Op-ed: More boomers are choosing to ‘upsize’ their homes in retirement

With age comes increased frugality.

As people reach retirement age, it’s been common practice to get rid of what you don’t need, including personal items, extra expenses and oversized, hard-to-manage properties.

For years, the average American retiree has charted a predictable course through retirement, choosing smaller, more manageable homes, condos or retirement communities built for people aged 55-plus. Why pay for taxes and upkeep on a home that no longer fits you?

Things have changed in the last few years, however, and a new trend has emerged.

Rather than downsizing or right-sizing, retirees are starting to upsize. They are moving to bigger homes in their golden years.

According to a recent Merrill Lynch and Age Wave retirement study of more than 3,600 respondents, 49% of retirees didn’t downsize in their last move, and 30% actually ended up moving into larger homes.

And they are doing it for all sorts of reasons — from finding a home that better suits them to buying a home with room for a live-in parent or visiting family members.

According to a recent Del Webb survey conducted among 50- to 60-year-olds, 22% are looking to move to bigger homes. The study also found that 43% want to remain in their existing home or move to a new location with comparable space.

This change marks the first time such a significant majority of retirees have gone against real estate norms. Let’s take a look at the reasons behind this culture shift and the financial considerations that come into play if you intend to upsize your home.

What’s behind the shift, and why are retirees changing their spending habits? While the reason is ultimately a matter of personal choice that differs from person to person, a perfect storm has converged to make conditions more favorable.

Let’s look at interest rates: 2020 was a record-breaking year for interest rates, specifically those tied to mortgages. Over the last 12 months, interest rates have hit an all-time low 16 different times. They fell to a three-year low of 3.51% at the start of the year, and home sales began to surge.

Over the next business quarter, rates continued a steady downward trajectory, falling to 3.23% by April. Fast forward to year-end, when rates would decline to an unbelievable 2.66% just before Christmas. At the start of 2021, we saw the bottom with rates landing at 2.65%. Now, they are marching back toward 3%, making it the optimal time for established homeowners to refinance or purchase a new property.

The strength of the stock market is always a factor. We’re nearing the end of a bull market that’s lasted about a decade. Ever since the 2009 financial crisis, market performance has moved upward at a steady and predictable pace. In 2009, the intraday low fell to a gut-wrenching 666 but has since regained more than 300%, making this the longest growth-oriented market since the 19th century.

For recent retirees or those about to reach retirement age, this protracted period of exceptional market performance has given them a surplus of investment income.

Now, let’s discuss the pandemic, a topic that is inescapable. The pandemic has turned everything on its head, including the real estate habits of retirees. Part of this is due to the way Covid-19 altered society as a whole.

Travel is a hallmark of retirement, but people have spent more time at home this past year with quarantines and lockdowns. With travel off the table, retirees are pouring the money they would previously spent on vacations into their personal living space.

To that point, 57% of existing homeowners did some form of remodeling to their home during the pandemic, marking a clear increase in at-home spending, according to recent research from Consumer Specialists and the Home Projects Council.

With extra expenses like travel and dining out sidelined for the foreseeable future, retirees are more willing to increase their existing property’s size and livability or move to a bigger space altogether.

Of course, so-called FOMO always comes into play.

This “fear of missing out” can be a powerful psychological motivator. We’ve seen it at work with new technological trends that come to market, and we’re seeing it play out now between millennial homebuyers and their parents.

As millennials have become more financially stable, they have been willing to spend money for more prestigious homes than their parents ever did. In fact, 27% of millennials currently purchase homes in the $200,000-to-$300,000 price range.

A growing number of recent retirees have decided to match pace with their children rather than scaling back. A recent study found that 19% of retirees directly say they desire a more prestigious home as a significant motivating factor for upsizing.

We all know life is short, so apparently for some, long-term happiness is the goal. It has taken many retirees a lifetime to realize, but now that they have adequate savings and investments, personal property has become much more important.

We’re seeing a profound shift in the way our nation’s aging population thinks and views the world. One of the ways that manifests is through changing real estate habits.

Should retirees actually be concerned about this upsizing trend? Change is usually met with a healthy level of skepticism but, in this case, there is no need to worry about the trend as long as retirees take a careful approach to their retirement planning.

If upsizing is your intention — or even just a remote possibility — you should plan for it as far in advance as possible in order to preserve your nest egg and ensure that your retirement is prosperous over the long haul.

— By Andrew Rosen, CFP, president and partner at Diversified Lifelong Advisors