Why Many Americans Aren’t Downsizing Their Homes in Retirement

That does not mean the entire value of the property can easily be converted into spendable retirement income.

Home equity is relatively illiquid unless the owner sells, borrows against the property, or uses another financial strategy to access it.

This is particularly important for retirees who have substantial wealth in their homes but relatively limited investment or cash assets.

Instead of assuming that a future downsize will solve a retirement-income shortfall, homeowners should consider multiple scenarios.

For example:

• What happens if the home is sold for less than expected?
• What if the replacement property costs more than expected?
• What if moving expenses are substantial?
• What if the homeowner ultimately decides not to move?
• What if healthcare needs require a different type of housing?
• What happens to the home equity if the property is eventually passed to heirs?

Planning around these possibilities can produce a much more realistic retirement strategy.

The Bottom Line

The traditional idea that Americans automatically downsize once they retire is becoming less convincing.

Recent housing research shows that older Americans continue to buy and sell homes in large numbers, but their moves are often motivated by family, health, lifestyle, location, and accessibility rather than simply the desire for a smaller house.

Many Baby Boomers also have substantial home equity, giving them the financial flexibility to purchase another property without dramatically reducing their living space.

For retirement planning, the implication is straightforward: don't count on downsizing profits until you have actually run the numbers.

A smaller home can be an excellent retirement strategy, but it is only one option. For some households, staying put may be more economical. For others, moving to a different location or choosing a more accessible home may matter more than reducing square footage.

Ultimately, the best retirement home is not necessarily the smallest one.

It is the home that provides the right combination of affordability, accessibility, location, maintenance, and lifestyle for the years ahead.