Although there are several benefits associated with owning a home, a report recently released by the Harvard Joint Center for Housing Studies has noted that individuals and couples in their 50s and 60s have made up the largest portion of the rental market since as far back as 2005.
Because housing could very well end up being your costliest budget item, it may pay you to rent instead of own after retiring. Below are just a few of the pros and cons associated with renting or owning your primary residence during this time of your life.
Pros of Home Ownership after Retirement
- Equity you’ve built in your home can become a valuable income source. Provided that you’re not underwater with your mortgage, you’ll be able to use your home to obtain a line of credit if needed
- There’s no need to worry about rising rent costs. Although aspects such as maintenance and property tax will change over time, your mortgage payment usually won’t increase – if you still have one when retiring, that is
- You’ll have something to leave to your heirs upon your passing
Cons of Home Ownership after Retirement
- Maintenance can be expensive, with homeowners spending anywhere between 1% and 4% of their home’s value on upkeep each year. As you get older, performing maintenance become less appealing and less possible if your health has declined as well
- Even if you have no mortgage payment, you’ll still have to cover insurance and property taxes. These are known to increase over time, making it difficult to stay afloat financially if you’re on a fixed income
- Although your home may allow you to tap some equity in an emergency, all it takes is another housing market crash to destroy your property’s value totally
Pros of Renting during Retirement
- Renting eliminates having to pay for maintenance and/or unexpected repairs, so you’ll be able to budget accordingly on a fixed income
- It’s usually cheaper to rent instead of own a property – research has determined that of the 100 cities that have the highest senior citizen populations, it made more financial sense for them to rent instead of own in 98 of these locales
- You can pack up and move anytime you like – if you’re a homeowner, you have to deal with buyers, realtors and often unpredictable market conditions when selling a home
Cons of Renting during Retirement
- Rent payments won’t provide you with equity to live on
- Rent can be increased once your lease expires. Although you can move elsewhere if this happens, removal costs and signing a new lease can sometimes be quite costly
- You’ll be at the mercy of a property management company or landlord, which can sometimes be inconvenient when something goes wrong
As you can see, there’s no definite right or wrong option when it comes to deciding between renting and owning a home. Each individual’s circumstances will dictate which option will be best for them once they’re no longer working and are living on a restricted or reduced income.