap house because we don't want to. The finances don't make much difference though, it'd be nice not to have to pay a mortgage but it's only 10% of our post tax income. Wouldn't be retiring off that. I do like the freedom you mention here though, life is much nicer than it would be on the next rung up.

What age is early retirement, how old are you now, you say you paid it off in your late 30s but the children are not old enough to notice. How small is small.

Whilst you're younger and working age, it can make sense to take the risk and buy a larger, more expensive property- increases in asset prices have outpaced increases in wages (and you don't necessarily need to work any harder to earn an asset price rise). You can also leverage debt against your property cheaply (comparatively), to invest or improve your standard of living.

Amongst older people, some will release equity and downsize, particularly if they've always planned to do this. However, if we assume they've paid off their mortgage they may feel like staying in the home they like and are used to.

If you're happy with your property I wouldn't overstretch yourself. Particularly if it gives you options to improve your lifestyle.

Depending on the value of your house, your pension might not need to be terrible. But i suppose you always have the option to downsize later in life to unlock funds.

I imagine if I retired, I might still work but with much less intensity and time to invest in skills I enjoyed. I think I would do sport and be more healthy. I'd also do budget travel for a few months over the summer. But there's a high cost now.

Agree some people have bought more expensive properties in the hope they'll perform well as an asset. I think going forward that's going to be less common though, property isn't as good an investment as it was.

I work to house myself and my children in the most comfortable, spacious property in the nicest area I can. I save for my retirement at the same time but i think over saving for retirement is deprivation.

Im 43 so not near retirement

I think it would be hard to answer that because "the norm" isn't really universal. For example, the norm for me is several generations of one family living in a flat. My grandparents bought a three bed flat in the 60s. We all grew up there and lived there together at various points in time. I am very comfortable with flats for that reason and don't understand an obsession with a house and a garden at all.
Sharing a room with my siblings is also a "norm" for me. But listening to MN, yod think my parents were committing some kind of a crime.
When we all left home and my grandfather died, granny remained alone in her three bed flat. She won't sell it, not because she needs space but because it is her home. "The norm" for me is to buy a house you live in not as a step in "a ladder".

But what is the norm for me, clearly isn't the norm for most people in the UK. But just because it is the norm for most people in the UK, it doesn't have to impact on your decisions.

There is also a question of retiring early. For what purpose? I love my job and am quite happy to continue doing it until the day I no longer can. But I'd quite happily drop a day. And if that means living in a smaller house or a flat, it's perfect for me. My granny retired at 55 and I look at her now at 87 and my MIL who is 86 and is still working (albeit part time) and the difference in their mental sharpness, engagement with the world and physical functioning is immense!

@CommonlyKnownAs , this is a great point. I'm not expecting houses to be able to continue to grow in value as they have done previously. So looking at what people did 10 years ago might not be a good reference

We moved from a very small flat to a 5 bed house with lots of green space. I always thought we could live somewhere mid size and retire early but COVID really showed me that you should spend money on your home if you can. Our home became a haven and a safe space and I've not looked back since.
Our kids are also getting older and everyone having their own space is really important.

Maybe it depends on your job too. My job is VERY stressful and I know I bring it home with me daily. The idea of not having a space to retreat to away from everyone else whilst the kids are young to decompress, without getting frustrated at everyone, wouldn't be wise. I know the argument would be, well, retire early and stop the stress but it doesn't matter once the kids have left home. I'd rather be a nice person when they are younger.

In your position I'd stay. It's a wonderful position to have no debt, including mortgage debt.

But moving house out of the home where you've brought up children is no easy matter, emotionally. I think many people also put it off because they also enjoy the space for grandchildren and for entertaining friends, then when suddenly it's too much for them, moving also feels like too much.

It sounds like your children are still quite young? The teenage and university years can be brutal. Having kids 14 and under was cheap and we felt so much more affluent then.
I don't think we'll know what our financial situation is until we're through the other side.

Good lord yes. I will never move. I hope to pay off my mortgage in my 40s and will never move unless I win the lottery because it will give me financial freedom.

I'm not sure i understand what you're asking.
But the older people bit is it takes a lot of years and work to own a house and then to give it up after living there for years and making it a home.
Plus these days you would probably have to move to a cheaper area as there is no such thing as a cheap house now.
We actually did downsize to a park home, we are both retired but it was down to circumstances that we still had a mortgage and had an opportunity to buy this place with the equity we had. I would have liked to have kept the home i put blood, sweat and tears into and brought my kids up in. I am glad that we did it but it was a wrench at the time.

@RedRiverShore6 mid 40s, early primary

We have a big enough house, but would like a bigger and nicer one. The mortgage is close to being paid off so we have relatively cheap housing.

I love the comfort that if either of us were made redundant then we wouldn't be in trouble financially for a few years.
Also we can have holidays and experiences with the children. That is more important to us than they house.

I feel the high cost of housing is so restrictive to people's lives.

If your have young children then you may find they need less space as they become teenagers and don't play with toys any more. We've found small bedroom size ok, but our tight dinner table feels very cramped, passing in the corridor isn't possible any more, and a second bathroom would be amazing.

Thanks, it's hard to imagine the next phase for me. Which bits have been expensive? The university fees or other things too?

I have downsized.

i moved to an area where I knew nobody. It’s taken me two years to build up friendships and a village.

i may downsize again. But there are NO and I mean NO flats in my small town. The smallest houses are 2 bed one baths and still cost most of the price of my house.

ideally I’d stay in my town and downsize to a ground floor flat or flat with lift access. Bungalow is also a possibility but they have a price premium of about 50%. Massive demand for bungalows.

it’s hard to start again in a totally new place.

Having moved to a larger property 6 years ago, I often wonder what live would be like if we hadn’t stretched our spending so much. To give some info, we needed to move because of job locations, it wasn’t purely to buy a bigger house, but we also wanted to take on a renovation project. It’s been long and stressful but we are nearly there, and have increased the value of our home significantly. Having said that, if we’d stuck with a similar value property we could have pretty much paid off the mortgage debt by now. Having said all of that, we love our house, we love spending time in it and it gives us the space to host our families as they all live quite far away and stay for a few days when they visit. This was really challenging in our old place. We love the bigger garden with our young child, too.

I would say don’t feel pressured into moving just because that’s what others have done, but also don’t be too comfortable with the income level you have and make sure you are putting enough aside. Whilst we are paying a lot on our mortgage, the equity we are building in it is there for us in the future. Sounds like you are already considering this as you talk about retiring early. When I look at our recent mortgage statement of how much interest we’ve paid it’s terrifying, to be honest, so if you have other ways of investing then do that! Home isn’t just about space, it’s about how you feel, too, and if having the security of low housing costs and freedom and flexibility is right for you then stick with it!

It makes a difference how old you are and how old are the kids. If you had to take out a mortgage for somewhere bigger how long would it take you to pay it off again? How cramped are you - do the children have to share rooms? Is there space for them to study once they get to be teens?
We bought the big house at 35 and paid off the mortgage in late 40s. We will have dependent children (including their university funding in our calculations) until we are 60. Then we’ll retire and downsize to release some capital. Both sets of parents are still in their massive family homes in their 80s and it’s now too much upheaval to move.

It's a trade off between the benefits of retiring early and the benefits of living in a nice house. If you retire, you will likely be spending more time in your house unless you work from home full-time.

It can be difficult to find a smaller house that still ticks the boxes that count - if you particularly value, say, an en-suite bathroom, a downstairs loo and a garden but you don't mind having only one bedroom instead of four, a tiny kitchen, and not much storage, you won't necessarily find a house that downsizes in those exact places - you either have to compromise heavily or end up with only a marginal downsize which won't bring the significant financial benefits you're looking for.

I guess it depends how much you enjoy working v how much you enjoy your home.

for me home is very important I want to feel comfortable in my surroundings, enjoy being there, having friends and family to stay, and I enjoy work. I’m mid fifties and shortly taking early retirement, I don’t think I’d have wished to retire earlier, and we now do so with a house we love, that is fully paid off, and an asset.

so everyone will be different here, some will prefer the larger house, enjoy work, others will hate work, be happy in something small and everything in between, only you can decide what’s right for you.

Teenagers are expensive! No hand me down clothes, expensive clothes. Travel and bus fares alone can be easily £100pcm. School lunches £100pcm. Phones, laptops. Full adult meals in restaurants. Hobbies/ kit/ equipment. If you want a tutor pnce/ week if they’re struggling - £200pcm. Uni - a lot lot more. Loads of us will get caught out by the cost of uni.

Just a word on the housing question - we chose to live in a small terrace with 2 kids right up until ds was 14. The change to a house with enough room for us all a garden and trees has done more for my mental health and overall well being than anything else I have ever done.

Re retirement - costs of living are high. Personally I would focus on skills which you can develop that you can then use to be a consultant ie earn more for less hours and plan to do this for a long time.