Renting isn't right for all retirees, but it does offer flexibility and it frees up cash. By Sandra Block, Senior Editor June 19, 2015 Now that the kids are gone, you no longer need a five-bedroom home with a big backyard. It’s expensive, too. But when it comes time to downsize, you need to make an important decision: buy or rent?See Also: 10 Best College Towns to Retire to While many long-time homeowners may resist the idea of renting, don’t dismiss it outright. Instead of sinking money into a new house, you may be better off putting it in your investment portfolio. For example, suppose you sell your five-bedroom home and net $300,000 in cash. If you invest that money and earn 6% annually, you’ll generate an extra $18,000 in the first year. Even after taxes, you’ll have a good amount left over to put toward rent, and the cost of homeownership will drop sharply or disappear altogether. When deciding whether to buy or rent, estimate how much income you’ll need to pay the bills. You should also look at the costs of home prices versus yearly rent for comparable homes in your community. Other factors to consider range from projected rent hikes and renters' insurance premiums to the costs of home maintenance and property taxes. You should also think about how long you expect to stay in your new place. Renting may be the better choice if you’re not sure where you want to settle down for good in retirement. This is especially true if you think you may move within three to five years. (See the 10 Best States for Retirement for ideas.) Otherwise, your home might not increase enough in value to offset your initial expenditures on things like real estate commissions and closing costs. Advertisement Don’t discount emotional issues when making this important decision. Do you love the idea of owning your own place and fixing it up the way you want? Or will it be a big relief after years of ownership not to worry about the lawn or a broken sump pump? And if you ultimately decide to buy, don’t automatically assume that a mortgage is a bad idea in retirement. You may be better off taking a mortgage for part of the purchase and investing the rest of your money in a portfolio of stocks and bonds. Your investments may grow faster than your home appreciates, and you’ll also have money available for health care and other needs. Read more about the pros and cons of buying versus renting in retirement.