While many young people must decide whether to continue renting or to buy their first home, many senior homeowners face the opposite choice: whether to hold on to the home they own or to sell and downsize into a rental.
Part of this decision is emotional: Some seniors prefer to stay in a home with happy memories, friends and family nearby while staying in a familiar neighborhood. Other seniors love the idea of shedding the responsibilities of homeownership.
The decision to rent or own as a senior depends not only on your current finances but also on your overall retirement budget and your health.
Long-Term Retirement Planning for Seniors
While your finances will certainly drive your ultimate choice, before you begin to delve into what makes the most sense for you, it’s wise to think about your long-term plan for your retirement years.
If you plan to stay in the area where you own a home now, you’ll need to think about the practicality of that home as you age. Regardless of your current physical strength, you need to consider where you want to live as you age and how potential health issues can be handled.
Think carefully about how much downsizing appeals to you. Some seniors would rather keep their larger home so they have space for children and grandchildren to visit, in spite of the inconvenience of maintaining a larger home.
Some seniors opt to move into senior housing where any future physical problems can be addressed onsite; others choose to stay in their homes, which could require some remodeling.
If you plan to move to a different region, selling your home and using the equity to finance the move (and then rent) is typically the better option–particularly if you’re not certain of where you want to be for the long term. Some seniors sell and move to a warmer climate, only to find that they would rather be closer to friends and family.
Once you’ve got an idea of your housing preferences, you can move onto the financial angles.
Seniors: Rent or Own in Retirement
When you’re making the decision about renting or owning as a senior, there are multiple economic and personal financial factors to discuss with a REALTOR(r) (particularly a Seniors Real Estate Specialist(r)), a lender and your financial advisor:
- If you want to stay in your home in retirement, can you afford to pay your mortgage or pay it off in full? Can you keep up with insurance, taxes and maintenance costs?
- If you own a home and want to move, how much profit can you generate from the sale of your home?
- What are average rents in the local real estate market where you intend to live? Are rents rising or stabilizing? You need to be prepared for a potential rent increase that could be problematic when you’re living on retirement savings.
- If you’re near retirement or already retired, you need to carefully estimate how much you can afford to spend on your housing–whether it is rent on a new place or your mortgage.
- Evaluate the tax implications of owning versus renting. While your property taxes and mortgage interest are tax deductible, these deductions will mean less when you retire and your income tax bracket is lower. If your prospective rent would let you save more than your tax deduction, it may make more sense to rent.
A REALTOR(r) can help you evaluate how much equity you have in your home and can share information about the local rental market so you can make an informed decision about which choice makes the most sense for your individual needs.
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