Aging in place vs. downsizing

May 27, 2022

Many retirees opt to age in place as long as possible, but are they making the right decision? More importantly, what’s the right decision for you?

Many seniors plan to age in place, living their later years in familiar surroundings, often in a house big enough to continue to host their kids and grandkids for holidays and special occasions. Others plan to downsize, trading those features for a home that may be easier to manage and less expensive to maintain.

Most retirees opt to age in place as long as possible, according to recent surveys.1 For example, AARP recently found that about 75 percent of those 50 and older would like to stay in their current homes or communities for as long as possible.2 But are they making the right decision? More important, what’s the right decision for you?


Thinking of Downsizing?

If you’re thinking of downsizing to cut expenses, you’ve got plenty of factors to consider. Home buying has probably changed considerably since you bought the home you’re now in. It’s a faster, more competitive market – and that was true even before the pandemic. Now, with more people having more freedom to live where they want thanks to telecommuting, the competition for homes in communities that offer a great quality of life is even more intense. The home you want might not be available, or at least not at a cost-differential that warrants your move.

Nor is the purchase price of a smaller house or apartment your only consideration. Among the other factors that can affect your calculations are real estate taxes, capital gains tax on your home sale, cost of living, and travel costs to visit family and friends – and for them to visit you.

Other issues are less quantifiable but no less consequential: What type of community resources do you need and what resources does your intended community offer? If you’re a culture hound, for example, a community that lacks theaters and museums might not work for you, no matter how picture-perfect the surroundings. And if healthcare is already a significant need, are you prepared to switch out your current care providers for new ones, assuming the specialists you need are even available in the area where you hope to move?


What It Takes to Age in Place

On the other hand, if you’re in that majority that hopes to age in place for as long as possible, are you aware of what you need to do to make that happen? Aging in place has long been popular, in part because older Americans have typically paid off their mortgages before retirement. Nowadays, that’s less likely to be true. If you still carry significant mortgage debt, retirement might not be possible, or it might need to be postponed to make aging in place work.

How suited is your home to your physical needs as you age? Be prepared for what it might cost to put in ramps to avoid stairs, remodel bathrooms with walk-in tubs and grab-bars, and replace or retrofit kitchen cabinets to make them more accessible. The good news is that these updates for senior living may be cheaper than you imagine – but they do need to be taken into account as you decide whether to stay or downsize.


Paying for Aging in Place

Taking these expenses into account involves coming up with a way to pay for them. If you have substantial equity in your home, a home equity line of credit (HELOC) may be the way to go. You’ll incur minimum repayment charges each month and end up with less equity to pass on to your beneficiaries.

A reverse mortgage is also based on the equity you have in your home. You needn’t make any repayments during your lifetime, but interest accrues on the entire amount of the loan, potentially taking a bigger slice – possibly even the entire house – out of your inheritable assets. Another way to pay for home modifications is continuing to work full- or part-time past your planned retirement date. If you’re in good health and willing to invest your time to enable an age-in-place strategy later, this could be a reasonable choice.

Be aware that these alternatives – aging in place and downsizing – aren’t your only options. There are other arrangements, such as home sharing and accessory dwelling units (ADUs), that can keep you in your home, provide you with revenue to cover expenses, and offer a degree of companionship and a helping hand. Home sharing can mean renting out a room in your house to, for example, a college student. An ADU is a second, generally small dwelling unit on your primary property. Think of an apartment in your basement or over your garage.

And then there’s multigenerational living, perhaps having your daughter and her family move in or moving into a planned community that mixes families with children and seniors who are willing to act as “foster grandparents.”

So, there are lots of options. It’s vital to understand what they are and then map them to your particular needs, preferences, and resources to identify the one that’s best for you.

1. "The Retirement Downsizing Myth", Financial Post, Jason Heath, October 2020.

2. "Where We Live, Where We Age: Trends in Home and Community Preferences, AARP, Joanne Binette, November 2021.

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