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Should You Sell Your Home When You Retire?

Aug 22, 2018 5 min read Teri Cettina

Key Takeaways

  • Challenge your assumptions about your retirement housing options.
  • Carefully compare the pros, cons, and costs of each choice.
  • The right decision should address both emotional and financial factors.

 

If you're a new retiree — or just thinking about retirement — one of the trickiest lifestyle questions you face is whether to stay in your current home. Many people consider owning a house to be a life accomplishment, particularly if they've paid off their mortgage. It can be hard to imagine living anywhere else.

However, you may have more housing options during retirement than you think. By reviewing your home ownership costs and ongoing financial needs, you'll also reveal whether you have enough money available each month to pay for the things you enjoy.

Depending on your answers, you might want to challenge your retirement housing assumptions. But take your time — “Should I stay or should I go?" is a big emotional and financial decision.

 

 

Stay in your current home

If you intend to remain in your existing residence, you're in good company: 43% of people age 45 to 65 say they plan to stay in their current home throughout their retirement years, according to a survey from USA Today Opens in new window. There are good reasons to support that decision:

  • Financial security — If your mortgage is paid off, you may like the idea of being debt free. Plus, you may have built up a significant amount of equity in your residence. It could be your single most valuable asset, one that you want your children to inherit (or its financial value if they choose to sell it).
  • Close connections — You can stay physically close to long-time friends, your church, doctor, car mechanic, and other people and organizations upon which you rely. If your grown kids live in the area, you may also want to be close to them and your grandkids.
  • Emotional attachment — Perhaps you love your home and have no desire to leave it. That's understandable. You've probably spent decades getting your garden just the way you want it and remodeling every room to your exact specifications. You want to continue enjoying your space.
  • Aging-in-place options — It's easier than ever for retirees to stay in their homes, even if they need extra help. You can modify your residence physically, hire in-home caregivers, and use high-tech helpers Opens in new window such as monitoring apps, medication reminders, and emergency response systems.

However, there are some things to consider. The average U.S. home value rose 8% from March 2017 to March 2018, but is expected to go up by only 2.4% in the coming year, according to Zillow Opens in new window. There's no guarantee that your house will continue to rise in value, according to the American Institute of Certified Public Accounts (AICPA) Opens in new window. In addition, you'll have to deal with ongoing maintenance costs, as well as larger expenses like roof replacement, electrical and plumbing updates, and more.


Buy a new home

Maybe you raised five kids in a house with a corresponding number of bedrooms. Now there are just two of you, and downsizing sounds appealing. Again, you're in good company: More than half (52%) of adults in the USA Today survey said their next home would be smaller.

Buying a new place could include moving to a smaller house in your current hometown, buying a cottage somewhere you love, or buying into a life plan community (previously called continuing care retirement communities, or CCRCs.) Some reasons to make a move include:

  • Financial flexibility — If you sell your current home and buy a less expensive one in cash, you can still be mortgage-free. In addition, you may have money left over for other things that are important to you such as travel or helping with your grandkids' college costs.
  • Healthier cash flow — If you require more money for your everyday expenses than you can reasonably withdraw from your retirement plan and other investments, you could tap into your equity with a home equity loan/line of credit or reverse mortgage. However, trading your house for a less expensive one and banking the difference might be a more cost-effective option.
  • Greater freedom — A smaller home often means less time spent on cleaning, gardening and maintenance. If you buy a condo, you may even be completely exempt from chores like shoveling snow, mowing the lawn and handling exterior repairs.
  • All-inclusive costs and possible refund to your heirs — Life plan communities include meals, activities and healthcare services in your membership fee. Also, some communities refund a portion of your entry fee to your heirs after you die.

Again, there are a few things to consider. A smaller house or condo can make it a bit more challenging to host overnight guests and family members. If you need to move into some sort of assisted living center or life plan community sooner than expected, you'll have realtors' fees for selling your current place, as well as the hassle of moving yet again. Life plan communities offer a lot of amenities but are expensive. Most retirees have to sell their primary residence to afford the entry fees.

 

Rent a place

As a renter, you have a lot of flexibility. You can rent an apartment, assisted living unit or single-family home. Consider renting if you:

  • Aren't sure you're staying — If you decide to move to another part of the country, but aren't sure you'll stay for more than five years, renting may make more economic sense. Buying a home every three to five years will cost you a bundle in financing and realtor costs. Also, you won't be in one place long enough to build up much equity before selling it. As a renter, you won't have to come up with a down payment, either — just a security deposit and your monthly rent amount.
  • Want to do a test run — Renting lets you try out different options. You can see what it's like to live in a large urban area, a tiny beach town, a smaller home or a one-level condo. If your new digs aren't to your liking, you can move. No obligation.
  • Want to free up money for other priorities — Instead of having your wealth tied up in a mortgage, you may prefer to use it to travel and try new hobbies. Say you sell your longtime home and walk away with $400,000. If you invested that money at 5% per year, you would earn $20,000 by the end of your first year. (This is an example and your investment results may vary.) After you pay taxes, that amount leaves you with a nice rent allowance without touching your principal. Median U.S. rent is currently $954PDF opens in new window.
  • Prefer less maintenance — Living in a rental typically means your landlord, not you, is responsible for the ongoing repairs, outdoor work, and more. If you decide to travel, it can be easier to leave your rental unit unattended or sublet it.

There are some things to consider before making your decision. If you're a pet owner, remember that some landlords don't allow furry friends. You may pay less on a monthly basis for rent, but you won't build up equity you can use to fund another house, condo, or assisted living unit. And similar to buying a smaller home, you may have less room in your rental unit for overnight visitors and hosting big family/friend gatherings.

 

What you can do next

Make a list of pros and cons for each housing option, then share it with your spouse or partner to be sure you're on the same page. And if you need help on the financial part of your choice, try using an online “rent vs. buy" Opens in new window calculator.

 

Teri Cettina is Portland, Oregon-based writer. She writes regularly about financial topics.

 

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