Housing choices, old age and the sunk cost trap

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Housing choices, old age and the sunk cost trap

Published: 09 Apr. 2026, 00:03

Audio report: written by reporters, read by AI

Kim Kyung-rok

The author is an adviser at Optus Asset Management.

In advising on retirement finances, housing often emerges as the central issue. Consider a client living in a large apartment with an adult child and their spouse, while still carrying a mortgage. Monthly principal and interest payments leave little room for daily expenses.

A clear financial solution exists: Sell the home, repay the debt, allow the child’s family to move out, downsize to a smaller apartment and supplement income through a reverse mortgage. On paper, the plan is straightforward. In practice, it is not. The obstacle is familiar — the mind understands, but the heart does not move.

An exterior view of Seoul Seniors Tower Gayang Town in western Seoul [SEOUL SENIORS TOWER]

At the core of this hesitation lies the concept of sunk cost. A sunk cost refers to an expense that has already been incurred and cannot be recovered. Once paid, it should no longer influence decision-making. Yet in reality, people often cling to past investments. A simple example illustrates this. After purchasing a movie ticket, if the film turns out to be disappointing, many people choose to stay because they feel the ticket price would be wasted otherwise. The rational decision, however, is to leave and spend time on something more rewarding. The cost of the ticket is already irretrievable.

A person who makes decisions based solely on future benefits, without regard to past expenditures, is one who is free from the sunk cost fallacy. Daniel Kahneman (1934-2024), a Nobel Prize–winning economist, emphasized this principle throughout his work. He died at the age of 90 and is reported to have chosen assisted death. Kahneman, who often spoke of living a “zero sunk cost” life, appears to have made his final decision by focusing entirely on the quality of the years ahead rather than the weight of his past achievements. Having witnessed the long and difficult course of his spouse’s dementia, he may have assessed the likely disutility of his own remaining years. In that sense, his decision can be likened to leaving a film midway through rather than enduring it to the end.

The importance of sunk cost becomes even more pronounced during the transition from the active years of life to retirement. After retirement, the focus of financial life shifts from the size of one’s assets to the stability of cash flow. Among the many decisions that arise at this stage, housing is one of the most consequential. Yet many households approach this decision not by looking ahead, but by looking back.

Consider a household that has lived for more than two decades in a metropolitan area. Their home is layered with history. Years of restrained consumption to repay mortgage loans, choices made to secure better educational environments for children, relationships formed with neighbors over decades and accumulated spending on repairs and expansions all contribute to its meaning. The home is not merely a financial asset but a repository of lived experience. It is precisely at this intersection of memory and money that errors in judgment often occur.

In retirement, the guiding questions must change. Instead of asking what has been invested in the home, one must ask whether continuing to hold the home will provide benefits for the years ahead. Another useful question is this: If one were to make a housing decision today, would one purchase the same home at its current market price with cash? These questions deliberately exclude the past. They are designed to force a forward-looking perspective.

Opportunity cost is another critical factor that becomes more visible in later life. Compare two scenarios: living in a home worth 2 billion won ($1.4 million), or living in a home worth 1 billion won while holding the remaining 1 billion won as financial assets. In the latter case, the financial assets could generate returns. At a 5 percent annual return, that amounts to 50 million won in income each year. Choosing the more expensive home effectively means giving up that income. This forgone return represents the opportunity cost of housing. For many retirees, excessive housing costs translate into insufficient cash flow.

Of course, a home cannot be reduced to a financial calculation alone. It provides nonfinancial benefits — familiarity, emotional comfort, social ties and access to urban amenities. These elements carry real value, even if they are not easily quantified. The question is not whether these benefits exist, but how much they are worth. Are they worth an implicit annual cost of 50 million won? The answer will differ from one household to another. What matters is to recognize these benefits clearly and assign them a reasonable value. If the perceived benefits exceed the opportunity cost, retaining the home may be justified. If not, the decision should be reconsidered, even if the emotional attachment remains strong.

Older people are seen filling out job applications at a job fair held at the Mapo District Office in Mapo District, western Seoul, on Dec. 10, 2025. [YONHAP]

In Korea, expectations that urban housing prices will continue to rise further complicate the issue. Many households hold on to property in anticipation of future gains. Yet this expectation raises another question. Even if prices do rise over the long term, how should one account for the years spent limiting consumption during retirement? Deferred spending and reduced quality of life cannot be fully recovered later. Time in old age, once passed, cannot be reclaimed. This, too, must be weighed as part of the decision.

Letting go of a long-held home in later life can feel like a form of defeat. It may seem as if one is abandoning the fruits of a lifetime of effort. From an economic perspective, however, such a decision is better understood as a reallocation of assets. It is a process of converting value tied up in walls and roofs into resources that support consumption, stability and well-being.

Rational housing decisions in retirement begin with a clear recognition of sunk costs. What has already been spent cannot be recovered. What remains within one’s control is how to shape the future.

This article was originally written in Korean and translated by a bilingual reporter with the help of generative AI tools. It was then edited by a native English-speaking editor. All AI-assisted translations are reviewed and refined by our newsroom.