I grew up in a Red Sox household. The mere sight of the Yankees’ logo caused a gag reflex all the way until my early 30s, when I realized just how ridiculous this was. People tend to have similar feelings about renting vs owning a home. They pick a side and stick with it. Logic be damned.
For retirees, there are many more fans of owning than there are of renting, with Vanguard estimating that 80% of retirees are homeowners. Therefore, my previous article Four Reasons to Rent When You Downsize for Retirement was what Gen Z might call “a hot take.” Today, I’ll side with the majority and give you the four reasons it may make sense to buy again in retirement.
As you downsize in retirement, here are four reasons you may want to buy again:
From just $107.88 $24.99 for Kiplinger Personal Finance
Be a smarter, better informed investor.
Sign up for Kiplinger’s Free 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.
1. You’ll have stability.
Homeowners don’t have rent increases. Homeowners don’t have landlords who decide to sell their house. The homeowner is ultimately the one who gets to decide whether they stay.
Moving in your 20s with a friend’s pickup truck is not fun. Moving in your 70s after trying to get rid of 40 years’ worth of stuff is much, much less fun. Buying your retirement home increases the odds you’ll stay put.
2. You could benefit from possible tax advantages.
Prior to 2018, I would have deleted the “possible” above. Under the current tax code, the Tax Foundation estimates that only 13.7% of filers itemize their deductions. If you fall in that roughly 14%, or would because of a purchase instead of a rental, then there are tax advantages to homeownership.
If you are in that group, you will deduct property taxes and mortgage interest, subject to various significant limits, from your gross income. With the standard deduction and mortgage rates as high as they are, I don’t consider this a strong reason to buy.
3. You’ll have control.
The timing of these columns hits close to home (no pun intended) as we help my parents navigate their next steps. One thing that is certain is that several modifications will be necessary in order to stay in the home. If we install a ramp, hand railings or whatever, there is no landlord who has to approve that decision.
Beyond senior modifications, those control benefits apply to pretty much every aspect of the home. Love an orange front door, neon shutters and provocative lawn signs? Owning a home may be your only option.
4. Your home would be an inflation hedge.
Ah, the I word. Inflation hedges today are as beloved as the Macarena was in the ’90s. Unfortunately, homeownership as an inflation hedge was much more powerful when mortgage rates were at 3% instead of nearly 7%.
The idea here is that the principal and interest portions of your monthly payment are fixed, so long as your mortgage is fixed. Your payments should not increase by as much as rent can.
The decision to downsize, followed by what you downsize into, can be a make-or-break moment for many retirees. Do it properly and you’ll be financially secure as you sail into the sunset. Make a location mistake or overextend yourself and you could be in a very precarious position.
When working with clients, we typically start with location. Social circles are especially important in this decision. From there, we establish both rental and purchase budgets. Knowing where you’re going to go and what you can spend makes the other parts a lot easier. Happy hunting!
Related Content
- How Retirees Can Downsize In Today's Housing Market
- Buying a House Could Be the Best Investment You Ever Make
- Find the Best 30-Year Mortgage Rates
- The 25 Cheapest Places to Live: U.S. Cities Edition
- The Five Critical Components of a Financial Plan for Retirees
-
Snowbirds: Avoid These 3 Sneaky Insurance IssuesBefore snowbirds depart for their winter retreat, they should check their insurance coverage for surprises that might arise, or else be on the hook for repairs.
-
Hang in There With This Value FundPatience is required for investors in the Dodge & Cox Stock Fund, but its long-term outperformance proves it's worth the wait.
-
I'm a Financial Planner: Here's How to Make the Most of Your Charitable Giving on a BudgetMaximizing the charitable donations you plan to make this year can help your financial plan stay on track and help give the most to the causes you care about.
-
I'm a Wealth Planner: These 3 Steps Can See You and Your Heirs Through a Wealth TransferBoth givers and receivers need to be seriously strategic about communicating, understanding tax efficiency and leveraging smart money moves.
-
Unwrapping Your Estate Plan for Your Kids: A Gift That'll Keep Giving Long After the HolidaysThe holidays offer families a perfect opportunity to discuss important, often difficult topics like long-term care, estate plans and legacy.
-
5 Ways to Teach Your Kids About Giving Back, From a Financial PlannerTeaching kids generosity goes beyond simple rules and can involve fun, practical strategies, such as letting them lead giving, volunteering together and more.
-
I'm a Financial Planner: Here's How You Can Use AI to Improve Your FinancesApps can help with budgeting, saving and investing, financial coaching and debt management. But providing your personal information can also raise your risks.
-
When Checkout Charity Gets Uncomfortable — and Maybe Even IllegalCashiers asking customers to 'round up' their total for charity can cross an ethical line if there's no disclosure about the benefiting organization.
-
Four Ways to Find Free Money to Pay for College: Affluent Families Can Apply, TooFamilies can access scholarships, grants and incentives by strategically positioning their students in terms of merit, skills and timing.
-
3 Tax-Smart DAF Strategies Advisers Can Put to Work for Clients During Giving SeasonDonor-advised funds can help clients maximize their philanthropy through front-loading deductions, donating appreciated assets and 'bunching' contributions.
