Why asset-rich senior doctors are choosing to make a move

Have you enjoyed substantial hikes in the value of your family home? Have you become asset-rich yet relatively cash and income poor in comparison to working years? Like many senior doctors, the majority of your wealth is usually tied up in illiquid bricks and mortar – your main residence may be a good wealth accumulator but is less practical as a source of income when your combined NHS salary and private practice stops.

Taking the decision to downsize your property is never easy. Many recent empty nesters no longer want the responsibility of living in a large property with high running costs and expensive gardens to maintain. Your choice may be based on logical and prudent thought but an emotional attachment to the family home can be difficult to assess until the time comes to leave it behind.

According to research around 55,000 households downsize each year, releasing equity of around £7 billion. Almost half of homeowners who plan to sell in the next three years are looking to move to a smaller property. There is even a new marketing term – ‘rightsizing’ is now used to reflect that people may have different housing needs at various life stages.

Your energy and drive may be more bountiful in early retirement with plans for frequent business class trips to far-away places but the cash needed to enjoy a higher quality of life could be locked in a high-value property. Delaying the decision for 10 or 15 years can mean you have less control over the eventual move and less time to reap its benefits.

Understanding your annual running costs

NHS pensions in payment increase annually by the Consumer Price Index which is an index of basic goods and services compiled by the government. The annual pension increase is linked to the September CPI figure but is not subject to the “triple lock” protection awarded to the state pension. Looking forward to next year, NHS pensions will increase by just 1.2 per cent. When compared with the rapidly increasing costs of the goods and services typically consumed by a senior doctor the CPI really bears no resemblance.

In a low interest rate environment this means that the level of personal funds required to support the good life is often under-estimated. When income is not a concern there is less pressure to really understand what we spend, whether this is on the house, the kids or on holidays. Aside from the very wealthy the reverse is often true in retirement where savings cannot be easily replaced once spent.

Helping the children

For many senior medical professionals, a potential factor in downsizing is a desire to make an altruistic gesture – unlocking funds to help with an offspring’s property purchases whether this is a first flat or moving up the ladder to accommodate a growing family.

Older ‘boomer’ generations now hold the concentration of housing wealth as few twenty somethings have the financial resources or income to raise a big enough mortgage on their own. Former generations may have climbed on the property ladder with loans of just three times their salary but today the bank of ‘mum and dad’ is often left to fund the considerable deposits needed, particularly in London. First-time buyers (dubbed ‘generation rent’) now receive £18billion of parental help with their deposits, up from £8billion five years ago.

Tax liabilities

Reducing your exposure to inheritance tax (IHT) could also be a driving factor in choosing to downsize at the right time. The tax is levied at a fixed rate of 40 per cent on estates worth more than £325,000 per person or £650,000 per couple. Any gift you make to your children will be exempt from inheritance tax if you live for a further seven years.

In this situation, you must ensure your future security is still your number one priority – do not be too quick to give away the roof over your head. Will you have enough funds to buy a suitable property and still make the most of a modern, ‘fruits-of-your-labour’ retirement?

Considerations

The opportunity to downsize must be assessed as part of your overall retirement plan. How much equity will be released and what level of income could this create given current interest rates? How will the agents’ fees and stamp duty detract from your lump sum?

Your life continues to evolve – preparing early for a change and leaving enough time to adapt will surely help you to flourish in new circumstances.