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Key Retirement Question: Rent Or Own?

There are 10,000 Baby Boomers retiring every day for another 14 years, which means a lot of people have a choice that will have a monumental impact on their retirement: Rent or own?

Wait a minute. Didn’t they settle that question 20 or 30 years ago?

Yes and home ownership was a runaway winner. The Consumer Financial Protection Bureau says that 33 million Americans 65 and older (80 percent) own their home. About 23 million people in that group have paid off their mortgage so they own it free and clear, meaning they could sell it and pocket all the proceeds.

Home prices have risen 20 percent nationally from January of 2012 to March of 2015, a period that coincides almost perfectly with the Baby Boomer generation easing into retirement age. Forecasts are for that trend to continue, which puts Boomers in an enviable position: Sell their home, add a huge chunk of change to their retirement savings and then … what?

Rent or own during retirement years?

“There really is no pat answer for that because there are so many things to consider,” said Dr. Joan Koonce, a professor at the University of Georgia’s prestigious Financial Planning department. “What are your retirement goals? What kind of lifestyle do you want? Do you have the financial and physical ability to keep up with the demands of home ownership?

“There are a lot of questions that have to be answered before you make this choice.”

Stability In Ownership

There are compelling arguments to be made on both sides.

If you own a home, chances are you have lived there for a long time and are comfortable with the environment. You are familiar with your neighbors and your neighborhood. You know where the grocery market, restaurants, church, doctor’s office and hospital are and how long it takes to get there.

Some other factors favoring home ownership include:

  • No fear of rent increases or being evicted.
  • You can modify living space as needed if you become disabled at any time.
  • You can plant a garden, add a pool/patio/grotto or paint the house without asking permission.
  • Pets permitted (or not).
  • Tax break on mortgage and property.

On the other side of the table are people who see retirement as a new adventure in life. If you are in good health and on stable financial ground – mortgage paid, no credit card debt, own your car and have no student loan payments lingering – the chance to walk away from the responsibility of home ownership might be just the ticket.

Freedom From Responsibility

The biggest plus for renting is flexibility in living arrangements. No more 15-or 30-year commitments. If you don’t like your neighborhood, rent a place in another part of town. Tired of winters? Rent a home/condo/apartment in a warmer climate. Always wanted to live on a beach? They have rentals there, too.

And the beauty of all that is if you don’t like the new spot, you can pick up and go as soon your lease expires. Some of the other benefits suddenly on the rental side include:

  • No responsibility for maintenance. If the roof leaks, the plumbing needs repairs, the trees need trimming, call the landlord.
  • Perfect time to downsize. Why take care of a 5/3 when all you really need is a 2/2?
  • Find a residence that accommodates your age. No more stairs, if you don’t want them.
  • Get closer to family. If your children have relocated, you can, too.
  • Considerably less up-front costs. Deposit vs. down payment. A big win for renters.
  • No more property taxes.
  • No more home insurance.

The last three factors are economic advantages that can considerably improve your retirement savings. Part of the profits from the sale of your home could be re-invested in the stock market to generate income while you play out the Golden Years. So could money not spent on taxes and insurance.

“The price of renting doesn’t necessarily mean you’re going to automatically come out of head,” Dr. Koonce said. “Also, owning a home means you are building equity and if you need to pay for some type of care later in life, that equity might come in handy.

“But there are some real hassles involved in owning a home and you have to decide if you want to spend your resources on that. It’s a tough choice that people are going to have to make.”

Bill “No Pay” Fay has lived a meager financial existence his entire life. He started writing/bragging about it in 2012, helping birth Debt.org into existence as the site’s original “Frugal Man.” Prior to that, he spent more than 30 years covering the high finance world of college and professional sports for major publications, including the Associated Press, New York Times and Sports Illustrated. His interest in sports has waned some, but he is as passionate as ever about not reaching for his wallet. Bill can be reached at [email protected].

Rent Or Own Your Home In Retirement

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    Sources:

    1. Edleson, H. (2014, December 19) Selling the Family Home Is Liberating for Many Retirees. Retrieved from http://www.nytimes.com/2014/12/20/your-money/selling-the-family-home-is-liberating-for-many-retirees.html?_r=0
    2. NA, (2014, May 7) CFPB Spotlights Mortgage Debt Challenges Faced By Older Americans. Retrieved from http://www.consumerfinance.gov/newsroom/cfpb-spotlights-mortgage-debt-challenges-faced-by-older-americans/
    3. NA, (2015, June 12) S&P/Case-Shiller U.S. National Home Price Index. Retrieved from http://us.spindices.com/indices/real-estate/sp-case-shiller-us-national-home-price-index#