When I suggested recently that more pensioners might downsize in retirement to unlock spending money and reduce their outgoings, I also adopted the brace position.

However the expected barrage of age-appropriate invective never came.

Sure, the odd pensioner hefted a verbal brickbat in my direction.

But overwhelmingly the replies were thoughtful, proportionate.

Dare I say worldly-wise.

Partly to honour such inter-generational reasonableness – but more because it makes for a good counterpart to my piece – I’ll highlight their counterarguments today, out of the mouths of not-so-babes and Werther’s Original-sucklings1 …

Size isn’t everything

The lengthiest reply came from John over email. Here’s his full note, with a few light edits for clarity:

Hi Investor

You are preaching to the converted. There is no question that the young (in general, like you I am not wanting to feather bed the shysters) are getting a bum deal.

Particularly the young whose parents do not own a house with equity, giving them the ability to support their kids financially.

We, personally, have been lucky and done financially much better than we could have hoped when we were young.

Housing has been a significant element in that; not just the money, but the physical comfort, self-confidence, and status which goes with it.

These incremental benefits have a cumulative beneficial effect. House purchase was the basis on which my parents, who bought their first house in the 1950s, were able (along with being penny-pinching savers) to provide us with a deposit for our first flat. And it’s enabled us to do the same for our children. 

It was always drilled into us that the only debt we should have was a mortgage for a house. Only houses were ‘as safe as houses’. The risks in buying a house were regarded as negligible, so it is difficult to understand why some regard their primary or only house an ‘investment’.

Sure there are some risks, and certainly differential returns, in owning one house rather than a share in the whole housing market.

Our experience illustrates this:

• Our first property, three-bed flat on the borders of Brixton and Clapham, cost £6,500 in 1971 and our mortgage was £4,500.
• Today it would be valued at about the same price as our five-bed house with good garden in a small town in the East Midlands; we had a £50,000 mortgage on that when it was built for £87,000 in 1987. 

At the risk of providing you with too much information:        

We are 77 years young, fit and well, and our house might be valued at the average you quoted in your piece. We justified building a house on this scale 35 years ago on the grounds that we had four children at home, but I don’t think they would have suffered if they had had to double up.

The other reason was that we found a plot in the middle of a small town from which the kids could walk or bike to schools and recreation. We had previously been in Manchester, where we parents operated an intensive taxi service for our young kids.    

We are likely to remain in this house for the foreseeable because:

1. We have no compelling reason to move elsewhere.
2. Why should we sort out our junk? The kids are already estimating the number of skips that will be required when the time comes and they won’t be arsed to sort it all. Their houses and gardens are already full.
3. It is handy to have the space when kids and grandkids visit. They still do visit and we like to think it is not just to review what they think may be their inheritance. We have explained that we think there are a number of better causes than them which will benefit from our estates unless our funds are consumed by care costs. 
4. We can afford it: comparatively good standard of building and insulation; property taxes do not reflect the value of the property; paying for gardeners, when we cannot cope alone, will be relatively low-cost. The tax system has massively favoured home owners: I seem to remember getting tax relief on mortgage interest payments in the 1970s. Further, a lot of our income is from ISAs on which we pay no tax. 
5. Our current location will allow us to get to supermarkets, several pubs (you always need access to more than one in case you get banned from one) and restaurants on the level if we are reduced to using zimmer frames. Most of the three-bed houses in the town are much further out of the centre.  
6. At present (we hope it changes in the budget) there is an inheritance tax benefit in leaving a house valued at up to £1m to our descendants. 

As with marriage, there’s a lot to be said for sticking with what you’ve got to minimise both mental and physical effort and cost. I like to think such inertia is the product of a relaxed approach and if that signifies a lack of ambition to strive for perfection, then so be it. ‘Good enough’ was the standard applied by my social worker wife when considering whether children should remain with their parents.  

I am grateful for your newsletter. You find fresh ways to express eternal truths/values as they relate to money and explain them in the context of the realities of the current marketplace.

Regular reminders help to keep me within sight of the straight and narrow.

All good wishes,

John

I can be annoying to have everything you put into print these days nitpicked over in the comments, compared to 25 years ago when you could loftily opine in peace.

However the big benefit of our interactive era is the relentless reminders that your readers are real people, with their own perspectives, hopes, and concerns.

My thanks to John for taking the time to reply with a thoughtful case in point.

Compromising positions

Several other stalwarts of our Monevator discussions also admitted to staying put despite seeing reasons to downsize in retirement.

Long-time reader and contributor Naeclue conceded:

Guilty as charged. Six-bed house and kids have all moved out into their own homes. Not much of an excuse, but we do entertain quite a lot and all bedrooms are used at Christmas.

I have been trying to think what stops us from downsizing. A few things come to mind. We absolutely love the area, having a lot of friends and two of our kids nearby, so we would want to stay in the area.

Three or even four-bed houses locally all tend to have smaller rooms and lack off-street parking. Our preference would be to have a similar house to our current one, but two stories instead of three. […]

Moving is very expensive and a lot of hassle, so we would want to get it right if/when we do eventually move.

Meanwhile Paul_a38 flags ups the uncertainty of end-of-life spending as a reason to stay put (especially relevant given your own home is excluded from means-testing for the entry levels of social care):

I have just seen a second acquaintance beggared by care costs (24 hrs live-in). Budgeting for deep old age is difficult.

Think their care costs were about £150k per year. If you are selling investments subject to CGT, to fund that £500k won’t go far.

Who am I to disagree with such choices? Given the very favourable tax treatment of one’s primary home, even being house-rich and cash-poor may be a reasonable path for those whose primary concern is the ultimate distribution of wealth to their heirs.

But again, that doesn’t imply the government should support such personal preferences against what we must resort to calling the national interest.

Housing stock is in short supply and – in terms of function, not ‘fairness’ – it’s imperfectly distributed.

Subsidising pensioners to live in big houses shouldn’t be on the government’s agenda.

Hands off our homes!

The philosopher David Hume wrote: “It is not contrary to reason to prefer the destruction of the whole world to the scratching of my finger.”

Similarly, a reasonable Monevator reader can see that our housing situation is untenable for young people, and that living in a five-bedroom house as a couple or even a singleton is a more egregious luxury than, say, buying a Hermes handbag, given the knock-on effect on others as a result of finite housing supply.

Yet at the same time that reader can still, understandably, not be arsed to move, for their own sake – for liquidity or lower bills – let alone for others.

A couple of readers did take the shortcut to outrage.

Jibber wrote:

This is like reading something from a socialist magazine. How dare anyone suggest that the retired should be taxed (nudged) out of their family homes? What happened to this ‘free country’!

Jibber then raised the ‘I’ve paid my taxes!’ argument that I anticipated as the cousin of the same retort deployed against inheritance tax.

Note I never suggested paying more tax – or even taxing pensioners more at all.

The only concrete policy action I endorsed was not paying them extra cash to heat their roomy homes via the now-restricted Winter Fuel Allowance.

First they came for the Winter Fuel Allowance…

Another reader sporting an offaly good name, Gizzard, made this more pertinent point:

I suppose it’s not a giant leap to means test the hitherto universal state pension. A lot (or even all) of the same arguments apply.

It’s a fair comment – and it can be made whenever a universal benefit is taken away and replaced with some kind of qualifier or means-testing.

But then, exactly the same argument could be made when, say, income tax is raised by 1% (“Why not 100%”) and we’ll surely hear it if capital gains tax is hiked in October too (“Why not take all my gains”).

Yet most of us would see those counterpoints as an absurd overreach, and I think the same is true of objecting to restrictions on the Winter Fuel Allowance on the grounds of ‘what next’?

It’s a one-off tweak and well-targeted, not necessarily the thin-end of a Titanic-shaped wedge.

Pensioners will always be the biggest voting bloc, remember, and all of us hope to end up there. The State pension is surely safe.

Cold shouldered

Away from the downsize in retirement debate, Wireless worried that withdrawing the Winter Fuel Allowance from some pensioners could result in actual pensioner death.

I have my doubts about this, given the means-testing, but it’s obviously a fair concern.

On the other hand, regarding their parting shot…

The WFA money that was to have been paid to pensioners will presumably go towards the higher than inflation pay deals for public sector unions.

It is obvious where Labour’s priorities are!

…all I can say is “I hope so”.

To paraphrase Jabba the Hutt, your pity-the-poor-pensioners mind tricks don’t work on me.

The government has favoured pensioners for too long. To begin with, when the Coalition government introduced the triple-lock, it was fair enough. Pensioners had fallen behind.

But that’s no longer true.

In contrast, the public sector has been starved of funds for the better part of a decade.

And while like most of you I don’t long for more £75,000-a-year Executive Manager of Ensuring Cultural Sensitivities are Respected in All Outgoing Correspondence: Latvian Language officers or whatnot, such positions are trivial outliers in reality. (And some may be more useful than they seem, too, for that matter).

Spending a bit less on pensioners and a bit more on frontline public sector wages, particularly for the young, junior, or lowly-paid?

Count me in.

Give and take

Dread of theoretical worse-case scenarios shouldn’t stop us finding a middle ground.

On that note, a few readers said we need to tweak the system if we want to encourage more downsizing.

Stamp duty is seen as a big roadblock, as well as that shortage of appealing final-stop homes I mentioned in my piece.

Perhaps there’s some merit to the idea of cutting stamp duty for downsizers as perennially floated by the usual suspects?

Better still, get rid of stamp duty altogether – it’s a frictional tax that impedes growth, and works against the easy mobility we’d prefer to see – and replace the lost State income with a more useful levy.

Or – just maybe – see the total tax take remain relatively unscathed, if freeing up the housing market boosts GDP and overall tax receipts to compensate.

Downsize in retirement and run with it

Regular Monevator comment readers will know Mogul member Delta Hedge has become a vital contributor of context, links, follow-ups, and general value-addery.

This time around, Delta Hedge took the downsizing idea and ran with it:

Why stop at downsizing within the UK?

That £1.7m five-bed average London home shown in the table probably cost just £150,000 at the lowest point of the 1990-95 crash. With a 90% mortgage some people are sitting on 100-baggers, and all tax-free due to PPR relief.

Sell that and move to Panama, Bolivia, the Philippines, Portugal, Malaysia, Mexico, Bali, Thailand, or Vietnam.

You can live like royalty and never need worry about qualifying for the Winter Fuel Allowance.

It’d tempt me. Though as Wodger alludes to in his reply, it’s rather late in life to making new friends in Thailand, say. Especially given the unsavoury nature of at least some of your would-be pensioner peers out there.

Better to go in middle-age – maybe as a geo-arbitrage – and to make proper friends with the locals.

Another alternative if you don’t want to downsize in retirement

To conclude on the social aspect, I didn’t mention another strategy, which is to stay in your big house but to share it more widely.

In the US some call this: getting a boommate. To which I say: nice work punsters.

Having shared until into my 40s for FIRE-ish reasons, I know well how every extra pair of hands putting money into the communal pot makes a big difference to the running costs of a household.

But whether you want to spend your golden years turfing a fellow OAP off the sofa so you can have your own turn on Netflix will be a personal decision, obviously.

Given the introverted nature of most Monevator readers, I suspect many of us would rather downsize to a dog kennel.

It has to be admitted though that the health benefits of living a more sociable retirement ring loud and clear in the research data I’ve seen.

If sharing your home does appeal more than downsizing to you, then don’t forget the UK’s rent-a-room scheme enables you to earn £7,500 tax-free from a lodger.

You could even choose a hard-pressed student instead of an out-of-breath oldie as a roommate to better stay in touch with the younger generation.

Such intergenerational mixing also has proven benefits. I suspect it’s especially good for warding-off crotchety old man syndrome for those of us – like me – who don’t have kids of our own.

(Those with kids might have seen them boomerang back home anyway, I guess…)

Like, comment, and subscribe

If you want to keep your home your island, then by all means you do you.

I’d feel the same nowadays.

But at least be a little more social by reading – and even contributing to – the Monevator comments.

This thread on downsizing wasn’t even on investing specifics, yet it still added a lot to anything interesting I wrote in the article.

Indeed I collated lots of other reader comments to include in this summary. From critiques of the mechanics of the Winter Fuel Allowance withdrawal to proposals for replacing stamp duty and council tax with a wealth tax.

But at this point you’re best off just reading the comments for more.

Many subscribers to Monevator by email never visit the site anymore. Feedback over email reveals more than a few of you have forgotten there’s even a website behind your three-times-a-week emails!

On the other hand, other readers have said the Monevator comments are the reason they keep coming back to our site, for years on end.

I’m happy to downsize my ego and say: long may that continue!

As to whether you should downsize in retirement – I’ll see you in the comments for the next round…

1. Don’t be cross, I’m just having fun with stereotypes and am partial to them too! [↩]

What caught my eye this week.

I found it hard to be outraged by last week’s decimation in the number of pensioners who’ll get winter fuel payments.

Restricting the annual cash award to those on means-tested benefits will see only about 1.5m pensioners getting the goodies in future.

The other 11.4m pensioners will just have to use their own money to pay their bills, like the rest of us.

Of course in many cases ‘their money’ will be, for you dear reader, ‘your money’

Monevator’s readership skews far wealthier than average, and it’s clear you’re aging out too.

So no doubt I’m biting the hand that feeds/reads me.

Nevertheless, downsizing winter fuel largesse will save the taxpayer £1.5bn much-needed pounds. A good call, as far as I’m concerned.

Low-to-middle earners have had it worse than pensioners for years, and a lot of the strain on the UK’s balance sheet is there because of national lockdowns that especially protected the elderly.

I’m not arguing here that it was wrong. Just that it’s right for the oldies to now share the burden.

If you feel differently then you could sign Age UK’s petition to reverse the decision.

However if you’re a wealthier pensioner who will really miss £200, maybe you could move to a smaller, warmer home instead?

Cheaper cosier homes

Rightmove came out with interesting figures this week. It flags a vast pool of housing equity that could be unlocked by empty-nesting OAPs rattling around in much bigger houses than they need.

The agent claims that swapping a five-bed home for a three-bed could release £500,000 on average:

Source: Rightmove

Besides a one-off cash tsunami, Rightmove also calculates that moving to a smaller, energy-efficient home could save more than £3,000 annually in utility bills.

The lost £200 winter fuel payment is small beans by comparison.

Unlocking this sort six-figure sum – tax-free – would solve most pensioners’ cost-of-living problems.

Though of course, most pensioners – even wealthy ones – don’t live in five-bed houses.

True, but the same principle holds up and down the ladder. Exchange hundreds to thousands of square feet you don’t need for an otherwise higher standard of living in a smaller property, with lower bills.

Few of these millionaire homeowners could have imagined the windfall gains they’d see from the UK’s relentless property boom when they first bought all those decades ago.

It doesn’t seem unreasonable to suggest more of them might tap into their good fortune to help ensure their own comfortable old age.

Down and not-out

It seems a no-brainer. Yet whenever you suggest asset-rich pensions should downsize if they need more money, there is indignation. (I look forward to reading the good natured variety in the comments below!)

Why should people be forced out of their family home? They may not need those bedrooms, but oh the memories!

That sort of thing.

Or – and I have more sympathy for this one – fine but where are we meant to downsize to?

The UK does have a shortage of high-quality, desirable homes for ‘aging in place’ as the Americans say. And what does exist seems very expensive.

Now that people are living so much longer and in many cases retiring so much richer – especially asset-rich – it’d be nice if property developers responded with bespoke communities of well-priced amenity-adjacent homes that suited ageing owners. Downsizing destinations that are just to good to refuse.

Add it to the list please, whoever is fixing the UK property market!

Oh, and for the record I don’t think anyone should be forced out of their home by government edict.

But equally, I would far rather my share as a taxpayer of that £200 winter fuel payment went towards an inner-city kid’s education instead – or an actually-poor pensioner’s living costs – than to fluff a weekend getaway for a pair of silver foxes living in a £1m-plus rectory.

If you can afford to heat a far bigger house than you need yourself, then fine.

But I don’t see why the state should help pay for it.

Fair enough

I accept there are interesting wider questions about how to juggle supporting or taxing the elderly versus giving the young a leg-up.

My feeling is life chances at birth are not even close to equal. That is mostly why I favour supporting younger people, as well as the better bang-for-the-buck the state will enjoy from their subsequently more productive working lives.

Together with the fact that the young are in the most trouble right now.

(I’m excluding here the several dozen kids with over £750,000 amassed in their Junior ISAs, as per a recent Freedom of Information request. Those lucky mites can fend for themselves too…)

Moreover by the time someone is 70, their life choices have usually contributed hugely to the state they find themselves in. Not exclusively – luck, good and bad, always loom large – but no, I also don’t have a lot of sympathy for someone who never worked much, or who earned well but frittered it all away.

This is exactly what irks many of us who save hard versus our peers, and yet end up being taxed to support the indolent as much as the unfortunate in their old age.

You earned it, you spend it

For many of you, the argument against higher inheritance taxes is similar. If someone did strive to improve their fortunes, why should they be stung extra hard for not frittering the money away?

Understood but personally, I would look to increase inheritance taxes if I was Rachel Reeves.

That’s because I maintain I’d be taxing (more heavily) the recipients of the inheritance who did nothing to earn it. Not the deceased who strived to earn and save it.

But I can see why blurred thinking around this distinction causes so much rancour.

Similarly, with the question of downsizing – or even paying for care home fees – a lot of the anger at the idea of going smaller in their old age isn’t because people actually need all that space to keep a lifetime’s clutter that nobody will want when their gone.

It’s because the should-be-downsizer and/or their children want to transfer that family home – a valuable asset remember – as tax-efficiently as possibly.

And again, ensuring genetically fortunate 50-year-old heirs stay as wealthy as possible isn’t my priority.

The bottom line is the state is cash-strapped, the young can’t afford even starter homes without parental support (where it’s available), we don’t build enough of the right properties for either the young or the old, and something has to give.

Don’t worry – I’m sure I’ll take my lumps too in the Budget come October. No doubt I’ll bemoan it too!

Have a great weekend.

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