Should You Rent or Own Your Home in Retirement?

Written by , April 23, 2013

Should You Rent or Own Your Home in RetirementMany things will change in your life when you enter retirement. Your family structure and obligations will become different as your children move away and have children of their own. Your work life will change as you reduce your work schedule or perhaps stop working entirely. Each of these changes will require you to make a choice of how you want your retirement to be.

Since you’ll always need a place to live, one of the decisions you’ll face is whether it’s better to rent or own your home during retirement.

Here are some factors to consider when you’re making that decision.

  • Where Will You Live During Retirement? Some people use their retirements as an opportunity to move someplace new. This might be closer to family, to a better climate, or to an area of the country (or perhaps even to a new country) where the cost of living is lower. In some parts of the country, the demand for rental units is higher than the relative demand for purchasing, so depending on the location it might make more sense to buy instead of rent, or vice versa.
  • Can You Downsize Your Home? If you currently own your home, and are looking to downsize, then you may be able to unlock some of the value of your current home. If you purchased your home many decades ago then there may be significant value that you could “cash out” by selling your home, then use those proceeds to pay for the rent on a much smaller home or apartment, and use the rest of the money to pay other retirement costs.
  • Can You Manage the Upkeep of a Home? Some retirees are unwilling or unable to continue performing the maintenance and other upkeep tasks involved with owning their own homes. By renting, many of these obligations become the responsibility of the landlord or property manager. No longer having to worry about these routine tasks can be a great value to many individuals during their retirement years.
  • Real Estate Market Risks. If your home represents a significant majority of your wealth, and you’re relying on your home value to help fund your retirement expenses, be aware that retaining ownership means your portfolio is relatively non-diversified. This lack of diversification exposes you to fluctuations within your local real estate market.
  • What is Your Estate Plan? Estate planning isn’t just an issue for the wealthy. Even middle class retirees are likely to have sizeable estates once the values of their homes are included. Unfortunately, trying to pass along a home to multiple heirs can be difficult, and estate sales of real estate sometimes bring unfavorable prices. If you’d rather have greater control over the disposition of your estate, and be able to make financial gifts while you’re still alive, then you might want to sell your current home when you retire and move to a rental property.
  • Even if you make a plan for the future now, make sure to stay informed of current financial conditions. For example, there’s a good chance that the federal tax laws could look significantly different than they do now, so you may need to refine your plan in the years to come.

    Tags: ,

    • Twitter
    • Facebook
    • Digg
    • Delicious
    • Reddit
    • Stumble
    • Design Float
    • LinkedIn
    • MySpace
    Subscribe   Share/Bookmark

    Leave a Reply