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Your Home in Retirement

Jul 20, 2016 3 min read

Key Takeaways

  • Buy for the long haul, rent for the short term.
  • Don't bet the ranch on a reverse mortgage.
  • If you stay, downsize to avoid leaving emotional landmines.

 

Whether or not to become a homeowner is one of the most significant financial decisions young adults make. But as you near retirement, the question of “Should I own or rent?” may become top-of-mind once again.

 

 

Yet it isn’t only finances to consider in this decision, especially if you’ve lived in your family home for more than half your life. Let’s take a look at why you might stay in your current home, buy a new one or rent as you near retirement.
 

Financial reason to buy

If you own and your home is fully paid for, it’s likely your taxes, homeowner’s insurance and other fees are less expensive than what you would pay for rent. On average, homeowners spend $2,127 on homeowner taxes annually, compared to a median rent for a two-bedroom apartment that’s $1,300 per month. Without the need to pay a mortgage, financially speaking, it’s probably better to stay where you are, although costs will vary greatly depending on location.

But let’s say you plan to move to your dream spot in retirement — maybe the one near a warm beach with endless summers. Then, determining whether to buy or not comes down to economics. Add the cost of the down payment, mortgage, property taxes, insurance and regular maintenance. Compare that to the cost of average rent in the area. How long will it take for the cost of renting to surpass purchasing a home? If it’s a decade or longer, you may want to consider buying if you’re of an age where you’ll likely be able to continue living in the home for that length of time.

 

Financial reason to rent

The beauty of owning a home is capturing the equity you’ve built over the years. But for retirees, the need to sell the house to pay for a new, upgraded home isn’t usually necessary. Instead, it comes down to whether you have enough in retirement funds to support yourself, and whether you want to leave an inheritance.

For those who want to use home equity in their retirement-savings equation, selling the home can enable you to capture the equity you’ve placed in it. A reverse mortgage, a common tactic to use equity in your home to get a cash loan, will not net you the full price of the home.

Money Magazine found that, on a $300,000 home, a reverse mortgage would net you $150,000, while selling outright would get you about $275,000 (after closing costs). If you need all the funds for managing your retirement, an option could be placing the money in a low-cost index fund to help pay rent on your next place as the balance grows. (Just remember it is possible to lose money when investing.)

If providing an inheritance isn’t a top concern, you may want to avoid a new home purchase, as there’s likely no need to build equity for the future. Home real estate site Trulia found that, in 98 of their 100 largest markets for retirees, if you don’t plan on providing an inheritance, it’s cheaper to rent than buy.
 

Emotional reason to stay

While the economics of living in a home may provide options on whether you should stay or go, the emotional side of the decision process will likely determine your final pick. For families who have lived in the same home for 30 to 40 years, breaking away can be upsetting. If there are no health concerns and you want to remain in the area, why move?

But if you do stay, take steps to downsize the home before your health declines. This includes reducing the amount of items you own; if you become incapacitated, it may be hard emotionally for your children or other relatives to sift through your belongings. You can sell items, such as record collections or antiques, through eBay and other collectors. If you plan to keep your collectibles, be sure to explain to your children which ones are most important, and discuss what they might want to have for themselves one day.

Selling your items yourself will also help assure you get the best dollar for the stuff — you’re the one who knows the real value or has the time to research it — and ensure your children don’t have to go through the emotional exercise of getting rid of everything themselves.


Physical reason to go

Keeping your family home in retirement comes with a physical toll as well, because of the maintenance. It will also be on you to care for your body by joining a nearby gym, find outlets to interact with friends and ensure you’re able to get to your hospital appointments safely. In a 55-plus community, these might not be issues, because you can find a residence that comes with many amenities and activities, such as gyms, social mixers and transportation.

You can use the equation above to determine if you should buy or rent in the new community, but if your body can’t hold up to the strain of owning your family home, that’s a smart reason to consider a new place.
 

What you can do next

Buy or rent? Leave or stay? A long list of factors — from home equity demands to emotional needs — can help retirees determine what housing moves to make (or avoid). Everyone's situation is different, but one guide star should point your way: Be realistic about where you are, what you want and what you'll need.

 

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