I know: You’re a homeowner. You’ve owned a home for 40 years. You’d rather pay your mortgage than someone else’s. I have heard it before. And, sometimes, I agree.
When I finished college, I moved to Philadelphia. It was a city that I knew very little about outside of its snowball-throwing football fans. I moved where most recent college grads do: Manayunk. A year later, I moved again. A year later, my company moved me to Virginia. The point is that when life is shifting quickly, it makes sense to have housing that is flexible enough to shift with it. I find the retirement downsize to be one of those times.
If you are selling your “forever home” and figuring out what’s next, here are four good reasons to rent:
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.
1. You can try (the neighborhood) before you buy.
If you’re moving to a new location, a Google search of “best neighborhoods in (fill in the blank) for retirees” probably isn’t sufficient. My retired dad loves the walkability of his neighborhood. My retired father-in-law loves the privacy his neighborhood offers him. I worked with two couples who bought and sold, sold and bought, all during COVID. This eliminated almost 25% of the equity they originally had. It turned out that the places they loved to vacation weren’t as appealing when they moved there.
This option is admittedly easier in urban locations than it is in rural ones. It’s possible that the home style, layout or location is only available for purchase. That said, there are a number of companies, such as AMH (formerly American Homes 4 Rent), that are attempting to institutionalize single-family rentals. In the future, the rental experience may be more consistent across the country.
2. Your costs are more predictable.
Initial homeownership costs tend to be unpredictable. The third home I bought required three new basement floors within the first year due to flooding. We weren’t even in the majority of new buyers who waive inspection on purchase. When you rent, you can reliably plan your costs during your lease term. The flip side of this is that you have no control upon renewal of the lease and may find yourself moving again.
3. Your home is turnkey, or move-in ready.
We often think of turnkey in terms of moving in. You “turn the key” and your move-in is complete. I view the benefit of renting as being turnkey more based on the fact that you can “turn the key” and leave.
It is rare that I come across a retiree who doesn’t have travel as a major line item in their annual budget. When I leave my own home for vacations, I check the HVAC, sump pump and outside drains, and I make sure my dog is taken care of. Renters have to think only about their dog.
4. Your kids won’t fight (as much).
Several years ago, I was teaching a course to a local group of estate attorneys. One of the attendees, a well-respected trust and estate attorney, claimed he had never handled an estate with three or more children where there wasn’t conflict. I can attest to the fact that the center of the conflict is often the real estate. Michael wants to hang on to the property so all the grandkids have a place to gather. Katie wants to turn it into a rental to increase passive income. Sean wants to sell it because he needs the cash.
People incorrectly assume that real estate is more tax-friendly to inherit than a more liquid taxable investment account. This is incorrect. Both are considered capital assets that should receive a “step-up” in basis at death. (You can read more about this issue in the article Your Home Would Be a Terrible Inheritance for Your Kids.)
The reality of all this is that your financial situation and the life you want to lead should dictate whether you rent or own. The Financial Planning Association published extensive research in six different markets to try to figure out which was more advantageous. It was inconclusive.
To be clear, I am not for one over the other. I am for being open-minded. I am against the idea that all of us should count on this scenario: “You get married, you buy a house, you have kids, you die happy.” Life is more complicated than that.
In my column Four Reasons to Buy When You Downsize for Retirement, I give you the four reasons to own your home in retirement.
Related Content
- Top 10 Metros Where It's Cheaper to Rent a Home Than Buy
- What to Do When Your Rent is Too High
- Does It Make Sense to Rent in Retirement?
- Three Keys to Keeping More of Your Money in Retirement
- Five Things to Know if You're Considering Early Retirement
-
Ask the Editor — Tax Questions on Inherited IRAsAsk the Editor In this week's Ask the Editor Q&A, we answer tax questions from readers on the rules on inheriting IRAs.
-
I Asked Experts When It's Worth Splurging on Beauty and Skincare — and When You Can SaveSmart Shopping Experts agree that while you don't have to spend three figures on your products, some higher-priced items have value.
-
Retiring Early? This Strategy Cuts Your Income Tax to ZeroWhen retiring early, married couples can use this little-known (and legitimate) strategy to take a six-figure income every year — tax-free.
-
Ditch the Golf Shoes: Your Retirement Needs a Side GigA side gig in retirement can help combat boredom, loneliness and the threat of inflation eroding your savings. And the earlier you start planning, the better.
-
Roth IRA Conversions in the Summer? Why Now May Be the Sweet SpotConverting now would enable you to spread a possible tax hit over more than one payment while reducing future taxes.
-
A Financial Expert's Three Steps to Becoming Debt-Free (Even in This Economy)If debt has you spiraling, now is the time to take a few common-sense steps to help knock it down and get it under control.
-
I'm an Insurance Expert: This Is How Your Insurance Protects You While You're on VacationHere are three key things to consider about your insurance (auto, property and health) when traveling within the U.S., including coverage for rental cars, personal belongings and medical emergencies.
-
Investing Professionals Agree: Discipline Beats Drama Right NowBig portfolio adjustments can do more harm than good. Financial experts suggest making thoughtful, strategic moves that fit your long-term goals.
-
'Doing Something' Because of Volatility Can Hurt You: Portfolio Manager Recommends Doing This InsteadYes, it's hard, but if you tune out the siren song of high-flying sectors, resist acting on impulse and focus on your goals, you and your portfolio could be much better off.
-
Social Security's First Beneficiary Lived to Be 100: Will You?Ida May Fuller, Social Security's first beneficiary, retired in 1939 and died in 1975. Today, we should all be planning for a retirement that's as long as Ida's.
