Downsizing No Longer Pays Off for Some Retirees—So They’re Upsizing To Give Their Kids an Early Inheritance

The traditional strategy of downsizing for retirees is no longer financially advantageous in many housing markets, impacting generational wealth transfer. For decades, retirees sold larger family homes to purchase smaller ones, using the equity difference to fund retirement or pass on to children. However, with the median price of starter homes exceeding $1 million in over half of the U.S., the cost of a replacement home can significantly deplete retiree equity. This situation is compounded by adult children facing their own housing affordability crisis, where parental financial assistance can be crucial for homeownership. Consequently, the decision to downsize has evolved from a lifestyle choice to a complex family finance and wealth transfer consideration. Evan Mills, an associate financial adviser at Scholar Advising, notes that it's now an affordability and wealth transfer question, not just a lifestyle one. Some retirees are opting to purchase larger homes with their adult children rather than downsizing. Mills cautions that upsizing also presents challenges, including increased operating costs, property taxes, and a greater homeowner burden, framing the current choice as selecting between difficult options rather than easy ones. Two primary market forces are hindering the traditional downsizing payoff: elevated mortgage rates and potential capital gains tax liabilities for long-term homeowners. Cody Schuiteboer, president and CEO of Best I, observes that the process of downsizing during retirement has become less straightforward.