Aging Options

If you're looking to avoid institutional care, should you own or rent in retirement?

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Older Americans (81 percent of them anyway) have bought into the idea that owning your own home is the American dream but some retirement advisors are taking a new look at the assumption.  The answer so far is very much in the air.  Owning your own home confers wealth accumulation, better neighborhoods, better outcomes for children etc… on the homeowner usually but according to a 2002 study not all homeowners realize those outcomes equally.   In fact homeownership comes with many costs  including the risk of investing in a structure that potentially can decrease in value and as we saw in the recent recession place families at risk of draining their resources.  So let’s look at the pros and cons of owning.

Owning your own home means you’re the landlord.  Want a different color of paint in the dining room, go ahead.  Need to hang the grandchildren’s pictures in the living room, no problem.  The benefits aren’t just aesthetic.  You also don’t have to worry about the landlord giving you 30 days’ notice because he’s decided to sell the house.  Nor does the rent get jacked up unexpectedly.  If you’re handy about making changes, the improvements you make to the property add value which you can recapture when you sell.  And a mortgage is a savings plan of sorts in that you’re forced to put money away and at some point you can take it out.  Once you’ve paid off the mortgage you have a hedge against inflation.  And there are tax benefits to paying interest.  Older homeowners especially often find that they are in a lot better place financially than their renting counterparts.  So, why would anyone consider renting?

Well, for starters it’s often cheaper.  Not only is rent usually less expensive than owning but renting comes without the maintenance costs associated with owning.  It also comes with fixed costs making it easier to plan.  If the water heater blows out and dumps water all over and damages the floors and walls, it’s the landlord’s responsibility to replace the water heater and fix the floors and walls.  The typically lower costs associated with renting provides renters with extra savings they can invest in something other than housing and repairs.  In addition, renting allows you a freedom you can’t get with homeownership.  If you decide you don’t like a neighborhood, your income stream changes or you want to pack up and head clear across the world, renting gives you a type of freedom that doesn’t exist if your bank account is locked into a specific address.  And finally owning takes time that renting just doesn’t.  If you own a house you rapidly become aware that everyday wear and tear requires constant maintenance.  Paint wears out, chips or gets outdated.  Bushes become overgrown, faucets develop leaks.  Renters call the landlord and then hie off to their next adventure.  If you’re the landlord, you’re stuck making the trips to the hardware store or getting estimates for repairs.

Perhaps because of the recent recession, more people are questioning the assumption that owning is better.  Some financial experts are beginning to suggest that you should own your own home earlier in life and then in retirement consider renting.    Here’s a discussion about determining whether the price-to-rent ratio is something you can live with.  Owning has other benefits that may not be as obvious.  If you rent and suddenly find that you need to have wider doorways or a level entranceway so that you can get a walker or wheelchair through, you may discover your options are limited and most likely you’ll be required to move regardless of how attached you are to your current neighborhood or residence.  All of these points suggest that home ownership isn’t a simple yes or no.  You may want to talk to a financial advisor to look at how your housing decision can best benefit you and a realtor can give you a biased but clearer understanding of whether renting or buying makes more sense in the neighborhood you want to live in.  Finally, whether you rent or buy, whether you choose a senior community or remain in your current community, you should assess those decisions early, much earlier than when a health crisis forces you to upend your decision and go a different route.  Because the most expensive option will be the one in which you are forced to change your mind.  Remember, you’re long term housing goal isn’t to avoid renting or owning–it’s to avoid institutional care.

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