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Downsizers risk cash 'nightmare'.

Byline: Vicky Shaw

MILLIONS of people who are pinning their hopes on funding their retirement by moving into a smaller property risk their downsizing dream becoming a nightmare, a report warns.

As many as three million working-age Britons plan to use the value of their home to fund their later years.

The idea is to downsize to a smaller home when they retire and free up some cash, according to the report, written by former pensions minister Steve Webb, who is now director of policy at Royal London.

But while some may believe that house prices are a one-way bet, Mr Webb warned that relying just on the value of your home to fund your retirement is an "incredibly risky strategy".

The report said: "For too many people, the 'downsizing dream' could turn out to be a nightmare."

The report, titled the Downsizing Delusion, estimated the income that people who downsize may expect to generate from swapping an average detached home for a typical semi-detached property.

A typical detached home is worth around PS310,000, while buyers can expect to pay around PS197,000 for a semi-detached house - meaning someone may expect to raise a pot of around PS113,000 from downsizing.

Someone using this cash to buy a retirement income called an annuity may end up with an annual income of around PS13,700, made up of their annuity income and the full state pension, the report found.

But the typical worker earns PS27,400 a year - so an income of PS13,700 would mean their income would halve on retirement. For most people, this would be an unacceptable slump in living standards, the report said.

Mr Webb said: "Hoping to live off the value of your home could be a downsizing delusion for millions of people. Very few people could fund a retirement by selling up and moving to a smaller property. In addition, house prices can be volatile, not least in the light of the Brexit vote, and depending on the value of a single asset - your home - to fund your whole retirement is an incredibly risky strategy."

This week the Royal Institution of Chartered Surveyors (Rics) said expectations for house-price growth in the coming year had been reined back in the wake of the vote to leave the EU.

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Publication:Western Mail (Cardiff, Wales)
Date:Jul 16, 2016
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