This may be different than the OP's specific point, but to correct some error in the replies....
i never (or rarely) select the upgrade option when designing a unit. Yet i always have the option to upgrade, so long as the unit is within my borders, and so long as the unit has the strength to wield this new gear. It is my understanding that the upgrade option, just upgrades unit design. And has no bearing on previously built units being upgraded. For instance, if i select upgrade when arming a design with a level 1 Bow, when time comes that i have level 2 Bow, this unit design will automatically upgrade. i need not design a new unit, all my new units now have the new gear.
Is why i don't use it. i may name unit armed with level 1 Bow as simply "Bow". Then name units with level 2 Bow as "Longbow". By not selecting 'upgrade', i know that all my "Bow" named units, remain with L1 Bow and not armed with L2. i still can upgrade these units at any time of my choosing. Its just that the unit design itself, is not auto-upgraded. i have to manually make a new design. When i upgrade previously built units, i rename them to fit their new class. So by name, i know the capabilities of each of my units. i just like the efficiency of knowing what a units got by name. 6 to one, a half-dozen to another.