Four Reasons to Buy When You Downsize for Retirement

Buying your retirement home, rather than renting it, grants you stability, control, possible tax benefits and a very handy inflation hedge.

An older couple smile at each other as they drink coffee while taking a break from painting their bedroom.
(Image credit: Getty Images)

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:

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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!

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This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.

Evan T. Beach, CFP®, AWMA®
President, Exit 59 Advisory

After graduating from the University of Delaware and Georgetown University, I pursued a career in financial planning. At age 26, I earned my CERTIFIED FINANCIAL PLANNER™ certification.  I also hold the IRS Enrolled Agent license, which allows for a unique approach to planning that can be beneficial to retirees and those selling their businesses, who are eager to minimize lifetime taxes and maximize income.