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Housing Dilemma: Should You Rent or Buy in Retirement?

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As they approach retirement, many seniors are finding themselves asking a basic question about their housing: is it better to rent or buy? There are advocates on both sides of the argument, so deciding what’s right for you may not be all that simple.

Home ownership has for generations been considered the centerpiece of the American dream. Today’s boomers might be tempted to follow the idea that you have to hold onto your home in retirement, no matter what. But that simplistic notion might be unrealistic, for several reasons. Even if your house is paid for, rising costs of ownership – taxes, upkeep, insurance – are putting the squeeze on retirees on a fixed income. Moreover, if you dream of aging in place, you need to be realistic as you decide whether that family home is still a safe choice.

Here at the Blog, we’ve examined the rent-or-buy question before, but it has been a while. With that in mind, we offer this recent article from Kiplinger in which reporter Sandra Block takes a look at the equation and offers some basic yet helpful insight.

Desire to Downsize Forces Retirees to Choose

While a five-bedroom home with a big backyard might have made sense when the kids were around, these days that property has probably transformed into something a little less practical, and a lot more expensive. But if downsizing feels like your retirement dream, it’s worth asking: rent or buy?

Block writes, “While many long-time homeowners may resist the idea of renting, don’t dismiss it outright. Instead of sinking money into a new house, you may be better off putting it in your investment portfolio. For example, suppose you sell your five-bedroom home and net $300,000 in cash. If you invest that money and earn 6 percent annually, you’ll generate an extra $18,000 in the first year.”

She adds, “Even after taxes, you’ll have a good amount left over to put toward rent, and the cost of homeownership will drop sharply or disappear altogether.”

If You’re Not Ready to Settle Down, Consider Renting

Block also suggests being honest about how long you expect to stay in your new place; renting may be the better choice if you’re not sure how “settled” you want to be in your retirement, especially if you think you may move within three to five years. (The 10 Best States for Retirement and The 8 Best Places to Retire for Renters web links are included in the Kiplinger article, in case you want to dream a bit.)

“Otherwise,” Block writes, “your home might not increase enough in value to offset your initial expenditures on things like real estate commissions and closing costs.”

Rent or Buy: Start with a Simple Budget Comparison

As with most things in retirement, a smart and honest budget is always the right place to start. Block suggests estimating how much income you’ll need to pay the bills, to understand how much you’re working with for housing costs.

“You should also look at the costs of home prices versus yearly rent for comparable homes in your community,” she writes. “You could do some comparisons on your own by using NerdWallet’s Rent vs Buy calculator.” 

Rent or Buy: Some Basic Pros and Cons

Renting means you can be subjected to annual rent increases which, depending on where you live, can be sizeable. If you’re on a tight budget, a boost in rent can play havoc with your budget. There’s always the danger that a rental can be sold out from under you, or an apartment converted to condos, forcing you to move whether you want to or not. A rental also limits your freedom to customize the place to suit your wishes.

On the other hand, renting doesn’t tie up your cash with a big down payment, even though you’ll need some money (first and last months’ rent plus a damage deposit) just to move in. With a rental, you’re free from costs of maintenance, repairs, and property taxes. You’ll also save on insurance and utilities.

Owning a home essentially “traps” your equity because your investment in your home is beyond your reach unless you sell the house or borrow against it. You’re on the hook for the leaky plumbing, the worn-out roof, and the broken garage door. You’ll also be writing a hefty check during the year for property taxes and homeowner’s insurance, both of which are on the rise, and you’ll likely owe capital gains tax when you sell. Finally, as noted above, your present house might be the wrong place to grow old safely.

But there are several benefits to owning your home. Ownership generally means stability: no one can sell your home except you.  The security of owning a home brings peace of mind that for many is the greatest benefit of all. You’ll benefit from growing equity which can one day form the basis of a reverse mortgage, should that prove to be the right choice. A home also represents a legacy for your heirs (although deciding how to divide your estate can be tricky if you have multiple offspring and only one house).

If You Buy, What About a Mortgage in Retirement?

While living with a new mortgage in retirement could feel like anathema to some, Block says not to discount the idea entirely.

“Although the market has changed dramatically in the last few years, Mortgage rates and payments are up, tax deductions for mortgage interest have been reduced and home inventory is scarce,” she writes. “If you do buy, you may be better off taking a mortgage for part of the purchase and investing the rest of your money in a portfolio of stocks and bonds. Your investments may grow faster than your home appreciates, and you’ll also have money available for health care and other needs.” 

Bottom Line: Renting Can Make Retirement Sense

Emotions certainly play a role, too, and Block says to give them a role in your decision-making. “Do you love the idea of owning your own place and fixing it up the way you want? Or will it be a big relief after years of ownership to find the right retirement community and not worry about the lawn or a broken sump pump?” she poses.

Mortgage interest rates make buying an expensive option, and the process of finding and buying a home is more stressful than normal right now, with inventory shortages. At the same time, rental price increases are finally normalizing to something closer to their pre-pandemic state.

Block concludes, “While your decision needs to be financially sound, make the decision that makes the most sense for you. Not being a homeowner can be freeing, scary or both. Your home, its location and amenities should fit the life you lead now.”

Breaking News: Rajiv’s New Book is Here!

We have big news! The long-awaited book by Rajiv Nagaich, called Your Retirement: Dream or Disaster, has been released and is now available to the public.  As a friend of AgingOptions, we know you’ll want to get your copy and spread the word.

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Through stories, examples, and personal insights, Rajiv takes us along on his journey of expanding awareness about a problem that few are willing to talk about, yet it’s one that results in millions of Americans sleepwalking their way into their worst nightmares about aging. Rajiv lays bare the shortcomings of traditional retirement planning advice, exposes the biases many professionals have about what is best for older adults, and much more.

Rajiv then offers a solution: LifePlanning, his groundbreaking approach to retirement planning. Rajiv explains the essential planning steps and, most importantly, how to develop the framework for these elements to work in concert toward your most deeply held retirement goals.

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(originally reported at

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