The Pros and Cons of Renting vs. Owning in Retirement

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The pandemic has changed what retirement looks like for many Americans. Some were forced to push back their plans to retire, others took advantage of the bizarre lull in workplace activity to call it a day sooner and retired ahead of their previous target date. Now, as the pandemic appears to be quieting down somewhat, retirement plans may be getting kind of back to normal, falling in line with a trend we saw well before COVID-19 began:  Americans want to retire early — at or around 62, according to a recent survey from Natixis Investment Managers

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Exactly how Americans plan to do this varies, and financial experts strongly advise that no matter when you aim to retire — but especially if you wish to do so early — you need to have a solid plan in place well ahead of time. This means sorting out not just where you want to live and on how much, but whether it makes sense to own or rent in retirement. At first, it could seem like the obvious answer is that it is better to own, but there is actually a strong argument for both renting and owning. 

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First, let’s look at the pros of renting in retirement — benefits that you don’t get if you own a home.  

Renting Comes With Flexibility

“Renting comes with several benefits, chief among them flexibility,” said Brian Davis, a real estate investor and founder at SparkRental.com. “Renters can pick up and move as soon as their lease term ends, and if they want even more flexibility, they can sign a month-to-month lease. Retirees can use that flexibility to travel, or to snowbird — spending parts of the year in different cities.”

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Renting Means You Don’t Have To Pay For Household Repairs

“Renters also don’t have to budget for repairs or maintenance, nor do they have to do any work around the house,” Davis said. “Many homeowners end up spending every weekend working on their homes, from cutting grass to maintenance to major repairs and renovations. Tenants delegate those expenses and labor to their landlord.”

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Renters Don’t Have To Worry About Declining Property Values

“Nearly two-thirds of U.S. households own their home, this has a big part to play in the fact that in the US those who rent their homes enjoy so few protections,” said Peter Kimpton, financial services expert at Family Money. “However, you only have to look at the declining property values in much of the Rust Belt over the past 50 years to see that there can be serious drawbacks to homeownership. Also for many across the country, homeownership leaves them trapped in one place largely due to the high transaction costs of buying and selling property.”

See: Here’s Exactly How Much Savings You Need To Retire In Your State

Renting Means More Liquidity Than Owning

“Renting is a good idea for someone who may want to move, downsize, or will likely need assistance with activities of daily living,” said Toby Mathis, author of “Infinity Investing: How The Rich Get Richer And How You Can Do The Same” and a founding partner of Anderson Law Group. “The retiree will have more liquidity than owning, which can either be a good thing if they invest the funds or a bad thing if they keep it in cash and allow the high inflationary cycle to devalue the account.”  

Now, let’s consider the pros of owning a house in retirement — benefits that you don’t get if you rent. 

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Homeownership Builds Equity

“Homeowners build equity over time, as they simultaneously pay down their mortgage balance and their home (hopefully) appreciates in value,” Davis said. “They can tap that equity in an emergency, or even live on payments from a reverse mortgage.”

Homeowners Have Higher Net Worth

“It’s worth mentioning that the single greatest predictive factor for net worth isn’t race or gender or education level or urbanity — but homeownership,” Davis said. “The average homeowner has a net worth of $254,900, based on the 2019 Survey of Consumer Finances. The average renter? A meager $6,270.”

Check Out: 14 Key Signs You Will Run Out of Money in Retirement

Homeownership Can Be Cheaper Than Renting

“The main reason to continue home ownership [into retirement] is that it may be cheaper than renting, especially if property taxes are manageable and the home is completely paid off,” said Michael Fischer, director and wealth advisor at Round Table Wealth Management. “Some states even offer property tax reduction, property tax freezes, or an extra state income tax deduction for senior citizens. On the non-financial side, owning a home may provide more space to host family gatherings and spend time with grandchildren.

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 Owning Gives You More Security

“Owning your own property allows you a lot more control over your outgoings as you’re not beholden to the whims of the rental market,” Kimpton said. “This type of security is comforting for many people in retirement, and also means there is something to leave behind to family as inheritance.”

Read: 17 Tips To Live Comfortably Off Just a Social Security Check

How To Decide Whether To Rent or Buy in Retirement

The decision of whether to rent or buy in or for retirement is a personal one that only you can answer for yourself, but if you’re on the fence, Mathis suggests using a 5/25 general rule to start.  

“If a retiree can rent a home annually for less than 5% of the value of the home, they should rent (i.e. if a house is $500,000 but can be rented for less than $25,000 per year),” Mathis said. “If the costs of buying a home are 25% or less of the total annual compensation, they should consider owning (i.e. if all costs of home ownership is $25,000, the retiree should be bringing in $100,000 per annum).”

Denny Artache, president and CEO of Artache Financial Group, asserts that argument can be made either way but that perhaps if a retiree has not yet figured out a way to own property, they might be better off renting. 

“Perhaps renting will provide less headaches,” Artache said. “I firmly believe this decision should be made and planned well in advance of retirement as we know many up north sell their expensive properties and take the profits to fund a less expensive and more weather friendly lifestyle in Florida — but remember inflation still has its hands on food and everything else, we consume and purchase so budget yourself accordingly.”

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About the Author

Nicole Spector is a writer, editor, and author based in Los Angeles by way of Brooklyn. Her work has appeared in Vogue, the Atlantic, Vice, and The New Yorker. She's a frequent contributor to NBC News and Publishers Weekly. Her 2013 debut novel, "Fifty Shades of Dorian Gray" received laudatory blurbs from the likes of Fred Armisen and Ken Kalfus, and was published in the US, UK, France, and Russia — though nobody knows whatever happened with the Russian edition! She has an affinity for Twitter.

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