The Pros and Cons of Renting vs. Owning in Retirement
By the time you reach retirement age, it’s nice to have as few bills as possible, as you may be living on a fixed or limited income. A mortgage or rent payment is the largest monthly bill most Americans have to pay. If you’re still paying for either of those things at this stage of life, it could be eating into the little income you have.
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So which is better: renting or owning in retirement? The truth is that it depends on many factors, including whether you’ve paid off your mortgage in full, if your rent is low, your geographic region and other tax implications.
At first, it could seem like the obvious answer is that it is better to own, but there is actually a strong argument for both renting and owning. Experts explain the benefits and downsides of both options.
Pros of Renting
First, here’s a look at the pros of renting in retirement — benefits that you don’t get if you own a home.
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Renting Comes With Flexibility
“Renting comes with several benefits, chief among them flexibility,” said Brian Davis, a real estate investor and founder at SparkRental. “Renters can pick up and move as soon as their lease term ends, and if they want even more flexibility, they can sign a month-to-month lease. Retirees can use that flexibility to travel or to snowbird — spending parts of the year in different cities.”
Renting Often Means You Don’t Have To Pay for Household Repairs
“Renters also don’t have to budget for repairs or maintenance, nor do they have to do any work around the house,” Davis said. “Many homeowners end up spending every weekend working on their homes, from cutting grass to maintenance to major repairs and renovations. Tenants delegate those expenses and labor to their landlord.”
Though, be warned, if you do break something yourself out of neglect or accident, you may be on the hook for those expenses.
Renters Don’t Have To Worry About Declining Property Values
Around 65% of U.S. households own their home, according to the U.S. Census Bureau.
Although home prices have been driven up recently, they don’t always increase — and declining property value can be a serious drawback to homeownership, whether it’s due to the economy and real estate market in general or more local factors.
Renting Means More Liquidity Than Owning
“Renting is a good idea for someone who may want to move, downsize or will likely need assistance with activities of daily living,” said Toby Mathis, author of “Infinity Investing: How The Rich Get Richer And How You Can Do The Same” and a founding partner of Anderson Law Group. “The retiree will have more liquidity than owning, which can either be a good thing, if they invest the funds, or a bad thing, if they keep it in cash and allow the high inflationary cycle to devalue the account.”
These benefits may offer relief to a retiree who finds themselves having to rent.
Pros of Owning
Now, consider the pros of owning a house in retirement — benefits that you don’t get if you rent.
Homeownership Builds Equity
“Homeowners build equity over time, as they simultaneously pay down their mortgage balance and their home — hopefully — appreciates in value,” Davis said. “They can tap that equity in an emergency or even live on payments from a reverse mortgage.”
Homeowners Have Higher Net Worth
“It’s worth mentioning that the single greatest predictive factor for net worth isn’t race or gender or education level or urbanity — but homeownership,” Davis said.
The average homeowner had a net worth of $396,000, based on the 2022 Survey of Consumer Finances. The average renter was worth only $10,400.
Homeownership Can Be Cheaper Than Renting
“The main reason to continue home ownership [into retirement] is that it may be cheaper than renting, especially if property taxes are manageable and the home is completely paid off,” said Michael Fischer, a certified financial planner (CFP) at Cerity Partners. “Some states even offer property tax reduction, property tax freezes or an extra state income tax deduction for senior citizens.
“On the non-financial side, owning a home may provide more space to host family gatherings and spend time with grandchildren.
Owning Gives You More Security
Renting leaves you in a position of being forced to move, if your landlord chooses not to renew your lease or increases the rent beyond what you can afford. While the costs of homeownership can go up, you’re not subject to anyone else deciding to sell the property, for example, or allow someone else to move in.
Owning your home also means you can leave it to your children — or anyone else — as an inheritance.
How To Decide Whether To Rent or Buy in Retirement
The decision of whether to rent or buy in retirement is a personal one that only you can answer for yourself, but if you’re on the fence, Mathis suggests using a 5/25 general rule to start.
“If a retiree can rent a home annually for less than 5% of the value of the home, they should rent — i.e. if a house is $500,000 but can be rented for less than $25,000 per year,” Mathis said. “If the costs of buying a home are 25% or less of the total annual compensation, they should consider owning — i.e. if all costs of home ownership is $25,000, the retiree should be bringing in $100,000 per annum.”
Denny Artache, president and CEO of Artache Financial Group, asserted that argument can be made either way, but that perhaps, if a retiree has not yet figured out a way to own property, they might be better off renting.
“Perhaps renting will provide less headaches,” Artache said. “I firmly believe this decision should be made and planned well in advance of retirement, as we know many up north sell their expensive properties and take the profits to fund a less expensive and more weather-friendly lifestyle in Florida — but remember, inflation still has its hands on food and everything else we consume and purchase, so budget yourself accordingly.”
Jordan Rosenfeld contributed to the reporting for this article.
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