Retirement Considerations: Renting or Homeownership?

Jun 8, 2022

As you approach retirement, it’s common to want to adjust your living arrangements to meet the needs of your changing lifestyle.

Retirement brings about changes that will impact your income, savings, habits, and travel plans. Rather than feel held back by your living arrangements, you should feel empowered to enjoy your later years of freedom and flexibility by choosing a home or place of dwelling that is right for you. Whether you’re considering renting temporarily or still desire to be a homeowner through your retirement years, keep reading for some helpful tips to guide you in making this important decision.

Benefits of homeownership in retirement

Comfort and Convenience

There are many reasons why you might want to continue owning a home throughout your retirement years. Many individuals and couples find it difficult to move and say goodbye to the home they raised their children in or built a life in, which is understandable. Others simply don’t want to deal with the hassle of transition at this point and are able to maintain their financial well-being, so there is no pressure to make a change.

Build Home Equity

One largely positive aspect of homeownership, of course, is the fact that you’re able to continue building equity. In case of an emergency, you can utilize a reverse mortgage to support your needs and create financial stability. Keeping your home might be more than worth it, especially if you have low tax requirements and a small mortgage. If you need to make any home improvements that will allow you to safely and comfortably age in place, you can take out an equity loan on your home to help complete a renovation, with a tax-deductible way to pay it back in the future.

Higher Net Worth

Another less-commonly discussed benefit of homeownership is the drastic increase in your net worth compared to renting a property. As a homeowner, you’re required to pay your mortgage which allows you to gain equity and become closer to owning the property. Renting, on the other hand, allows for no return on your investment and therefore doesn’t increase your net worth. In 2019, U.S. homeowners had a median net worth of $255,000 compared to renters with a median net worth of $6,300 – a notable difference.

Family Inheritance and Legacy

For some, keeping a home in the family is a priority and legacy goal. Since a home is a large financial asset, passing this down can benefit your loved ones in the years to come and allow your legacy to live on. Typically outlined in your will and estate plans, you can allow your loved ones to take over this property when you’re no longer around. A sentimental and valuable possession, a home is more than just an expensive asset, and many want to preserve memories made there. Living out your retirement years in your family home, to eventually pass it down, is more than enough reason to want to continue with homeownership.

In summary

Owning a home is a goal for many people and a prized possession for others. If you’re able to continue living comfortably in your home while doing the things you want in retirement, remaining a homeowner might be the more desired choice. Should you still want to own a home but worry it might not be a great spot to age in place, there is always an option to downsize and still maintain many of the above benefits of homeownership.

Why consider renting in retirement?

Freedom and Flexibility

Although homeownership has very clear benefits, there are some instances in which renting might align better with your retirement lifestyle and needs. Flexibility is one major reason why you might consider renting during retirement. If you and your partner intend to visit some of the top travel destinations for retirees and want the ability to vacation when you feel like it, renting might be a great compromise. Even if you have family members located in various places or desire spontaneity in your later years, you may not want the responsibility of maintaining an entire home. Renting in retirement allows you to move, relocate, or take trips with greater peace of mind.

Less Maintenance Responsibility

Renting certainly requires less time and energy on your end when it comes to issues, maintenance, and upkeep within a home. If you’re out of town or simply don’t have the capacity to fix problems that arise on your own, you’re able to contact the maintenance specialist who’ll be able to get the job done for you. In addition, you are paying a monthly rate as well as any utilities, so your maintenance calls should not cost you more money. Unlike owning a home where a visit from a specialist might cost you hundreds of dollars for the visit on top of costs to fix the problem, renting helps you avoid all that financial burden.

Increased liquidity

Depending once again on your lifestyle and goals, renting would allow you to have more money in your pocket to invest, therefore increasing your liquidity and chance to increase your income during retirement. It’s helpful to understand liquidity in financial planning and how it might apply to your situation in retirement. You might even be able to increase your income at a quicker rate than your real estate property appreciates, making this a smart financial decision. The larger your assets become, the less likely they are to be converted to cash and the less fluid it is. Renting allows you to avoid market crashes and budget inconsistency, as well as support your immediate, or short-term needs.

In summary

Renting is a great option for couples or individuals who desire flexibility, freedom, and the ability to change course at any moment while looking to support short-term financial needs. In addition, renting allows you to maintain peace of mind during your travels and flexibility to move or vacation more easily with the opportunity to still grow your investment strategy and support your future income in other ways.

It’s clear there is no right or wrong way to live in retirement. For some, staying in their home might suit their physical and financial needs just fine. Others might be excited about a fresh start, an opportunity to move about as they please, travel and adjust their lifestyle a bit more. Since there are so many factors that go into this decision, allow this list to guide you in the right direction and help you feel at ease to enjoy this well-deserved and awaited milestone.

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