She moved in December and pays $2,950 a month plus electricity. Subscribe today. Once they decide to downsize, retirees should weigh the emotional and financial factors of renting or buying their next home. I’ve never shoveled snow but it sounds miserable and cold. The Accumulated Capital Gains Could Finance Your Retirement. Rents will go up … fAll of these options has various pros and cons associated with them. Like many older people who downsize, Ms. Hardisty faced another decision: Should she buy a new place or rent one? Some have mortgage payments they couldn’t afford if they stopped working while others simply wish to forgo the hassles of home maintenance. On the other hand, it doesn’t necessarily help you save money. They will also be accumulating equity over time as they pay down the mortgage and if the property appreciates in value. It found that the number of renter households where the primary resident was 60 or older grew 43 percent from 2007 to 2017. by MilitaryBenefits. Rent after Retirement. On the other hand, renting a home after 55 provides flexibility for older adults who anticipate traveling or moving again in the future, or who simply want to save their nest egg for other expenses rather than buying a house. When her lease expired, Ms. Hardisty, 75, signed a three-year lease on another apartment, with two bedrooms and a den, in the same complex. Because of all the costs of owning a home in retirement, buying a new, though smaller, one may not be the wisest financial decision, some experts say. Not to mention free up funds for other things from travel to healthcare. Retirement isn’t what people think it is, 80% boring, in my case because I do ALL the repairs myself. Retirees can also use The New York Times’s buy-versus-rent calculator to work out relative costs. www.davidraefp.com, © 2020 Forbes Media LLC. She said most of her widowed friends were renting, too. Why you should rent when transitioning out of the military. This will allow for the most financial flexibility later in life. Ms. Hardisty said she preferred to invest her take from the sale of her house — roughly $500,000. Enhanced Residential Solar Tax Breaks In Year-End Spending Package As Part Of Clean Energy Push, Final Stimulus Deal: What Student Loan Borrowers Need To Know About Relief Ending, Congress Reaches Agreement On New Covid-19 Relief Legislation. You’re Retired. In this case, he has a small mortgage relative to his Social Security and pension income. Though most older people prefer to stay put, many others who own houses in the suburbs are trading in the stairs, the unused rooms and sometimes the headaches of lawn care for something more manageable. Understand financing options. Ideally, you would not spend more than 15% of your annual … Support our journalism. 3x Investopedia "Most Influential Financial Advisors" Award Winner. “It could make sense to rent for a couple of years to see if you like it,” Mr. Blanchett said. 3x Investopedia "Most Influential Financial Advisors" Award, David Rae a Certified Financial Planner™ has been helping people make smarter financial decisions since 2003. If the retiree plans to stay longer, buying would be a better choice. If you are nearing retirement and have been renting most of your life, running out and buying a new home will likely not make financial sense. This is especially true when home equity isn’t considered. “Even if the numbers don’t make sense, you would buy because you don’t want to be perceived as a renter.”. Even if you have the cash to purchase a home outright, consider getting at least a small mortgage or home equity line of credit. If you own a larger home and want to remain there, consider a Golden Girls type of arrangement. At Rent To Retirement, we help real estate investors to acquire a residential property through seller financing. Before shelling out money on a home, people who are moving to a new destination should consider the medical facilities, cultural offerings and other features. If she eventually needs assisted living or another type of care housing, she said, she can simply hand over the apartment keys. For example, if you pull out $300,000 in … The extra cash she reaped from the sale also allows her to pursue her retirement dreams: travel overseas and a planned Disney cruise with her daughter and son, their spouses and her two grandchildren. If you remember the '80s sitcom, getting roomies was how Blanche Devereaux (Rue McClanahan) was able to stay in her home. In many circumstances, renting could free up even more equity, which is especially valuable for someone with little in retirement savings, Mr. Hopkins said. Even after the financial crisis, those with good credit and a steady … If this couple had a mortgage, the improvement in cash flow from renting could be even larger, Mr. Hopkins said. “The thought of putting down a large amount of money is a major reason why my friends and I decided to go the rent route,” Ms. Hardisty said. If you are nearing retirement, look to spend 30% to 40% less on rent than what you spent on your last mortgage payment. Small rental increases can be devastating for those on a fixed income, and large rental increases may be impossible to overcome. Should you rent or own in retirement? An assessment, Mr. Chisholm said, “can blow you out of the water if you are not prepared for it.”, Ms. Hardisty is happy with renting. So owning or renting … She also ended up with three new lifelong friends. Renting can be cheaper than owning a home, and retirees can free up home equity to improve their life.” To illustrate, Mr. Hopkins assumed an older couple owned a house valued at … But renting in retirement could end up being more expensive than aging in place in a paid-off home, where you’d be responsible for just yearly property taxes and maintenance. $300 Bonus Benefits And Other Relief Should Be Coming Soon In A New Stimulus Package, Many are also living much longer than expected  and past ages of previous generations. While money may be okay early on in retirement, many have failed to realize that the last few years are often the most expensive years of life. If a 30-year-old asked me if her home was an investment, I’d suggest that she think of it as a place to live. Estimate your cash-flow needs, and set a budget for renting vs. home ownership, net of taxes, etc. If your time frame is less than five years, you will often have a tough time recouping the costs of purchasing and selling the home. Baby boomers are among the fastest growing group of renters. Also, cable and internet cost about the same whether one of four people live in your home. When renting, your landlord is responsible for repairs, yard maintenance and even things like shoveling snow. Retirees applying for credit are often shocked to find that they're not considered especially creditworthy, even if they have substantial assets. A desire to keep the home, pondering a move and easy access to adequate medical care are additional things to consider. In 2015, after her husband died, Merrily Hardisty decided she no longer needed the space or the maintenance hassles of their four-bedroom house in Bethesda, Md., a Washington suburb. CFP who writes about having a Wealthier Healthier and Happier Life. The analysis showed that renting was a better financial option than buying for the first ten or so years after downsizing. You can spread out your mortgage over a longer period of time. If you are planning to move in retirement, consider how long you plan on staying in your new place. You may want to move away for better weather or a lower … tends to rain a LOT! You are responsible for upkeep, taxes and everything else whereas renting offers more flexibility and less responsibility. The thing is, there is time when growth is the most important goal and there are other times (such as during retirement) when income is more important. Older buyers may be unable to recoup transaction costs if health or other issues force them to sell early. What is your best housing choice? Along with the way, he could potentially turn his home’s equity into additional retirement income. Many are also living much longer than expected  and past ages of previous generations. Downsizers who lean toward buying take pride in homeownership and want to fix things up the way they like. For a comparison, 12 percent of Austin’s renters were 60 and older. And when it snows, she said, “there is a sense of freedom.”, Perhaps even more important, she said, “I have no debts, and it’s a wonderful feeling.”. You will lower your overall cost of living and have built-in friends. You may also have to take a lowball offer if you are desperate. Home » Blog » Managing Personal Wealth » The Pros and Cons of Renting a Home After Retirement Posted on February 11, 2020 by Harding Bell International One big part of retirement planning … Before retiring, consider refinancing your mortgage. Then you can compare the costs of home ownership with renting… That could mean carrying a mortgage into retirement, selling the home, renting the home or possibly taking a reverse mortgage. After plugging in assumptions on investment returns, maintenance costs, home appreciation and other factors, the retiree would come out ahead financially by renting for less than five years. Let’s say you’ve downsized from a larger place. A few may be looking to downsize, or right size, their home for a more joyous retirement while others might be planning to move. They sell the house and rent an apartment for $2,000 a month. But “if you’ve done a reasonable review of home prices versus the cost of renting and can afford to eat a loss — sure, buy.”. We would discuss what tapping his accumulated home equity could potentially mean for his retirement. “You can get a better return elsewhere.”. Transitioning out of the military can be an exciting time. Rae is no stranger in front of the camera either, having been interviewed as financial expert for numerous segments from the Today Show, NBC Nightly News, ABC, KTLA, CBS News, Nightline, Fox and Friends, Bravo TV E! It can also be more difficult to qualify for a mortgage later in life. However, whether you should rent or buy a house in retirement depends on a number of factors including your current lifestyle, financial situation, health, location, and age. Other retirees, like Ms. Hardisty, prefer the benefits of renting: fewer maintenance aggravations and the freedom to try out new towns or neighborhoods. Their investments generate an inflation-adjusted $19,200 a year, based on a 4 percent distribution, so although they are spending more each year on rent, their annual cash flow rises by $7,200. Here are some reasons why selling your home in retirement could be the right move for your finances and your lifestyle. The shorter your time frame, the more likely you should rent. Renting a Home After 55. This is a major decision that should not be made on a whim. Ideally, you would not spend more than 15% of your annual income on housing, if renting. Renting can be cheaper than owning a home, and retirees can free up home equity to improve their life.”. “Now they can’t sell it,” he said. Congress also replaced the unlimited federal deduction for state and local taxes with a $10,000 annual cap. All Rights Reserved, This is a BETA experience. Plan ahead. They eliminate the mortgage payments and other ownership costs and can invest the equity. It depends. Renting after retirement may not be right for everyone, but it should not be out of the question. EY & Citi On The Importance Of Resilience And Innovation, How Digital Workflows Helped Save Basketball During The Pandemic, Impact 50: Investors Seeking Profit — And Pushing For Change, Michigan Economic Development Corporation With Forbes Insights, Federal Bureau Of Prisons Starts Vaccination Of Staff, Inmates Soon Thereafter, IRS To Send Out Stimulus Checks Faster This Time; $600 Per Person Could Go Out To Bank Accounts Next Week, Go Solar! Close to 80 percent of people 65 and older own their own homes. “But retirees should look at renting as an investment into a lifestyle. small mortgage or home equity line of credit. Doing so may prove to be quite costly once real estate fees, capital gains on the sale of the former home and moving costs are factored. You will not want to endure the process while, at the same time, dealing with a major health issue. Downsizing After Retirement: How to Start. The decision is a bit easier if you are already renting or already owning. Another financial issue is an older person’s need for cash flow. For some, keeping the house may be the best route especially if they have a low tax base and a small mortgage. Should You Rent or Buy Your Home? … When you rent, you need only a security deposit that is often equal to or less than one month's rent. Scenario- sell some properties and rent a different place around the country every 3 or 4 months, now that would be a golden retirement… Additionally, the new Trump Tax Plan has changed the tax deductibility  of mortgage debt not specifically obtained to purchase or improve the home. If you can afford to move to a nicer, smaller place to enjoy your golden years, more power to you. Volkswagen says semiconductor shortages will cause production delays. There is a trend among retirees to downsize in square footage rather than price. “The thought of putting down a large amount of money is a major reason why my friends and I decided to go the rent route,” said Merrily Hardisty, 75. I mention this because getting approved for a mortgage, without a job, is much more difficult, so consider refinancing or getting a home equity line of credit before retiring. In other scenarios, selling the home may be the only option because a large number of baby boomers have not saved anywhere near enough for retirement. If you are nearing retirement, look to spend 30% to 40% less on rent than what you spent on your last mortgage payment. Student Loans Dropped From New Stimulus Package? A homeowner essentially has a fixed cost of living assuming they keep the same mortgage. For those who may have purchased more recently, or who don’t have much equity, they may need to sell in order to have any chance of not going broke later on in life. Her rent is covered by income from the investments, a survivor pension from her husband’s government job, Social Security and profits from the sale of unimproved lots her husband owned. Selling while the market is healthy could produce a needed influx of funds. Among the 30 most populous cities, the RentCafe data showed, the retirement destinations in the Sun Belt experienced the biggest growth in those renter households: Austin, Texas (up 113 percent); Phoenix (112); Fort Worth (95); and Jacksonville, Fla. (83). David Rae a Certified Financial Planner™ has been helping people make smarter financial decisions since 2003. “I am 75 — you never know,” she said. Here's where the sharpest of pencils comes in. When you think of someone considering whether it is better to rent or own, your first thought might be of a younger first-time homebuyer. If you have enough income once you retire and are doing everything you really want to do, maybe this move isn’t for you. The reality is that many older homeowners are grappling with this issue, as well, but for a variety of different reasons. 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