To Rent or Buy: A Retiree’s Question Answered

Recently, I have spoken at several housing and mortgage events and have been approached by individuals who ask me whether it is a good time to buy or rent a home, and what factors influence this important decision. I have been pondering these questions, and I am particularly interested in questions regarding baby boomers’ housing options and their increasing health-related housing consumption.

Purely financial: cost calculator

Before I summarize some high-level thoughts, with a focus on whether to rent or own in retirement, I want to share a New York Times calculator that is a terrific, easy-to-use tool for helping make the decision from a purely financial point of view.

This tool includes the costs of owning versus renting a property—and also takes into account house price appreciation, rent inflation, and expected duration in the property.

Purely personal: comfort, predictability, and liquidity

The main aspect to consider in making the own-rent decision is what makes you most comfortable. The comfort factor, and sleeping well at night, should trump all other financial considerations.

Renting, at first glance, seems more predictable. While rents may increase each year, there is no uncertainty regarding maintenance or house prices falling. Renting allows one to move more easily if health situations change. It also allows for easier relocation to be nearer family as one ages. But renters are also less able to make special adjustments to the property. For example, adding features such as a walk-in tub or stair elevators may be impossible in a rental.

An additional aspect to consider is what retirees do with the proceeds they receive after they sell their home if they decide to move to a rental. Interest rates are low, and many feel that the stock market is long overdue for a downward correction. As such, there is also a lot of uncertainly in renting. Moreover, many retirees have liquid investments in addition to their illiquid home. If they sell, are they putting all their eggs in one basket?

An annuity is a possibility. However, to enter a retirement community often requires a large down payment. If money is tied up in an annuity, this future option may be off the table. We also cannot overlook the potential to build additional equity when owning. This may give an additional inheritance to next of kin.

More resources

In a short post like this, we only explore a few of the possible considerations. But I encourage retirees to speak to family, friends, housing counselors, and trusted financial advisors before choosing what’s best for their future.