The housing market is hot, and it’s a great time to sell your home. Still, if you’re thinking about renting your next one, consider the tradeoffs. Renting temporarily is fine if you want to try a new location or if you anticipate moving frequently early in retirement. But the longer you rent in retirement, the riskier it becomes. Buying a home usually makes more sense if you plan to stay put at least five to seven years—long enough to recoup the costs of buying and selling the property.
The temptation to rent now is understandable. In January, renting was cheaper than buying in 34 of the largest 50 U.S. cities, according to Realtor.com, where you’ll find sale and rental listings. In those cities, the median monthly rent of $1,727 was $261 less than the monthly mortgage payment of $1,988 for the median-priced home. Over the past 20 years, rent has increased an average of 3% annually, according to the Bureau of Labor Statistics.
The tax benefits of homeownership also aren’t what they used to be, particularly if you live in a high-cost area. Tax reform in 2017 reduced the amount of mortgage debt eligible for a mortgage interest deduction from $1 million to $750,000. The law applies to mortgage debt acquired after Dec. 15, 2017, and also caps the deduction of state and local property, sales and income taxes at $10,000. Because the standard deduction is higher, you may no longer itemize deductions anyway.
Sign up for Kiplinger’s Free E-Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.
Profit and prosper with the best of expert advice - straight to your e-mail.
Although you won’t benefit from any home price appreciation as a renter, you may do as well or better long term if you invest the equity from the sale of your home in a diversified portfolio of stocks and bonds, says Wade Pfau, professor of retirement income at the American College of Financial Services. In fact, despite the recent run-up in home prices (10.4% in 2020, according to the S&P CoreLogic Case-Shiller Index), many retirees will be lucky if their home rises in value with inflation or exceeds it over the long term, he says, citing the research of economist Robert Shiller. If your neighborhood was hot when you bought, the greatest gains in value may be behind you.
That said, Lori Atwood, a financial planner in Washington, D.C., discourages clients who sell a home from renting in retirement. For one thing, you lose the flexibility of having an asset that you can both live in and tap for cash as needed, perhaps through a reverse mortgage. That’s particularly important as long-term care insurance becomes less affordable. If you need skilled care later in retirement, your home can be liquidated to cover the cost.
Renting also brings instability. “If the rent keeps going up or someone will throw you out because their cousin wants to move in, risk has come to the retiree, and that’s the last thing you want,” Atwood says. Rising rent could be a hard pill to swallow if your investment income doesn’t keep up with inflation or your rent increases faster than your retirement income.
Atwood encourages clients who sell a home to buy their next one for cash so they will be housing secure, with neither a mortgage nor a rent payment. “If you’re leasing a property, your stability lasts only until the end of your lease,” says Scott Abernathy, president of the National Association of Residential Property Managers. If landlords want to reoccupy the home or sell it and cash out their equity, they will refuse to renew your lease. You could be forced to move sooner than you would like and scramble to find someplace else, perhaps at a significantly higher rent. And moving becomes more difficult and disruptive with age.
Meanwhile, if you choose to break a lease early, it will cost you. Your lease could require you to fork over two months of rent, sacrifice your security deposit or cover the costs until a new tenant is found.
Not having the responsibility of home maintenance is another double-edged sword. While most home maintenance, such as repairing a leaky roof or replacing a malfunctioning water heater, is the landlord’s responsibility, you could get a landlord or property manager who is slow to respond or simply doesn’t care. A responsible landlord may be more attentive but also could balk at letting you add features to facilitate aging in place.
-
457 Plan Contribution Limits for 2025Retirement plans There are higher 457 plan contribution limits for state and local government workers in 2025. That's good news for state and local government employees.
-
Medicare Basics: 12 Things You Need to KnowMedicare There's Medicare Part A, Part B, Part D, Medigap plans, Medicare Advantage plans and so on. We sort out the confusion about signing up for Medicare — and much more.
-
The Seven Worst Assets to Leave Your Kids or Grandkidsinheritance Leaving these assets to your loved ones may be more trouble than it’s worth. Here's how to avoid adding to their grief after you're gone.
-
SEP IRA Contribution Limits for 2025SEP IRA A good option for small business owners, SEP IRAs allow individual annual contributions of as much as $70,000 in 2025, up from $69,000 in 2024.
-
Roth IRA Contribution Limits for 2025Roth IRAs Roth IRA contribution limits have gone up. Here's what you need to know.
-
SIMPLE IRA Contribution Limits for 2025simple IRA The SIMPLE IRA contribution limit increased by $500 for 2025. Workers at small businesses can contribute up to $16,500 or $20,000 if 50 or over and $21,750 if 60-63.
-
457 Contribution Limits for 2024
retirement plans State and local government workers can contribute more to their 457 plans in 2024 than in 2023.
-
Roth 401(k) Contribution Limits for 2025retirement plans The Roth 401(k) contribution limit for 2025 increased, and workers who are 50 and older can save even more.
