WWYD? Downsize and retire early?

[TheCoralShaker]

We live in a large 4 bed home that we bought 3 years ago from new build. It's a stunning home and we chose all the fittings. We're a family of 3, only one DC so often we're not using all the space. No more DC planned.

However I've been doing the maths and worked out if we downsized to something smaller in next few years we'd have nearly 200k equity that we could then put into pensions, would have a much smaller mortgage to allow for more holidays/ savings AND all being well could probably retire at 50 in about 10 years time. Is this a no brainer?

I do like our house and a few years ago a big house was the epitome of success to me but my priorities have changed and I'm more keen to retire early/ travel and enjoy life these days rather than be a slave to a mortgage. I will likely get some inheritance in the coming years that would allow me to pay off a mortgage but not sure how much/ when so thinking downsizing early is a better plan than relying on others money.

Yes definitely! Makes sense to downsize and enjoy your life.

Retiring comfortably at 50 would requires a significant pension pot - at least £1-1.5M, surely? What assumptions have you made in your calculations?

I would put released equity into a sipp which, when combined with existing pensions would give me about 700 - 800k at aged 58 (I'm 38 now) - husband would have similar. Between 50 and 58 I would live on savings from an ISA which should be around 300k by then. On top of this there will be inheritance of a few hundred k to add into it. With a smaller house and modest lifestyle I think we could manage easily on this

Do you anticipate that your child will go to uni? Their loan probably won’t cover accommodation and living costs so you’ll need to budget for that.

Child has a junior isa where we pay in all birthday money and put in about 100 a month, should be over 50k when she is 18 so could use that for uni. I could also set aside a bit of inheritance for it too

Your pensions sound healthy then, so that's a great start!

It must be a significant downsize to to release equity AND reduce your mortgage? Is it something like:

Current house: £600K value. £300K mortgage
Proposed house: £350K value, £150K mortgage, £200K equity

Remember that the transaction costs in property sales are really high, so it is an expensive transaction to reverse if you change your mind.

eta: actually I think those figures are wrong. It's been a long day

I would!

when we were young and naive we bought the biggest house we could afford as first time buyers to “grow into” and we have 3 kids so we did (twins or would have only had 2) but was 100% mortgage and just before the crash and we rushed in and neither of us actually liked the house that much! We couldn’t afford to move and ended up in it for 18 years.

We finally moved last year to a new build i really like & although it’s a bedroom less it cost £100k more and so even putting equity in we are paying more a month & have a 15 year mortgage rather than 7! The plan has always been to use some inheritance and pay off so 4 years on old mortgage and 12 here but i’m hoping we can get it down to 10 as my husband is earning more now. If we can do it in 10 i’ll be 50 and my husband 55 - if we could have downsized to a smaller house and saved money we would have but wasn’t anything in the area we needed for the high school my oldest is at and we were so unhappy where we were it was worth it for us & we are happier now but if we only had one we’d have downsized to a 3 bed and saved money as opposed to buying a 4 bed. I wish we’d made better choices as a bit more money to enjoy things would be nice!

I think it’s a good plan.

My DH and I prioritised our pensions are retired a few years ago when we were early/mid 50’s.

I would completely leave any potential inheritance out of the calculations.

What does your DH think of your idea?

How old is your DC, would a move have an impact on what school he/she would go to?

Have you calculated moving fees?

Doesn’t make sense to me.

Wouldn’t you get better returns in the property market than in a SIPP? In which case leave the equity in the house and downsize when you need the money. Why would you release equity before you need it?

I don’t know Op. Parenting an only can be quite intense when the teen years arrive. They might want a bit of space and space to invite friends around.

Yes sth like this and we live in cheaper part of uk so would downsize under stamp duty threshold

Also, how are you releasing equity AND having a smaller mortgage?

And if your pension is going to be 700k in 20 years time, AFTER adding the 200k equity to it now, doesn’t that mean your pension is currently only about 200k?

200k equity left in a sipp for 18 - 20 years will give us near 1m. There's no way our house will gain 1m in equity over same period

You are also apparently managing a 9% return on that junior ISA (or there are some huge amounts of birthday money).

Sorry, but I think your figures are all overly optimistic.

I would say don’t underestimate the impact of moving somewhere smaller. It’s hard to lose space when you have the same number of people (one of whom is still growing).

We moved 5 years ago and because it was Covid times I was financially cautious, plus we moved to a slightly more expensive area. Our new house might have similar square footage I think, but where we’ve gained we’ve is stairs and bathrooms, and one of my DC has a massive room. But we’ve got a tiny hallway that drives me mad, and if we have just one guest there’s no space for me in the small sitting room. Plus my DC have grown. Exponentially.

If I’d gone straight from a much smaller home I don’t think these things would bug me.

You’re assuming large returns - I don’t think your figures are realistic. Unfortunately you can’t rely on an inheritance - care fees might be needed.

I would invest it in an etf and assume a 7% return

That doesn’t answer the questions though.

Im not trying to be awkward. More power to you if you can do it, but it looks like you are double counting some things (eg downsizing reduces your mortgage and gives you 200k to invest?), and assuming some consistent large returns (like the ISA).

You may have already covered this but worth double checking the pension projection - you mentioned it would give you a pension of X amount at 58 but that will assume you work until 58, rather than working til 50 and then living off ISAs (unless you keep up your contributions and add more for your employer's contributions)

Op what % growth are you factoring on your pension? I know there’s a lot of money influencers out there talking about 8 even 10% compound growth but in the forums I’m in for folks seriously interested in being financially independent they tend to be a bit more realistic. I tend to go 5% knowing that it’ll be higher to compensate for inflation.

that aside reducing your costs is always going to support being financially free sooner whether that’s an early retirement or something like barista fire where you move to part time and let the compounding do the work to grow your pot while you earn enough to live on in the present.

be conscious of how much you can put into pension in one year and crack on if you think it’ll make you happy in both short and long term

If the money is already in your child's name, you will have no say on how he/she spends it, so don't assume they will spend it to fund university.
You are much better off saving money in your own name as, unless you are intending to fund 100% uni costs, you will still be assessed on household income and expected to contribute the shortfall between the maximum student loan and the student loan that is awarded. Your child's isa will not be included in any assessment. Currently, if your household income exceeds £59,000, the maximum maintenance loan is £3,907 which means that many parents are expected to contribute enough to cover the rent costs and more, or the student has to earn enough to pay their living costs, which is not easy on top of studying.

As well as downsizing, another option to consider might be to either work part time in your current jobs, step back to an 'easier' job that feels less like work or do self employed or freelance work that is seasonal so you still get lots of time off but do have an income, eg I know lots of people who work at festivals in the summer and travel in the winter and have also known people sell calendars in shopping centres in the autumn and work less at other times of year.

Sounds good.
Also look at an investment house with part of the money, or inheritance money.
A flat that your daughter can live in and help pay off instead of paying rent to someone else's proerty during Uni.

It is such a big step that I would seek proper financial advice.

Thanks everyone, we probably do need financial advice as I'm factoring in 7% gains on pensions and ISAs which may not be realistic. It's not just about pensions though, our living costs would go down, less council tax, less bills as running smaller property. Mortgage may not go down much with main focus being on freeing equity but we could perhaps take out but less equity to sort that.

I didn't realise the rules on uni loans so that's good to know. I currently earn over the threshold but don't expect to be working as much by the time daughter is 18.