Some people rent in retirement because they don’t have much choice; they can’t afford to own homes. But financial 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. 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,” says US-based certified financial planner Lisa A.K. Kirchenbauer.
Consider renting if you’re in transition
If you’re moving to a new area, financial planners often recommend renting first to get a better feel for the advantages and disadvantages of various neighborhoods. “It makes sense to rent for maybe even a year so you can really figure out what’s going to be the right fit for you,” says Delia Fernandez, a US-based certified financial planner.
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, which could add stress, delays and additional costs to your move.
Renting could help you tap more equity
Many people hit retirement age without enough savings and need to use their home equity to supplement their income, says US-based certified financial planner Nicholas Bunio. 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, Bunio notes.
“If you sell the house and rent, you have this big pile of cash to help cover the rent plus anything extra,” Bunio says.
Building equity increases the amount of money you have in your home that you may be able to use now or in the future. You can borrow from your equity as a loan, invest it, build long-term wealth or sell your home for more than you owe and keep the difference.
Coping with rent increases and other 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 homeowners insurance and costs to maintain and repair your property increase every year as well, says Crystal Cox, a US-based certified financial planner.
Renters can ameliorate the risk of rent increases somewhat by opting for longer leases, Bunio says. They may be more amenable to negotiating rent than large corporations, and being a star tenant also can help, Fernandez notes.
“Landlords like people who keep up their property, and they like people who make any maintenance easy,” Fernandez says.
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, for example.