This article was first published on Forbes.
When most people imagine their retirement, they envision selling their family home for a tidy profit and downsizing to something smaller. In a 2021 Transamerica survey, three in four retirees own their own homes, while 22% rent and two percent live with friends or relatives. Many retirees wish to stay in their own homes as they get older (90% of those surveyed), but four in ten retirees have moved since retiring. However, of the retirees surveyed, only 29% of those that moved have listed downsizing as the reason. If downsizing is the path that is so often portrayed in retirement, why do so few retirees actually downsize? And is downsizing right for you?
Do Retirees “Rightsize” In Retirement?
Downsizing is selling your home that is now too large for a single person or retired couple, but worked well for a growing family, and choosing a home or condo that is smaller in square footage to better suit your current needs. In this process, you’d likely get rid of a good amount of your possessions as well, because your belongings won’t fit into the same space as they did before.
So, what is “rightsizing”? To “rightsize” your home in retirement would mean that you’d have just enough space that you need – nothing more and nothing less. This can be incredibly difficult to gauge, because you’ve never been retired before. Even if you’ve given retirement a trial run, until you’re actually retired and understand how much time you’ll spend at home, or traveling to a new destination, you won’t know what size home may the right fit for you.
Retirees Upsize In Retirement
Often, retirees find themselves upsizing in their retirement. During a particularly hot real estate market, you may be able to make a great profit on your home. Combine that profit with low interest rates, and retirees often end up purchasing a larger, more luxurious home than they had before.
Conversely, retirees may end up purchasing multiple homes. Perhaps they want a home in a vacation location or a home closer to their family, in addition to their primary residence. Retirees may purchase a condo in several cities so they always have a place to stay when they’re on the go. Some retirees invest in multiple homes as investment properties, living in some while renting the others when they’re not there.
Upsizing may go beyond your home as well. Retirees upsize in several ways, from large purchases such as an RV or a boat in addition to a larger home. They may invest in upgrades to their current home, such as renovations or adding in a pool.
Why The Upsize Trend?
With many retirees bucking the downsize lifestyle, what is the impetus behind the upsizing trend? There are several factors that play into this trend, and make it easy for many retirees to take advantage of upsizing during this phase of their lives.
- The stock market has had historic rises over the past decade, which has helped to pad the retirement accounts of many retirees. The retirement plans for many retirees may have paid off better than they were projected due to the stock market, and retirees are likely to use this windfall on their living expenses.
- The pandemic changed how people currently live their lives, and how they plan for the future. Many people changed how they travel, and spent more time at home – investing more time and effort into their home and living situation. With more time spent at home, retirees may plan on expanding their home or purchasing additional homes in multiple locations.
- Low interest rates make it increasingly easy for retirees to get into a larger, more lavish home, with minimal financing. When combined with a hot real estate market, it makes upsizing very attractive to some retirees.
- FOMO, or the fear of missing out, certainly comes into play with retiree upsizing. When retirees see their colleagues, friends and family upsizing from their homes or purchasing multiple properties, they feel the need to keep up.
- Lifestyle and personal happiness also factor into the upsizing trend. For some retirees, upsizing their homes fits with their lifestyle and makes them happier. Investing into their future by improving their living situation is an investment that they’re happy with, and that is what matters for them.
Is Upsizing For You?
While upsizing isn’t the most important retirement planning question you need to answer, it is an important one. To determine if upsizing is the right move for you, you’ll need to discuss your plans with anyone that you live with, such as a spouse or significant other, and go over your goals with a qualified financial planner.
If you’re still in the retirement planning phase, don’t assume that you’ll downsize during retirement. Plan ahead for a potential upsize and a potential increase in your living expenses. Even if you do end up downsizing, or even “rightsizing” once you do hit retirement, you’ll have extra money and options available to you once you’re there.