Renting vs. Buying a House in Retirement: Where Do You See Yourself?

For decades we’ve thought of the typical American renter as the Young 20-Something Professional. You know… the one who just moved across the country to take that first job. Shops everything IKEA. Can’t afford a down payment (yet!) but plans to buy a home someday.

But what you might not know is that the renter pool is starting to look more like this:

65-year-old retiree and empty nester. Fully furnished single-family home. Ready to downsize from 3,000 square feet to a more manageable residence. Tired of home maintenance and repairs.

According to data from RENTCafé, renter households over 60 grew 43% in the 10-year period between 2007 and 2017 from 6.551 million to 9.37 million, outpacing the growth rate of younger groups. Although renters still tend to be younger overall, the analysis estimates that by 2025, 26% of renter households will be 60 and over.

However, whether you should rent or buy a house in retirement depends on a number of factors including your current lifestyle, financial situation, health, location, and age.

As with many things in life, there are trade-offs no matter which way you slice it. We’ve broken down the benefits of each path so you can start prioritizing toward a happy retirement.

How your current housing and financial situation factors into your future

Retirement brings lots of changes in spending, most of them reductions. The average retired household spends about $46,000 each year, which is 25% less than the average working household, according to SmartAsset.com.

But while retirees spend much less on education, personal insurance and pensions, apparel, transportation, food, and even housing, other expenses rise. Health care, for instance, can rise about 44 percent, these statistics show, making it crucial to cut costs once you retire.

Even if you haven’t paid off your mortgage, it may make sense to stay in your current house if the mortgage payments are manageable, especially if you’ve built up a substantial amount of home equity.

Home equity is the market value of your property, minus the amount you owe on your loan. (HomeLight’s Home Value Estimator is one online automated valuation model that can give you a ballpark figure of your home’s current market value.)

Your home’s value increases over time, making your equity a greater resource. With the average 65-year-old couple saving about $100,000 for retirement, tapping into your home equity can help supplement your income. You also can use the equity strategically through a reverse mortgage, freeing up money for unexpected expenses.

But accessing equity isn’t an easy decision, either. The dividends from investing equity can increase your income, which may in turn reduce your Social Security benefits.

Plus, the cost of homeownership goes beyond the mortgage. It includes utilities, property taxes, and homeowners’ insurance, which increases for older homes. You also may have HOA and other municipal fees, plus maintenance costs. (The New York Times offers a detailed online tool to help you compare renting versus buying over time.)

“When you have an older home, you want to look at potential maintenance issues. Does it need a new roof? Does it need an air conditioner? What kind of maintenance issues are you expecting over the next few years?” said Uli Wills, a top-selling agent in North Port, Florida who’s also a Seniors Real Estate Specialist.

The case for renting in retirement

What are the benefits that have the 60-plus demographic flocking to the rental lifestyle? Some of them include:

Fixed costs for the lease term

Renting makes your budget more predictable, at least for the term of your lease. The cost of rent, especially in an apartment or similar community, may include fees for amenities, such as water use, gas, internet, and cable.

The median price of rent of an unfurnished apartment in the United States in 2017 was $1,492 per month, with the most expensive rents in the Northeast and Western regions of the country.

Owning still costs money even if you’ve paid off your mortgage

46% of retirees own their homes free and clear, and could feasibly use the proceeds from selling that home toward the purchase of a smaller, more manageable residence outright.

But there’s still extra costs associated with owning that renters don’t have to factor in.

“Even if you don’t have a mortgage, you have ongoing costs of ownership,” says Wills, noting the additional monthly expenses of homeowners insurance and property taxes.

Convenient maintenance

This depends on the attentiveness of your landlord or management company, but a rental allows you to pick up the phone and call someone to fix the washer that doesn’t spin properly, the screen door that won’t shut right, and other maintenance problems that homeowners have to hire out and arrange for.

Maintenance assistance becomes more important as time goes on and handling upkeep on your own gets increasingly difficult. You also won’t have to pay additional repair costs or set aside 2% of home’s value for yearly maintenance.

Flexibility

As long as you pay your rent on time, your place belongs to you, so if you rent an apartment, townhouse, or condo, you have the freedom to travel whenever you like without necessarily finding someone to housesit.

In a large building or rental community, good neighbors tend to notice anything amiss when you’re gone; they also can contact the landlord or management company for a problem like, say, a noticeable water leak. “If you like to travel in your retirement years, you just pack up and go,” Wills said. “If there are any issues, the owner will take care of the property.”

The case for buying another house in retirement

As a homeowner for many years, you have to remember that renting would mean once again dealing with landlords and potentially close quarters. Plus you’d no longer be investing into an asset, but spending money you’ll never see again.

So before you sign that lease, consider the benefits of your alternative: finding a residence more suitable for your needs, and buying it.

Keep your personal space and privacy

If you’re not ready to give up having a backyard that’s separate from your neighbors and put a premium on boundaries, then buying a house in retirement could allow you to continue the lifestyle you’ve been accustomed to. Don’t let sharing a wall with noisy loud neighbors put an end to your peaceful retirement dreams. You didn’t like living in an apartment back in the day, so why would you now?

Mortgages are cheaper

Rent has been increasing at a rate of 3.7% every year, so with every lease you sign, you’ll have to pay more for the exact same living situation.

When you own a house, you don’t have to worry about the landlord jacking up the cost of rent year after year. And to start, the average national cost of a mortgage payment is $1,030 (as we mentioned above, renting is more like $1,500 on average). Keep in mind, the mortgage payment doesn’t include the costs of taxes and additional fees.

Investment opportunity

No need to base your location on school districts or proximity to work, so why not buy a house in a fast-rising real estate market? If you can afford to buy in a more expensive market, Boston, New York, and Seattle are some of the best cities to invest in property at this age, helping you earn roughly $10,000 a year or more in equity, according to an analysis by the Department of Housing and Urban Development.

Security for future generations

Homeownership also provides a sense of security in that you have an asset to leave to your heirs. There are ways to gift the home with limited tax liability if you decided to rent down the line, or you can transfer it seamlessly with smart estate planning.

Tax benefits of homeownership

Under the Tax Cuts and Jobs Act, homeowners can deduct the interest on up to $750,000 of their mortgage debt as well as $10,000 in state and local property taxes.

What to consider before your next move

As you set out to examine the next best move for your retirement plans, a few good rules of thumb apply:

Decide if you need to downsize in price, square footage, or both

Going smaller doesn’t mean you need to embrace tiny house living, but you should evaluate what you can reasonably maintain and afford. The National Association of Realtors notes that buyers ages 73 to 93 were among the highest share of buyers in 2018 to opt for a smaller home (17%), with the second lowest median home price at $243,000.

Wills helped one couple find a single-family house in another state closer to relatives after the husband had a stroke. They couldn’t truly enjoy their 2,200-square-foot house with three bedrooms and amenities such as a den, a pool, and a shed. “Before, he helped with the maintenance. Now it’s all on her, and it’s a big place. It’s just not practical anymore,” Wills said.

Pick a location

Location doesn’t always translate to warmer weather. U.S. Census figures show that Florida is popular with residents over age 65, comprising 19% of the population. But these same statistics show that other states with high numbers of senior residents include Maine, West Virginia, Vermont, Pennsylvania, Montana, Delaware, Hawaii, Oregon, and Arizona.

Often what’s more important is closeness to family members and accessibility, particularly to shopping and health care. In fact, the most valued senior housing amenity in North America is easy access to transportation, according to Statista, a provider of market and consumer data that compiles information for 170 industries and from more than 22,000 renowned sources.

Wills said that whether buying or renting, many of her clients look for community amenities, such as a pool that they can enjoy but they’re not responsible for the upkeep.

“Also very popular are communities with clubhouses with activities: card games, mah-jongg, social lunches,” she said. “They don’t have the maintenance issues, and they meet new friends.”

Think about long-term use and aging-in-place features

Ten percent of the $214 billion home improvement industry is dedicated to “aging in place” features, such as non-slip flooring, bathroom aids such as grab bars, wider doorways for wheelchairs and walkers, and lever handles on doors instead of knobs.

If your current home doesn’t have these features, you may want to consider one that does, whether you buy or rent.

A step-in tub or a curbless shower removes the difficulty of lifting a leg over a tub’s edge, not to mention maintaining a good sense of balance. Doorways often are 24 inches wide, but wheelchairs need a doorway that’s at least 32 inches wide.

“We see that a lot with folks having to sell their homes if their health situation changes because the doorways are not wide enough,” Wills said.

At the least, consider having nearby parking and a single story layout, as well as no stairs to reach your door. Wills said that she’s tactfully swayed some clients of advanced age away from a second-story condo with no elevator to one that has an elevator.

Do the work, then follow your dreams

Whether you see a move in retirement as a forever one or something more suitable for the short term, examining these different lifestyle factors will help you decide whether renting or buying is the right step for this next stage of life.

After you’ve crunched all the finances and weighed the pros and cons, the bottom line is: Which path will lead you to the happiest retirement? Whether that’s tennis court access or maintaining independence with a more accessible single-family home, define your dreams, then decide the best way to get there.

Header Image Source: (Edgar Chaparro/ Unsplash)