Retirement Cost-of-Living Comparison: Renting vs. Buying a Home in Retirement

Where do you want to live during your retirement years? And do you plan to buy a home or rent one? Those are key questions, with many factors to consider and large amounts of money at stake.

For example, if you buy a home in retirement, it’s an expensive commitment. You have to pay a large deposit up front, and you’ll be obligated to make equal monthly mortgage payments for up to 30 years.

If you rent a home, you’re usually committing for only one year at a time. However, you run the risk of your landlord raising the rent each time the lease ends.

Pros and cons exist for both options. To help you decide whether to buy a home or rent your residence during retirement, consider the following factors.

Read: 7 Common Myths About Home Buying

Buying a Home in Retirement

No matter what your stage of life, purchasing a house or condo is a major financial commitment. You have many choices when retiring, but if you later decide you goofed on your home plan, it is difficult to change course. Here are some pros and cons to buying a home after you retire.

Pros of Buying a Home in Retirement

Buying and owning your home in retirement offers some critical advantages. Consider these important factors that will help you decide whether this is the right decision for your retirement living:

• You own your castle. You can make the improvements or changes you desire. No landlord needs to approve changes, although there might be condominium rules or neighborhood restrictions if you live in a historic district, for example.
• Mortgage payments remain stable. You know exactly how much your monthly mortgage payment will be for the entire term of the loan. It cannot rise, unless you have an adjustable-rate loan.
• You can pass the property on. Your family or other heirs can inherit the property.
• You are not tied to your home forever. You have the option to sell it and buy a different residence or to switch to renting.
• Tax advantages might accrue. A mortgage can provide tax benefits. Consult an accountant or other tax advisor to determine if those factors are significant.

Read: How Much Money Do I Need to Retire?

Cons of Buying a Home in Retirement

You should also consider the disadvantages that exist to owning a home during retirement. Here are a few disadvantages that could turn you off of home ownership:

• Your residence will need ongoing maintenance and repairs. Things break down, no matter how diligent you are about keeping major systems and appliances in good working order. For example, you might have to fix or replace the roof, windows, water heating system, and appliances like the washing machine and dryer. You will need adequate retirement savings to pay for necessary maintenance and repairs.
• You are required to pay extra costs. These costs include taxes, insurance and possibly homeowners association fees. It is unlikely these costs will decrease during the term of your mortgage.
• If you want to move, selling your home might be difficult. You do not have control over the local housing market.

Renting in Retirement

It is no longer assumed that all retirees have to own the home they live in during retirement. They can rent a home instead. Renting can be a viable and desirable option for many people. However, as with buying a home, there are pros and cons to renting that you need to consider carefully.

Related: Here’s How Much Rent Money You’ll Need to Afford an Apartment in 50 U.S. Cities

Pros of Renting a Home in Retirement

Renting a home offers unique advantages that might appeal to you more than the advantages of owning a home. Here are some of the positive points of a rental option:

• You generally do not have to make a long-term commitment. As a renter, your lease might be annual, with the option to renew each year — or it might even be month-to-month.
• You have considerable flexibility. You can move elsewhere for any reason — for example, if the cost of living in your area becomes too high or you want to live closer to family.
• You have no expensive maintenance or repair costs. In most cases this is true. It is a relief to be able to call someone else to fix the overflowing toilet.
• You do not have to pay property taxes. Such taxes can cost thousands of dollars per year.

Cons of Renting a Home in Retirement

Although there are a number of positive features to rental homes, consider some of the disadvantages to this option so you can better decide if it’s right for your retirement situation.

• You have less control over housing costs. The main disadvantage of renting is that after the term of your lease, you have no control over housing costs. Unless you live in a rent-controlled apartment, your landlord is free to raise the rent. Your choices are to pay the higher amount, negotiate cheaper rent or move.
• Your ability to personalize is limited. Most standard form leases give you limited opportunities to make improvements or changes to your home. It is likely your landlord will not permit major structural changes.
• You have little say about changes. If the owner wants to make certain changes to the property — for example, to paint the house an ugly color — you have to accept them.
• You are at the landlord’s mercy. If you want to move to a different home, you might be dependent on your landlord to give a good reference. If you have habitually paid your rent late or had disputes, the landlord might be reluctant to support you, which could affect your ability to rent elsewhere.

Renting vs. Buying Calculator

It’s tricky to compare the cost of renting versus buying a home in retirement because there are so many variables. An interactive calculator by The New York Times can help you generate estimates for comparison.

Here’s a hypothetical example using only a few factors:

Home purchase price: $200,000
Down payment: $40,000 (20 percent)
Mortgage term: 30 years
Mortgage interest rate: 3.5 percent
Monthly mortgage payment: $718
Length of time you plan to live in the home: nine years

With these factors, you are better off renting if your monthly rent for a comparable home is less than $711.

Because there are myriad other factors — including maintenance and closing costs for homeowners, and security deposits and renters insurance for renters — you can change the variables for a customized estimate that matches your personal situation.

Ask These 6 Questions First

Understanding the pros and cons of buying versus renting in retirement will help guide your decision. But before you decide, there are threshold questions you need to ask yourself first.

Consider the following:

1. When do you expect to retire?
2. Do you already own a home you can sell to buy a new property? If not, make sure you have the resources for a down payment, closing costs and up-front expenses.
3. How long do you think you will stay in the new home?
4. What are your sources of income for paying housing costs? It’s also important to gauge how consistent that income will be.
5. How much money do you have available for total housing costs? If you buy a home, do not forget to include taxes, insurance and a reserve for maintenance, upgrades and repairs. If you rent a home, you will likely be required to pay a security deposit and the last month’s rent up front, plus renters insurance.
6. What is the trend for cost of living in the area? If you own a home, rising home values might be advantageous if you plan to sell later. If you are a renter, your landlord might raise the rent if the neighborhood becomes more desirable.

Bottom Line

Making the decision of renting versus buying is complex at any stage in life. You need to weigh the pros and cons of each possibility for properties in your area. Online calculators can help you get a better estimate of the cost-of-living comparison. Ultimately, your decision depends on your assets, risk tolerance and personal preferences for your retirement living.