This article investigates the determinants of preference for intergenerational co-residence and examines the effects of living arrangement concordance (i.e. having a match between preference and reality) on the subjective wellbeing (SWB) of older Chinese. Data were derived from the China Health and Retirement Longitudinal Study (CHARLS) national baseline conducted in 2011. This allows for two different measures of the affective approach to SWB: depression and happiness. This article found living arrangement preference is indicative of need, cultural norms and current living arrangement experiences. The results support the hypothesis of discrepancy theories that having living arrangement concordance improves older parents’ SWB (i.e. depressive symptoms and happiness). In addition, the previously predictive effects of the actual living arrangement on SWB lost significance when actual living arrangement and concordance were added simultaneously. Living in a preferred arrangement appears to be more important than living in a traditional arrangement from the point of view of older adults’ SWB. Programmes designed to improve wellbeing in later life should not assume that there is a one-size-fits-all model for all; instead, older people should be given more choices of living arrangements.