What are Retirees Doing?

By: Andrew Rosen, CFP®, CEP®

I have a little story to tell you about the downsize myth, so sit back and enjoy your morning coffee.

Once upon a time, there was a couple. They were madly in love and lived a happy 40-year marriage. Then Mr. & Mrs. Couple decided to retire. They sold their large, four-bedroom, two-and-a-half-bathroom house in suburbia after their three children had moved away. No longer needing all 2,500+ square feet, they took the proceeds from the sale and bought a cheaper, smaller, and lower maintenance abode. They pocketed a few hundred thousand dollars, used that as part of their retirement funds, and lived happily ever after.

How does this story sound? A lot like what most of you reading this envision? I get it, as once upon a time, I was young and impressionable as well. The reality is, I just told you a completely mythical story, up there with the Loch Ness Monster and Sasquatch (don’t mean to offend any Nessy or Big Foot believers).

For years, I’ve written, coached, and advised about the fact that people don’t actually downsize in retirement. So, what do retirees do? Generally, they trade in their house (let’s say it’s worth $600,000) for a brand new $600,000 home, albeit smaller. Maybe it’s in a 55 plus community. Sometimes these crafty retirees will even turn their $600,000 house into two homes of equal value. Maybe a condo somewhere warm, and a condo near the grandkids.

This worked for years. Of course, I had to expend a lot of effort convincing pre-retirees their thought was a myth. But alas, they all came around eventually. This non-downsizing didn’t take a lot of extra financial planning work, to be honest. Generally, it just meant we didn’t plan for a big windfall in retirement from selling a home. No biggy, just a little reframing one’s mindset.

Or shall I say until now…. Dun dun duuuuun!

the downsize myth

So, what happened? What is the newest trend in retirees’ housing demands? What are retirees doing nowadays with their primary homes? Are they now downsizing? Nope! Are they “rightsizing”? (Like I’ve spoken about for years.) Also, nope! Are retirees upsizing? Say it ain’t so, Joe? Yuppers!

The Downsize Myth

The newest trend I’ve seen over the past year or so is counterintuitive to what we’re taught to believe. It’s the downsize myth. Gone are the days of pre and current retirees selling that large family home to down or right size to some mortgage-free lifestyle. Quite frankly, that notion is now completely turned on its side. I can’t even begin to articulate how many clients I’ve helped over the past year sell their homes and buy a more expensive home. And I don’t mean a few dollars more, I mean hundreds of thousands of dollars more. Additionally, those choosing to stay put are putting on massive renovations (to the tune of six figures).

Besides being a really interesting phenomenon there are three questions that naturally come to mind. Why are we seeing this happen? Is it a problem? And, what to do about it? I’m no housing expert, but I’ll gladly give you my opinion (or otherwise this blog ends kinda abruptly don’t you think)?

Let’s start with why retirees are suddenly “upsizing” their homes in retirement?

The obvious place to start is interest rates. I’m seeing a lot of people start to crunch the figures and realize that they can buy a shiny new home, finance a few hundred thousand dollars, and it doesn’t really cost them much. With interest rates in the low 3 to high 2 percent, and bank interest rate paying nothing, why not put those dollars in the ground and get almost free financing, right?

The stock market certainly helps. I do think the fact we’ve been on a historic rise over the past decade in the stock market helps. We’ve seen financial plans built a decade ago look a hell of a lot better than projected. The simple fact is people are spending this pleasant surprise on living conditions. Why not?

Covid-19. Clearly, people aren’t traveling as much with the pandemic. This has turned into retirees starting to think about their long-term retirement wishes. They’re trading in that yearly cruise or two, for a house with a pool so the grandkids can come swim.  

FOMO! (Or, the Fear Of Missing Out!) You see, the trend isn’t just with retirees. I’ve seen families, who make a lot less than their parents, go to buy their family home. These people are spending way way wayyyyy more than one would have thought. I have friends and younger clients who’ve bought homes worth seven figures! This is something I barely saw over the past 20 years in practice, even from clients who made millions. I believe you’re seeing a “keeping up with the Joneses” mentality with these folks.

Lifestyle, lifestyle, lifestyle. Some say the three most important words in real estate are location, location, location. I’m going to say my favorite observation of this upsize trend is the new three most important words in real estate and life… lifestyle or happiness. You see, I firmly believe a lot of people, after being stuck home for a year, are realizing how much they enjoy their personal property. Thus, these people are saying I’m going to really enjoy this next decade or two here, and naturally, the home must support it. Say farewell to that 70’s linoleum floor kitchen, and hello to an all-white kitchen!

Is upsizing a problem? What to do about it?

We’ve established retirees are spending more on those retirement homes than ever before. But is it a problem? My answer would be not if you’re prepared. That leads me to the next question, what to do about it? For starters, time to reset one’s thinking. No longer can we build financial plans assuming we downsize or even right size. We have to plan and budget an increase in living arrangements come retirement. Not only is it a good stress test on your financial plan, but you’ll find it may actually be your reality. Plus, you get the added bonus of having more options in retirement. Isn’t that what we all want?

Now what?

Regardless if you’re 30 or 60, planning for the future is important. If you’re 30, just know this downsize notion is not a reality for most and factor it into your plans.

If you’re 60, rest assured that you’re not alone. It still makes me a little nervous every time I see this occur, as I’m a bit conservative by nature. But then I go back to our tried-and-true planning software, along with our spend and replenish retirement income strategy, which brings me, and our clients, a lot of comfort to make the right decision for them. I can’t stress how important it is to work with someone in making these decisions along with supporting them through these oh-so-important retirement years.

As always stay wealthy, stay healthy, and stay happy.

In his role as Financial Planner, Andrew forges lifelong relationships with clients.  He coaches them through all stages of life and guides them to better achieve their life goals.  For more information about Andrew or the other firm partners, Kyle Hill and David Levy, click the link below.

Find out more about Andrew Rosen, CFP®, CEP®
Find out more about Kyle Hill, CFP®
Find out more about David Levy, CFP®

Financial planning and Investment advisory services offered through Diversified, LLC. Securities offered through Purshe Kaplan Sterling Investments, Member FINRA/SIPC. Headquartered at 80 State Street, Albany, NY 12207. Purshe Kaplan Sterling Investments and Diversified, LLC are not affiliated companies.