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Independent financial adviser, Becky Hammonds of Willow Financial Solutions, takes a closer look at why two million homeowners aged over 55 plan to downsize to fund their retirement.

You’ve probably heard people say: “my property is my pension”. But focusing on one at the expense of the other could be a costly mistake.

It is estimated that more than two million people over the age of 55 are planning to raise extra cash for their retirement and for one-off purchases by downsizing to a smaller property.

Homeowners are hoping to raise more than £85,000 on average by selling their homes and buying a cheaper property with the proceeds, a survey by Prudential has found.

Most respondents plan on using the equity from the sale to fund their remaining years, with 41 per cent saying they would save or invest the cash they raise, while 29 per cent will put some into their pension pots – attracting tax relief in the process.

However, I must offer a word of warning to those homeowners who have been lucky enough to gain from the long-term strength of the housing market: They should exercise caution if they are banking on downsizing to be the magic wand that provides a decent retirement income.

Bear in mind that over the last 10 years UK house prices have grown by 34.7% compared to UK stock market growth of 63.9% (figures from Hargreaves Lansdown).

People approaching retirement should seriously consider taking professional financial advice before ‘cashing in their chips.’

Irrespective of the strength of the housing market, the fundamental principle remains true – the best way to secure your desired level of retirement income is to save as much as possible as early as possible in your working life.

But many who can get a decent sum for their home and can comfortably live in a smaller property see downsizing as a preferable option.

Three in five of the downsizing over-55s said they are attracted by the convenience of running a smaller home, whereas just a third would do it because they needed to raise money, while one in five want to save money on the cost of running a home.

Remember that pensions are still the most tax-efficient savings vehicle. Selling your home may have tax implications.

For pensions and investment advice contact Becky Hammonds on 07969 269677 or email