Rent or own? Which is the best retirement home?

As you approach retirement, you may be wondering, “Should I rent or own?” Which is the best financial decision? With current home prices soaring and mortgage rates at their highest in nearly 20 years, buying a retirement home could be a disaster for your financial security. there is. Conversely, if you plan to retire in your current home, you’ll need to have a completely different conversation about retirement planning.

Some retirees may need to reduce their housing costs. Some people may want to make a fresh start in a new location after retirement. At some point in retirement, you may not want to deal with all the hassle (and costs) of maintaining a single-family home. Sadly, too many people do not have enough money saved to maintain their standard of living in retirement and will need access to home equity to fund their retirement. There is a possibility.

If you are currently renting and nearing retirement, leaving your home now and buying a new home may not help you reach your goals or retire faster or easier. Probably not. For homeowners, it can be shocking to see what prices less desirable apartments are renting for these days. Moving after retirement should not be a decision taken lightly. Being house poor in your 20s is another matter. Once you retire, different challenges await you.

There are several things to consider when deciding whether to rent or own a home as a retiree.

Need access to home equity?

A home is often the most important asset for most people. Even if your mortgage payments are low (or non-existent), it’s still expensive to maintain that home equity. What would your retirement look like if you could turn your home equity into retirement income?

Using your home as part of your retirement income strategy requires active use of the asset. This could mean continuing with your mortgage after retirement, selling your home, renting out your home, or taking out a reverse mortgage. All of these options have different advantages and disadvantages.

For some people, keeping their home may be the best option, especially if they have a low tax base and a small mortgage with historically low interest rates. If you’re a recent purchaser or don’t have many assets, you may need to sell to reduce your retirement expenses.

A friend likes to say, “The only way to leave this house is to go feet first.” She has a one-story house from which she never wants to leave. Consider whether she can live her old age in her current home. Would she like to stay in the same city or state?

Do you need to sell your home to retire?

Many baby boomers cannot afford to buy a home after they retire. Selling your home may be the best option to optimize your housing costs during retirement. The good news is that many baby boomers will live much longer than expected. The bad news is that as they live longer, their retirement savings will need to continue for even longer.

Is owning a home an asset or a hassle?

Yes, homeownership is an accomplishment and something to be proud of. At the same time, it can come with great responsibility and even financial hardship. The longer you live there, the more you will always incur the cost of necessary repairs, replacements, and maintenance. Not to mention the property tax, Tax Cuts and Jobs Act of 2017 (Former Trump’s tax plan) – Full tax deduction is not available for many California homeowners.

Renting may be cheaper, especially in the short term. However, the big disadvantage for renters is that housing costs increase over time. To be honest, if you start renting in your 70s or your girlfriend’s 80s, inflation and rent increases won’t be as much of an issue throughout your life as compared to someone in their 20s or their 30s.

How much should you spend on retirement housing?

Whether you plan to rent or own in retirement, try not to spend more than 30% of your income on housing costs. In a perfect world, this number would be closer to his 15%, allowing him to do everything he wanted to do in retirement with just enough disposable income. If you own your home, your housing costs will likely go up, and your mortgage will likely be paid off by early retirement.

We understand that spending this meager income on housing may not be realistic for many retirees. High cost of living cities like Los Angeles Or even Palm Springs, California. Still, a lower cost of living means you’re much less likely to run out of money in retirement, not to mention having more money for other things like traveling and maintaining your health.

Related: How to reduce medical costs in retirement

Planning to move after retirement?

If you’re planning to move after retirement, consider how long you plan to stay in your new home. The shorter the tenure, the fewer benefits of homeownership.

If your term is less than five years, it is often difficult to recoup the costs of buying and selling a home. This is true even when the real estate market is active. Even more true if it’s not. The shorter your term, the more likely you are to benefit from renting as a retiree.

If you expect to continue living in the same house for at least 10 years, it may be a good idea to buy one. Even if you have the funds to pay for a home in cash, consider getting at least a small mortgage or home equity line of credit. This gives you the most financial flexibility as you age.

Owning a home is still part of the American dream, and many retirees have a hard time letting go. When deciding whether to rent or own in retirement, think long-term. If you already rent or own, the decision is a little easier. It’s always easiest to stick to the status quo. Make sustainable choices to avoid stress and hasty choices in the future when fewer options are available.