With the price swing and increase is rental rates in the real estate market, the plan to right size at retirement has become a little more challenging. The traditional concept of buying a smaller property isn’t necessarily the best course of action. While more can be gained on the sale of a primary residence, the cost of purchasing a new property may not be the best move. Maybe the safest strategy to start with is renting.
Some people rent in retirement because they don’t have much choice; they can’t afford to own homes. But financial life planners say renting can make more sense than owning in some circumstances, even for retirees who can afford the costs of homeownership.
Renting offers flexibility as well as freedom from all the chores and expenses of maintaining a home. Renting also may provide built-in communities for socializing, as well as accessible housing features such as one-floor living, which can help people age in place. People who are house rich and cash poor can sell their homes and use the equity to fund a more comfortable lifestyle.
While retirees often don’t want to rent, it can be a smarter decision for a number of reasons.
Renting in transition
If you’re moving to a new area, financial life planners often recommend renting first to get a better feel for the advantages and disadvantages of various neighborhoods. You’ll need time to find new doctors, check out entertainment venues, locate favorite restaurants and otherwise set up your support services.
It makes sense to rent for maybe even a year so you can really dig into the community and figure out what’s going to be the right fit for you.
Renting is often smart if you expect to move again within a few years. Buying and selling homes is expensive, and your home may not rise in value fast enough to offset those costs. Selling a home also may take longer than you expect, especially during a real estate downturn, which could add stress, delays and additional costs to your move.
Aging more safely and serenely
Few homes are truly accessible to people who have mobility problems or other age-related disabilities, and adapting your current house could be prohibitively expensive. Newer apartment buildings could offer ramps, elevators, one-floor living and other amenities to keep you safe as you age.
Social isolation and loneliness are other risks to consider, since these can have a huge negative impact on older people’s health. Apartments can provide a community of people who can socialize and watch out for each other. Rental communities for older adults often offer organized activities and classes to help people connect.
Another option, for those who can afford it, is a lifestyle retirement community that allows you to stay in one place even if you later need higher levels of care. People typically move into one of these facilities when they’re healthy and can live independently, with the promise that they can access assisted living, skilled nursing and sometimes memory care services as they age.
Renting to tap equity
Many people hit retirement age without enough savings and need to use their home equity to supplement their income. Two common ways of tapping equity selling a home, and buying a less expensive one, or using a reverse mortgage may not free up enough cash to substantially improve their situations.
If you sell the house and rent, you have this big pile of cash to help cover the rent plus anything extra.
Rent increases and uncertainties
Many retirees understandably fear the possibility of big rent increases when they’re on a fixed income. But retirees should keep in mind that rents aren’t the only housing costs that are subject to inflation. Even when you have a fixed rate mortgage, chances are good that your property taxes, homeowners insurance and costs to maintain and repair your property increase every year as well.
Renters can ameliorate the risk of rent increases somewhat by opting for longer leases. So-called “mom and pop” landlords may be more amenable to negotiating rent than large corporations, and being a star tenant also can help.
Landlords like people who keep up their property, and they like people who make any maintenance easy. Another potential worry is the possibility of eviction. Even if you can keep up with the rent, a landlord could end your tenancy by selling the building.
The bottomline
Homeowners aren’t immune to potential dislocations. Many older people must move into assisted living facilities because they’re no longer safe in their homes. We recommend people consider moving to more supportive housing while they still have the health and energy to manage the transition.
Making that decision earlier, instead of it being forced upon you, is a prudent way to #KeepingLifeCurrent.
