As you approach retirement, you may think that downsizing to a smaller home makes a lot of sense. After all, downsizing can lower your living costs and reduce the hassle that comes with taking care of a large house. And if your kids have flown the nest, some of your bedrooms are probably gathering dust anyway. Those are certainly compelling reasons to shift to a less-spacious house. But before you pull the trigger, give some thought to the reverse: “upsizing” to a larger home that suits your expected lifestyle in retirement. In considering whether to downsize or to upsize, for example, ask if you may want a house with adequate space for entertaining friends and hosting family members when they visit, or one that has extra bedrooms for a home office, gym or hobby room.
The right choice for you depends on your budget and your vision for retirement. As you weigh your options, follow these steps.
Deciding whether to downsize or to upsize in retirement
Figure out your budget.
Your budget should be a key factor as you determine the size of the house you’ll buy. “A buyer who is 55 or older has a budget because they’re going to be entering an era when they’re on a fixed income,” says Marcie DePlaza, chief operating officer of GL Homes in Sunrise, Florida, a builder of family and 55+ homes throughout Florida. That’s true even for buyers who can afford homes at higher price points, she says. “They’re always mindful of their budget and take into consideration what their monthly payment will be.”
Your monthly expenses hinge on whether you buy a home with cash or finance part of the cost with a mortgage. Many homeowners are sitting on substantial home equity. According to a report from technology and data provider Intercontinental Exchange, U.S. mortgage holders had a record $17.6 trillion in equity entering the second quarter of 2025. If you have a heap of equity in your current home, you may be able to use the proceeds from selling it to buy your next home outright or to make a sizable down payment, reducing your monthly mortgage payment.
As you construct a budget, you’ll need to analyze what your retirement income will look like. If you don’t, you risk becoming “house poor,” spending so much of your income on your home that you have little left over to cover other costs. Ken Johnson, a professor of finance at the University of Mississippi, suggests that home buyers follow the “28% rule,” which mortgage lenders often use to qualify applicants. Under this rule, homeowners should spend no more than 28% of their gross monthly income on a mortgage payment (including principal, interest, taxes and insurance). By sticking to this guideline, buyers can avoid overextending their budget for a home that’s too large — and too expensive — for them. Zillow has a free tool that analyzes a home buyer’s income, debts and down payment to arrive at the home price they can comfortably afford.
Account for additional costs.
In deciding whether to downsize or to upsize, you’ll also need to factor in other costs associated with homeownership, including utilities, homeowners or condominium association assessments, and home maintenance and repair costs. If you don’t have a mortgage payment that rolls in property taxes and homeowners insurance, you’ll need to plan for those expenses separately, too. According to a 2023 analysis by Zillow and Thumbtack, a home-improvement technology company, homeowners should expect to pay an average of $14,155 a year for these so-called hidden costs of homeownership. Annual costs are even higher in pricey cities, such as San Francisco ($22,791) and New York City ($22,776).
These costs typically increase along with the size of the house — something prospective buyers should keep in mind. “A larger home often comes with a hidden price tag for escalating maintenance demands,” says Jack Erb, an economist for Thumbtack. Larger homes often have more complicated mechanical systems, more expensive flooring, countertops and other finishes, and bigger lawns, all of which need more frequent and costly upkeep, he says.
Consider your lifestyle.
In addition to your budget, as you consider whether to downsize or to upsize, think about your lifestyle and how it may change. DePlaza says that many GL Homes buyers initially downsize and later purchase a larger home because they discovered that they need more space. “Buyers are not always sure what their costs are going to be and what their lifestyle will look like because it’s all so new when they retire,” she says.
You may not entertain often now, but once you’re retired and have more time to host barbecues or dinner parties for friends and neighbors, the formal dining room that you didn’t think you needed may start to look pretty good. Similarly, having a spare bedroom to use as a home office or gym might become a necessity.
On the flip side, you may find that a smaller home is most suitable after all. Silvana Clark, 72, and her husband, Allan Clark, 74, recently sold their 2,400-square-foot home in Bellingham, Washington, for $850,000. The couple relocated to Alexandria, Virginia, to be closer to their 2-year-old granddaughter and her parents. The Clarks are currently living in an Airbnb rental while they search for a smaller home.
“We like to travel and take three or four overseas trips of a month or longer every year, so we don’t need a big house,” Silvana says. The couple are looking for a low-maintenance home that’s about 1,200 square feet, with two or three bedrooms. They no longer need a basement or formal living room, and they want a small yard that doesn’t require much attention. “When we’re not traveling, our granddaughter can visit, so we want an extra bedroom for her,” Silvana says. “She doesn’t care about the size of our house — just the number of toys that are there.”
Silvana suggests trying out smaller spaces by renting a home on Airbnb for a week, traveling in an RV or house-sitting, as the Clarks recently did in a one-bedroom home in France. “Evaluate whether the proximity to your partner is going to bug you in a smaller space,” she says. If you prefer to have plenty of room to yourself, you probably won’t enjoy sharing close quarters.
Think about the layout.
While size is the obvious factor in deciding to downsize or to upsize, the floor plan of the home you’re considering is equally important. You may want to look for a home with a single story or a primary bedroom on the main floor so you can age in place. Think about privacy: Do you really want your bedroom right next to the guest bedrooms, or would you prefer more separation? If you decide to go smaller, elements such as vaulted ceilings and large windows can make a modestly sized home feel more spacious. Pay attention to features and finishes, too. If you enjoy cooking, perhaps now is the time to splurge on professional-grade appliances and top-of-the-line cabinetry and countertops.
DePlaza recommends that buyers ensure their new homes have enough storage. Many buyers are giving up houses with basements to move to places such as Florida, where basements aren’t common. “Regardless of the size of the home, buyers always say they don’t have enough storage,” she says.
Robyn A. Friedman is a contributing writer at Kiplinger Personal Finance magazine. For more on this and similar money topics, visit Kiplinger.com.
©2025 The Kiplinger Washington Editors, Inc. Distributed by Tribune Content Agency, LLC.
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