Should You Rent Your Home in Retirement Instead of Owning It?
The following is adapted from the book, Keen on Retirement – Engineering the Second Half of Your Life.
Many people who are winding down their careers look forward to spending time at home in their retirement. They relish the thought of afternoons on the porch or woodworking in the garage. And with people living longer thanks to medical advances, aging in place has become more widespread.
But is staying in your own home always practical for retirees? Here’s a look at three reasons why some older adults have turned to renting in their retirement years.
The Danger of Unexpected Home Expenses
Every person heading into retirement should have a spending plan. This plan is based on your retirement income, whether that’s from Social Security, investments, a pension, or as is likely with many retirees, a combination of two or more sources.
Once you know what you can expect to have coming in, you must create a budget for cash outflow. Retirees who don’t stick to a budget, or worse, treat their nest egg like a sudden windfall, can burn through retirement assets too quickly, leaving nothing to care for them should they live to a ripe old age.
Where many retirees run into trouble is with unexpected or intermittent expenses. These are often items we forget to add to our budget because we either don’t spend money on them every month or we can’t predict them.
One place where these budget torpedoes strike is home ownership. Even a well-maintained home will eventually need a new roof or furnace. Or, you might need to upgrade certain home amenities to keep you active and stimulated early in retirement and comfortable once you begin to slow down.
Another consideration is your place of residence. In our part of the Midwest, tornado and flood preparedness often factor into financial planning. And there are many other types of home damages that can occur that aren’t covered by insurance or that require a huge deductible. When you don’t have a regular paycheck to fall back on, a burst water pipe or falling tree could dent your nest egg and throw off your spending plan in a very serious way.
Renting as a Way to Control Unplanned Expenses
The fear of unplanned home expenses can make some retirees think twice about retiring in place or buying a new home. But there is a solution: renting your home. Renting can offer worry-free living when it comes to unexpected repairs because the landlord is responsible for those costs.
Additionally, renting means no more property tax or homeowners insurance payments. You won’t have to pay someone to shovel the driveway or clean the gutters at the change of seasons or spend precious time doing those tasks yourself. Switching from owning to renting can markedly reduce unpleasant surprise expenses, a way of controlling the controllable.
For most retirees, reducing expenses is more important than building home equity. And the profits from the sale of a home can add to your retirement fund, with most people qualifying for a significant capital gains exclusion to avoid taxation.
Renting as a Springboard to Control Other Expenses
Many retirees who make the switch from owning to renting feel much more in control of their budget and spending. This can encourage folks to start looking for other areas of life where they can similarly eliminate unexpected and unnecessary costs.
Healthcare is often full of unplanned expenses. Taking out a supplemental insurance policy that will cover gaps in your Medicare policy is a perfect example.
Think about things you only spend money on once a year or so, like holiday gifts. These can wind up being an unexpected expense of sorts because people tend to put gifts on their credit cards and then forget about them until the bill arrives. You can control that by putting a limit on your gift spending and by paying for everything with cash--no unpleasant surprises in January.
Then there are monthly expenses you might not use as much as you used to, like club memberships, loan and insurance payments on extra vehicles, and subscription services. Your adult children aren’t still mooching off your cell phone plan or Netflix account, are they?
The best retirement spending plan creates clear parameters that you can live with. When you sit down to build your retirement plan, ask yourself if renting might be right for you in the long run.
Use renting to leverage even more control of unexpected costs. The more you can reduce the potential to be caught off guard by life’s curveballs, the smoother and more stress free your retirement will likely be.
For more advice on renting versus owning a home in retirement, you can find my book Keen on Retirement – Engineering the Second Half of Your Life on Amazon.
About Bill
Bill Keen is a CHARTERED RETIREMENT PLANNING COUNSELOR℠ and independent financial advisor with more than 25 years of industry experience. As the founder and CEO of Keen Wealth Advisors, a registered investment advisory firm, he specializes in providing personalized retirement planning designed to help people thrive before and during their retirement years. With a passion for educating others, Bill regularly blogs about retirement planning, hosts the podcast Keen on Retirement, and has contributed to U.S. News and World Report, Reuters, Wall Street Journal’s Market Watch, Yahoo Finance, and other publications. Based in Overland Park, Kansas, Bill and his team work with clients throughout the greater Kansas City area and across the nation. To learn more, connect with him on LinkedIn or visit www.keenwealthadvisors.com.
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