Why some seniors upsize in retirement

Amy Fontinelle

By Amy Fontinelle
Amy Fontinelle is a personal finance writer focusing on budgeting, credit cards, mortgages, real estate, investing, and other topics.
Posted on Jul 2, 2018

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Discuss what motivates some seniors to move to larger homes.

Show that downsizing is not a one-size-fits-all solution for seniors whose current homes no longer suit their needs.

Explore the benefits and drawbacks of upsizing your home when you’re older.
 
     

You hear a lot about seniors downsizing 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 in retirement.

Upsizing is more challenging than before

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 when interest rates are high and investments are down.

For instance, the average 30-year mortgage rate was under 5 percent from May 2010 through April 2022, according to data from Freddie Mac.

In these 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. COVID accelerated the trend of extended vacations, Fox added, and seniors opted 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 misconception that seniors can’t qualify for a mortgage after leaving the workforce. Lenders do count Social Security and retirement account income, however, and holding more money in savings and investment accounts may be preferable to having a paid-off home.

But that thinking is challenged when interest rates exceed 5 percent, as they have since April 2022, according to Freddie Mac. While the overheated housing market cooled off in 2022, median home prices were 38 percent higher in the fall of 2022 than they were before the pandemic, according to the Federal Reserve Bank of St. Louis.

At the same time, the S&P 500 lost nearly 20 percent in 2022, leaving retirees with smaller nest eggs and making it an unappealing time to sell investments or tap cash reserves for nonessential expenses. (Related: Beware retirement's overlooked risk: Sequence of returns)

Still, there are a number of reasons why upsizing in retirement can make sense.

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, single-family homes

In some cases, upsizing may be the only option for seniors who want to move. The median U.S. home built in 2021 was nearly 2,300 square feet, according to U.S. Census Bureau data. Smaller homes can be hard to come by since their supply isn’t growing as fast and young homebuyers want them too.

Over the last 20 years, the percentage of new single-family homes 1,799 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.

Seniors upsize to reduce maintenance and avoid renovations

Older baby boomers purchased more newer 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 2003.

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.

Buyers aged 57 and older were more likely than younger buyers to purchase a new home, according to the NAR. And buyers 76 and older were the most likely of any age group to buy new construction. New construction allows for customization: There are even companies, such as The Plan Collection, that offer floor plans with universal design 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, multistory 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.

The downsides of upsizing

In many ways, upsizing became less appealing in 2022 and early 2023. As noted earlier, interest rates increased and home prices remained high. Competition for homes has been tight due to a nationwide housing shortage. Residential electricity prices increased by 15 percent from October 2021 to October 2022, and natural gas prices were 25 percent higher in January 2022 than in January 2021, according to the U.S. Energy Information Administration.

“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.

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.

Discover more from MassMutual…

Wealth management: Is setting up a trust right for you?

How to find senior discounts to save on food, drugs, travel and more

Is it OK to retire with a mortgage?

This article was origianlly published in January 2017. It has been updated.

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The information provided is not written or intended as specific tax or legal advice. MassMutual, its employees and representatives are not authorized to give tax or legal advice. You are encouraged to seek advice from your own tax or legal counsel.