As you enter the retirement risk zone, you will need to consider your living situation, primarily, what to do with your home. Whether you own outright, have mortgage payments, or rent - housing expenses are the largest portion of most retiree's living costs. Deciding whether it's best to own your home, sell your home, tap into your home equity, or rent will profoundly affect the quality of your retirement. This article will guide you through the thought process we lead clients through at Peak Financial Planning when evaluating renting versus owning in retirement.
We help pre-retirees and early retirees get the most out of their retirement AND their money. Schedule a free consultation with us to learn more about working with our fee only, fiduciary financial advising team to help build your retirement plan.
You have worked hard your whole life to save for retirement. You've put money into retirement accounts, maybe purchased a house, maybe even paid off a house early! All with the goal of providing you and your family financial flexibility so that you can enjoy your retirement.
Financial flexibility in retirement is all about cash flow. You need enough monthly income from your savings and investments to support your desired spending in retirement. Housing will have the largest proportional impact on your monthly expenses. This means it has the largest influence on how much money you'll be able to spend on the things you WANT, rather than the things you MUST.
Renting in retirement can be an effective strategy to improve your cash flow, and therefore the quality of your retirement. This is not a blanket recommendation for all people in all circumstances to consider renting their retirement house. However, it should not be written off as an option entirely due to stigma.
We recommend considering renting a retirement house in the following circumstances:
1) If you are house rich but cash poor.
2) If significant home equity is trapped in your home.
3) If your kids will end up selling the property at your death, it can be worth considering selling while alive in order to improve quality of life.
4) If current renters are evaluating a home purchase that would tap into significant retirement funds.
Click here to schedule a free no obligation consultation with our Fee Only Fiduciary Financial Planning team.
You only get one shot at a GREAT retirement. Retirement satisfaction is a battle between stability and flexibility. We want the right balance so that you feel 10/10 confident that you won't run out of money in retirement, without living so stingily that you can't enjoy the experience.
Improving our financial flexibility is a product of three things: increasing how much we save, reducing how much we spend, or some combination of the two. Unfortunately, the closer you get to retirement, the less influence you have over how much you can save, limiting us to fine tuning retirement spending...
The average retired household spends about $17,500 per year on housing expenses.
Renting in retirement can provide significant financial flexibility, meaning more money for you to spend on the things you enjoy!
Lower monthly payments by eliminating (or avoiding) property taxes, homeowners insurance, and reducing maintenance expenses can provide your retirement budget with more wiggle room.
Imagine the possibilities with the extra money saved - you can finally take that dream vacation or spoil your grandchildren.
In many states, property taxes go up over time, sometimes even outpacing inflation. This means that over time, housing expenses may eat a proportionally larger and larger portion of your retirement budget.
As a renter, you’re off the hook for paying high property taxes or homeowners insurance. You won’t have to worry about the tax implications of property ownership. Nor are you responsible for annual homeowners insurance premiums - leave that to your landlord.
As both you AND your home age, the cost of maintenance increases over time.
That's because as you age, you need to either commit more of your time and energy to home maintenance (think gardening, home repairs, etc) or you need to commit more of your financial resources to pay someone to do it for you.
AND, as your home ages, it will demand more from you - roofs, HVACs, plumbing - they all wear out over time and demand large financial outlays.
When you rent, the landlord is typically responsible for repairs and maintenance, saving you both time and money. No more stressing about fixing a leaky faucet or replacing a broken appliance; you can sit back, relax, and let your landlord take care of it.
Life is full of surprises.
Owning a home can bring unexpected costs. Renting in retirement can help you avoid these financial pitfalls, with landlords responsible for repairs.
For those pre-retirees that are cash poor but house rich, moving from renting to owning can give you access to locked away home equity that can be used for emergencies such as surprise medical expenses, kids weddings, unanticipated travel costs, etc.
Renting in retirement can offer a great deal of lifestyle flexibility.
It can allow you to time the current real estate market for the perfect retirement downsize (or choosing the perfect retirement home), move closer to family and friends, or explore travel opportunities.
You might find that your current home is too large or difficult to maintain. Downsizing to a smaller rental property can be a simpler process than selling your home and buying a new home. By opting to rent you can:
A) Extract locked up home equity.
B) Simplify your life by eliminating maintenance requirements.
C) Reduce your home upkeep and energy expenses
D) Address mobility issues that may arise during retirement.
Renting a smaller property can also provide you with the freedom to test out a new location before committing to a "permanent" home purchase.
Family and friends play a crucial role in our emotional well-being and overall happiness. Renting a retirement home affords you the opportunity to relocate closer to your loved ones without the commitment of purchasing a new home.
A Retirement Community can offer a unique living experience that provides:
Many retirement communities offer rental options, allowing you to experience the benefits of community living without the commitment of buying a property.
Click here to schedule a free no obligation consultation with our Fee Only Fiduciary Financial Planning team.
One of the perks of retirement is having the time and freedom to travel and explore new destinations. Renting in retirement affords the opportunity for travel and adventure, with the benefit of a lock-and-leave lifestyle and the potential to explore new locations.
The lock-and-leave lifestyle allows you to easily leave your residence for extended durations without concern for upkeep or safety. By renting, you can embark on your adventures without the stress of maintaining a property or worrying about its security.
Have you always dreamed of living by the beach or immersing yourself in a bustling city? Renting provides the flexibility to try out different locations before committing to a permanent residence. This allows you to experience new cultures, meet new people, and expand your horizons.
Renting in retirement provides more time for leisure and hobbies. Trade yard work and cleaning out gutters for bike rides or hikes. You only get to live your retirement years once - planning ahead will allow you to make the best of them.
Renting a home in retirement offers numerous benefits, including financial flexibility, lifestyle flexibility, travel and adventure opportunities, and more time for leisure and hobbies. When renting is the right option, it can certainly lead to a more fulfilling and enjoyable retirement.
As with most complicated decisions in life, we highly recommend consulting with a qualified financial advisor or financial planner before making any significant changes to your housing situation.
Renting in retirement can provide a viable option depending on your situation and goals. It offers flexibility, lower costs, and allows you to free up home equity.
Furthermore, it could be the preferred option for empty nesters, those ready to downsize, or those who plan to move away for some years.
Renting a home offers several advantages such as flexibility, lower costs, no need for repairs or maintenance, access to amenities and ability to move quickly. Additionally, renting offers greater freedom to live in areas that would otherwise be unaffordable. This makes it an attractive option for those looking for a more convenient lifestyle.
Renting in retirement helps provide financial flexibility by lowering housing costs, eliminating property taxes, and reducing maintenance expenses.
This allows for a more flexible retirement budget.
A lock-and-leave lifestyle in retirement provides retirees with the convenience and peace of mind of being able to easily leave their home for extended periods, allowing them to travel and enjoy new experiences.
This type of lifestyle is becoming increasingly popular among retirees, as it allows them to enjoy the freedom of travel without the worry of having to maintain a home while away.
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