The fallacy of downsizing

October 13, 2023

Is selling the family home a sensible plan to fund retirement? 

We’re fortunate that New Zealand has a system (the “gold card/NZ Super”) which meets the basics for most people – but it won’t fund a generous lifestyle by any stretch. 

To address this, it’s been accepted wisdom for many approaching retirement to sell the family home, downsize and use the cash generated to supplement NZ Super and fund a good retirement. With property values having increased in recent years, even allowing for the softer property values we’ve experienced lately, it has always sounded like a reasonable idea. But research has shown that, for many people, downsizing isn’t a “silver bullet” and often buys only a few years of comfortable retirement living.

With 65-year-olds increasingly living, on average, to 87 or beyond, those 22 years need funding. Otherwise, you’re facing the prospect of only having NZ Super as income.

A survey1 of 2,200 people by the Financial Services Council (FSC) looking at whether New Zealanders are overestimating or underestimating their financial well-being after stopping paid work, concluded that:

  • Income from selling one of the elderly’s highest value assets, the homes they own, is expected to last just 3.3 years. This is probably because nearly all who intend to sell are downsizing or moving to retirement dwellings. This income would represent the balance after a new smaller home or retirement dwelling was purchased.
  • Most of those aged 65+ expect their incomes from their various investment sources to run out within just 10 years after retirement.

So, the perceived wisdom suggesting that downsizing as a means to fund a desired retirement appears to be in question. The FSC survey concluded that with hindsight, 40 per cent of the elderly surveyed regretted not having more financial advice i.e., not relying purely on perceived wisdom which ultimately didn’t serve them well.

Additionally, many aspiring retirees want to cash in their investments, including money saved specifically for retirement, for immediate expenses, without considering the long-term consequences. They plan to take that money and go on a holiday, buy a car, update their appliances, and assume all will still be good for the future. It might be – but the risk is that it won’t – and the ability to recover from a bad decision is very limited once retired. Remember that life is full of trade-offs, many of which can be short-term great and long-term ugly.  

Some dos and don’ts for your retirement planning:

  • Do think about what you want your retirement to look like, in the first few years and then in five-year periods after that.
  • Do think about what assets you have now and what you might need in the future to fund your desired lifestyle.
  • Don’t just assume that downsizing will sort your finances out – chances are it won’t over the longer term and there will still be a need to save or make trade-offs.
  • Do – speak to your financial adviser. They are here to provide you with objective advice to help you. Just as with doctors, the more transparent you are with them the better the advice you will get in return.

Are you ready to secure your retirement with confidence? Get in touch with us today for personalised financial advice that ensures your retirement shines. Don't fall for downsizing myths – let's plan for your future together.


1Great Expectations. Retirement realities for older New Zealanders. Research conducted for the Financial Services Council December 2017

The information contained in this publication is intended for general guidance and information only. It has not been personally prepared for you. Therefore, you should not act on this information if you have not considered the appropriateness of this information to your personal objectives, financial situation and needs. You should consult with us before making any investment decision. Historical market performance may not be indicative of future market performance.