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You hear a lot about seniors downsizing their living arrangement in retirement, and it makes intuitive sense: It typically means more money to live off of during their golden years. Plus, in many cases, the kids are out of the house, all that extra space is not being put to good use anymore, and the upkeep and maintenance on a larger place is a headache.
What we do not hear much about are the seniors who actually upsize their home in retirement.
Upsizing a home can be challenging
One must be in a privileged position to even consider upsizing in today’s market. Even if a move to a lower-cost market is part of the deal, the transaction costs of buying and selling, as well as moving, can easily exceed $10,000. To upsize while staying in the same area, seniors may need to borrow or dip into savings.
Neither is appealing, especially during times when interest rates are high and investments are down. Indeed, those on a fixed income, like many retirees, may look to reducing housing costs. (Related: Downsizing your home in retirement)
But in lower-rate years, many retirement-age clients chose to buy larger homes, said Megan Fox, a real estate broker with Compass in Bergen County, New Jersey.
“The idea was to have spaces big enough for their extended families to visit and stay for longer periods of time,” she said. And in some instances, seniors opt not only for homes with more square footage but also with additional acreage, multiple entertainment areas, pools, media rooms, and more.
The conventional wisdom is that retirees should not carry a mortgage; there’s also a notion, sometimes misplaced, that seniors can’t qualify for a mortgage after leaving the workforce.
Still, there are a number of reasons why upsizing in retirement can be appealing. And, perhaps with the help of a financial professional, seniors can weigh these motivations against the reality of their finances.
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Seniors upsize to increase quality time with family
“Clients of retirement age think about their older children coming to stay and being able to entertain them, particularly during the holidays and summer,” Fox said. “When budget allows, adult children and grandchildren can have their own bedrooms and bathrooms, and everyone can comfortably coexist.
“Many love this option because it promotes more family time than short weekends and day events with long travel,” Fox said. “People whose children are a plane ride away tend to gravitate toward larger homes if they can.”
Larger homes can also allow for multigenerational households — a boon for younger and middle-aged adults who can benefit from grandparent babysitting and for older adults who would prefer to age in place with help from family rather than move to a continuing care community. Having more space can even allow for a hired, live-in caregiver. (Related: Is paying for long-term care part of your retirement plan?)
Seniors upsize because there’s a shortage of smaller homes
Smaller homes can be hard to come by since their supply isn’t growing as fast and young homebuyers want them too. The average size of a new single-family home in America has shrunk by over 300 square feet since 2015, according to some reports, while the average price is up more than $160,000 in the last few years.
Meanwhile, over the last 20 years, the percentage of new single-family homes 1,800 square feet and under has declined, while the percentage of larger homes has increased. Homes of 1,400 square feet or less are in especially short supply, according to a Freddie Mac analysis of U.S. Census Bureau data.
Beyond market constraints, many seniors are drawn to newer, larger homes for practical reasons.
Seniors upsize to reduce maintenance and avoid renovations
Baby boomers purchased more homes than any other age group, according to a National Association of Realtors (NAR) report. The typical construction year of the homes they purchased was around 2000.
Newer homes usually need less maintenance, which may be an important consideration for older homeowners for several reasons. Those who have always done their own maintenance to save money or for enjoyment may have less physical ability, stamina, or risk tolerance.
Better aging-in-place features?
A larger, newer home, especially one on a single floor, may be better able to accommodate aging in place with features like these:
- Wider hallways
- Larger bedrooms and bathrooms
- Walk-in, step-free showers or bathtubs
- Handrails and grab bars
- Wheelchair-accessible countertops, cabinets, and electrical outlets
- Step-free entrances
These features aid mobility and independence and make it easier for caretakers to provide support when someone needs a walker or wheelchair, a hospital bed, a motorized floor lift, or other medical equipment that becomes necessary with certain illnesses that become more common as we age. But only 10 percent of U.S. homes have features to accommodate older residents, according to the U.S. Census Bureau. (Related: Is a 55-plus community right for you?)
The problem may be especially pronounced in New England and the mid-Atlantic states, where homes are more likely to be older and have multiple stories. It's also where a higher proportion of seniors live, according to a Census review. The types of renovations needed in older, multi-story homes may even be cost-prohibitive or unfeasible.
Upsizing could actually save money in some cases. In some states, you may be able to pay lower taxes and get more for your money in real estate. A big question is whether such a move puts you closer to or farther from features older adults particularly value, like being close to family, friends, and health care facilities.
Seniors upsize to finally get what they’ve always wanted
Seniors often have more flexibility in where to live and less time pressure to shop, unless the move is primarily for medical reasons.
Fox said that her older clients tend to choose homes based on the unique characteristics of individual properties.
“At this life stage, you aren’t typically rushed to make a decision, and that affords you time to explore and really understand the market,” Fox said. She’s had clients start their home search thinking they wanted to downsize, then go in the opposite direction.
Your older years represent one last chance to get home features you always wanted but may have compromised on before: a nice view; a craft room, an exercise room, a workshop, or other space to pursue retirement hobbies and activities; a backyard optimized for entertaining.
But this also means considering how a move into a larger home aligns with your estate planning goals.
- A larger home represents more tied-up equity that could otherwise go to heirs or charitable causes.
- Conversely, a home that accommodates multigenerational living may reduce overall family housing costs and strengthen your legacy.
Discussing these tradeoffs with both a financial professional and your family can prevent surprises later. (Related: When do you need a financial professional?)
The downsides of home upsizing
In many ways, upsizing became less appealing in recent years. Interest rates and home prices have remained relatively high. Competition for homes has been tight due to a nationwide housing shortage. And residential electricity prices and natural gas prices have also increased in recent years, making heating or cooling a large home more expensive.
“Seniors may not want to upsize because they are on a fixed income,” Fox said. “They may also not want the upkeep of a large home.”
A larger, newer home may not require the renovations your existing home would. But it may require more everyday maintenance due to its size. Cleaning your home can help you maintain your mobility as you age. But it can also be time-consuming and, at some point, physically challenging.
Additionally, there is the question of property taxes. Beyond the question of moving to a location that may have higher property taxes in general, larger homes typically get taxed at a higher rate. So, if you are considering a move to upsize, research local property tax rates, assessment practices, and available senior exemptions.
If you move into a larger home expecting to enjoy the companionship of a spouse or other family members, but then your spouse dies sooner than expected or your kids don’t actually come to visit often, the space can end up feeling too big and lonely.
Upsizing can also mean that, unless you really pare down your belongings when you move, you end up accumulating more stuff that your heirs will ultimately have to deal with.
Conclusion
In the end, upsizing a home can offer many benefits in retirement, like more room for family and a better lifestyle. But such a move would also entail a number of costs considerations, ranging from the physical (maintenance and housekeeping) to the emotional (empty house away from friends) to the financial (affordability).
Discussing such a move with a financial professional, family, and friends may help clarify what the tradeoffs are and whether the benefits outweigh the costs.
Discover more from MassMutual…
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This article was originally published in January 2017. It has been updated.
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