Should You Rent or Buy a Home in Retirement?

Rent or buy? This is a question that is taking on more significance for those of us preparing to retire. Owning your own home in retirement used to be an assumed goal. That was when having paid off your mortgage was also assumed. No more. Many boomers are still lurching their way toward retirement dragging an anchor: a big mortgage. Does that make sense? Probably not.

Part of the mystique and emotional attraction of home ownership is the ability to fix it up just the way you like. As you age, that would seem to be less important, because of the time and cost commitment. If you already own the home mortgage free, then keeping it can be a logical move if you don’t need the equity to generate retirement income.

But as this article points out, renting is another way to be mortgage free in retirement. The benefits are many: fewer maintenance costs; less time spent on household tasks; more financial freedom to relocate on short notice; more money to invest in income producing assets. Once you free yourself from the notion that homeownership is compulsory for a secure or contented retirement, renting can make more sense than buying.

It used to be taken for granted that a single family home would appreciate in value over time, even during a short time interval. We know from recent economic events that this is a false and even financially dangerous assumption. Instead of making a rent or buy decision on false assumptions, it makes more sense to run the numbers based on your own situation and living options.

I recently came across this helpful “rent or buy calculator.” The calculator takes into account rent escalation, taxes, mortgage costs, insurance, selling expenses, and that all important “home maintenance” cost category. It uses these numbers to generate a financial gain vs. time curve, comparing buying to renting. In other words, it helps you determine where the financial break-even point might be, based on how long you might be living in that residence. The biggest wild card in the calculation is your estimate of how much your home will appreciate in value each year. I would run the break-curve for different appreciation rate estimates, including a scenario where home prices stay flat.

We own a home that is paid-for. Our current plan is to keep that home and leave it as a legacy to our sons. That may not be the best financial decision for us, but it provides numerous intangible benefits.

Have you made a decision about renting or buying a home when you retire?


Comments

  1. says

    There are some definite advantages to just having to call a landlord to fix the broken pipe, leaking roof, or plugged up toilet. Then again, you give up some measure of privacy since your landlord also has keys to your rental. Pros and cons to everything in life, that’s for sure. :)

  2. JMK says

    Can wait to seel this albatross when the kids are gone. THe mortgage will be done in 3-4 years and the youngest gone in 10ist. Picturing the two of us rambling around in this place and sitting on $6-700K of equity (today’s prices) is just stupid. A lovely 2brm apt would give us all the space we really need. I want it a transit route so we can get rid of one vehicle too. Oh the travel that freed up money will buy, and we’ll retire 5-7 years earlier because of the reduced overhead (utilities, insurance, maintenance, taxes, etc). Yes it’s been a lovely place to raise the kids, but I can’t wait to get out of here now.

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