Retirement Reality: Why downsizing may cost you more

• 74% of middle-income retirees say their living costs in retirement are higher than expected.
• Downsizing does not guarantee savings as retirement estates and secure sectional-title homes command strong demand.
• Retirees who plan their property move earlier have more options to protect capital, reduce costs and secure the right lifestyle.

The family home was once retirement’s financial safety net. Rising living costs and changing property markets mean that equation no longer always works.

Retirement in SA: the numbers are changing the conversation

‍For generations of South Africans, the retirement property plan appeared relatively straightforward: pay off the family home, sell it when the children have left, buy something smaller and use the remaining equity to help fund retirement.

That strategy is becoming increasingly difficult to execute. According to FNB’s latest Retirement Insights Survey, 74% of middle-income retirees say their cost of living has been higher than expected. Inflation, healthcare expenses, debt and ongoing financial support for family members are placing additional pressure on fixed retirement incomes.

The financial squeeze is significant enough that as many as 40% of retirees surveyed are pursuing a side hustle to supplement their income.

Housing is also becoming a bigger part of the problem. More than one in three retirees surveyed by FNB said their retirement housing costs had been significantly higher than budgeted.

The findings raise an important property investment question: what happens when the family home you expected to help fund your retirement is worth less than the retirement property you now need?

Grant Smee, CEO of Only Realty Property Group, says this increasingly exposes the gap between the traditional concept of downsizing and the realities of today's residential property market.

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“In reality, many retirees are trying to sell large, freestanding homes in inland areas where buyer demand is relatively weak. At the same time, retirement estates, assisted living communities and secure sectional title developments continue to attract strong demand, driving prices higher.”

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The result, he says, is that many retirees are discovering that downsizing is not necessarily the financial windfall they expected.

Why the old property logic no longer holds

‍The family home has traditionally been regarded as one of the most important assets in a South African household’s retirement strategy.

After decades of bond repayments and capital appreciation, the assumption was that homeowners would eventually sell a relatively valuable family property, purchase a smaller and cheaper home and unlock the difference as retirement capital.

But smaller does not automatically mean cheaper. The property being sold and the property being bought can operate in very different markets.

A large freestanding home in an area experiencing subdued demand may have to compete aggressively for buyers. Meanwhile, secure sectional-title developments, lifestyle estates and retirement communities can command premium prices because demand for security, convenience, healthcare access and managed living is concentrated in these sectors.

Semigration adds another layer to the equation. Retirees seeking coastal locations for lifestyle, security, healthcare or proximity to family are competing with younger professionals, families and investors pursuing many of the same locations.

That can leave retirees facing an uncomfortable equation: selling a larger property does not necessarily release enough capital to buy the smaller property they want and still leave a meaningful retirement surplus.

When the family home becomes a burden

‍Property wealth and retirement cash flow are not the same thing. A retiree may own a valuable home but still struggle with the monthly cost of keeping it.

Smee says the problem is not necessarily that retirees failed to accumulate wealth through property. Rather, the property they accumulated may no longer suit their financial circumstances or lifestyle.

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“A home that made sense while you were working and raising a family may not make sense once you are living on a fixed income. Rates, maintenance, insurance, security and utilities can turn a valuable asset into a monthly financial burden.”

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This distinction becomes increasingly important in retirement. A freestanding family home may have substantial underlying value, but maintaining the garden, roof, security systems and general infrastructure can create unpredictable expenses at precisely the stage of life when predictable cash flow becomes more important.

This helps explain the appeal of retirement communities and managed residential estates despite their potentially higher purchase prices.

A smaller purpose-built property can replace some unpredictable maintenance and security expenses with more predictable monthly costs while also providing access to security, community facilities and, in some developments, healthcare and assisted-living services.

The decision therefore should not be based simply on the size or price of the replacement property. Retirees need to compare the total cost of occupying each property over time.

Why Retirement Property Decisions Must Be Made Earlier

‍The biggest advantage retirees can give themselves may be time.
Smee believes too many homeowners delay the property decision until circumstances effectively make it for them.

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“Too many retirees wait until their house is too expensive to maintain, their health needs have changed or their pension funds are dwindling before they ask whether remaining in the family home still makes sense. By then, their options are often far more limited.”

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Instead of treating downsizing as something that happens after retirement, homeowners should begin assessing their property position several years beforehand.

Five questions should form part of that conversation:

1. What is the family home really worth?
   Work from a realistic current market valuation rather than what the property originally cost, what neighbouring owners are asking or what its sentimental value may be.

2. What will it actually cost to replace?
    Research the price of the type of property and location you are likely to want in retirement. A smaller property is not automatically a cheaper property.

3. What support could you need later?
    Healthcare, security, transport, accessibility and proximity to family should be considered before they become urgent requirements.

4. When will the home loan be settled?
    Entering retirement without mortgage debt can materially reduce monthly financial pressure and increase flexibility.

5. What is Plan B?
    Selling the family home is not the only option. Depending on individual circumstances, alternatives could include renting part of the property, moving gradually or testing a new location before committing to a purchase.‍

The retirement property equation has changed

‍The lesson from the FNB findings is not that every South African approaching retirement should sell the family home. It is that the decision can no longer be left until retirement arrives.

Property remains one of the most important stores of wealth for many South African households, but having substantial equity tied up in a home does not automatically translate into retirement affordability.

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The crucial calculation is increasingly not simply “What is my house worth?” but “What will my next stage of housing cost, and what capital will actually remain after I make the move?”

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Smee says homeowners should confront that question while they still have the financial and lifestyle flexibility to choose.

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“Ask yourself these hard questions in your late 50s rather than under the pressure of rising maintenance costs, poor health or dwindling finances. In a market where downsizing no longer always releases the capital people expect, timing has become one of the most important property decisions of all.”

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For investors and homeowners approaching retirement, that may be the most important shift in thinking: don't wait until you need to downsize to discover whether you can afford to.

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