How do you know you’re ready to downsize in retirement?

How will you fund your retirement? If you’re planning to rely on a nice chunk of change from downsizing your home, at some point you’ll need to make your big move.

Finding the perfect time to downsize can be tricky, but Tom Hartmann, Personal Finance Lead at Sorted, has some tips to help you know whether you’re ready.

Aim to downsize before you’re forced to

Unfortunately, health or financial issues can force retirees into rushed property sales and hasty decisions about the future. That can result in a lower sale price for your house and not enough time to research your next steps. If possible (and it’s not always possible), aim to downsize before your health or finances push you into it.

“You never want to be selling an asset at the whims of the market,” says Hartmann.

“The advantage goes to people who have that time buffer to shop around and do their research. They can see their options clearly, take advice, and make truly informed decisions. That can be gold in situations like this.”

Start planning before you exit paid work

Eventually you’ll no longer be in the paid workforce and you’ll be living on your retirement savings. Before you fully step back from paid work, think about how much you’ll have to live on and when downsizing might be necessary.

“The moment you crack open that nest egg? That’s a key moment,” Hartmann says.

“Forecast what your KiwiSaver fund could look like, see what other income you might have, and think about your options with property."

Westpac has a handy KiwiSaver calculator and Sorted has a Retirement Navigator tool.

Have you ruled out other options?

Before you downsize, think about whether a reverse mortgage or a home reversion product might be a better choice. These may allow you to stay in your home and still pay the bills - “and if those are off the table, that could be a sign it’s time to downsize”, Hartmann says.

Right-size your expectations

In interviews, Kiwi downsizers tend to be disappointed in how much money they walked away with, says Hartmann. They tend to start out feeling optimistic, only to realise that “they’re unable to unlock as much capital as they thought they would.”

Older family homes with overdue maintenance can be surprisingly close in value to new, low-maintenance townhouses. Once you subtract agent’s fees, legal expenses and moving costs, the leftover sum might be lower than you expected.

“That’s sobering if you’re hoping on a certain outcome, but it’s good to get a clear-eyed view so you can right-size your expectations,” Hartmann advises.

Get some professional advice

It’s easy to make a misstep when downsizing in retirement; we usually only do it once and we don’t get any practice. Regrets can be difficult to remedy, too, because there’s no time to rebuild your nest egg.

Before you downsize, Hartmann recommends speaking to both a mortgage advisor and a financial adviser. The mortgage advisor will run the sums for you on selling and buying, while a financial adviser will help with retirement planning and spending. They’ll also help you factor in your future savings from lower rates, insurance, utilities and maintenance.

“Generally, having money gives you more options,” Hartmann adds. “Downsizing and not being tethered to a home can open up a lot of possibilities.”