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
-
Can the 'Guardrails Approach' Protect Your Retirement Investments?This investing method helps retirees avoid running out of money, even in a highly volatile market.
-
Social Security Is Taxable, But There Are WorkaroundsIf you're strategic about your retirement account withdrawals, you can potentially minimize the taxes you'll pay on your Social Security benefits.
-
Social Security Is Taxable, But There Are Workarounds
If you're strategic about your retirement account withdrawals, you can potentially minimize the taxes you'll pay on your Social Security benefits.
-
Serious Medical Diagnosis? Four Financial Steps to TakeA serious medical diagnosis calls for updates of your financial, health care and estate plans as well as open conversations with those who'll fulfill your wishes.
-
To Stay on Track for Retirement, Consider Doing ThisWriting down your retirement and income plan in an investment policy statement can help you resist letting a bear market upend your retirement.
-
How to Make Changing Interest Rates Work for Your RetirementHigher (or lower) rates can be painful in some ways and helpful in others. The key is being prepared to take advantage of the situation.
-
Within Five Years of Retirement? Five Things to Do NowIf you're retiring in the next five years, your to-do list should contain some financial planning and, according to current retirees, a few life goals, too.
-
The Home Stretch: Seven Essential Steps for Pre-RetireesThe decade before retirement is the home stretch in the race to quit work — but there are crucial financial decisions to make before you reach the finish line.
-
Three Options for Retirees With Concentrated Stock PositionsIf a significant chunk of your portfolio is tied up in a single stock, you'll need to make sure it won't disrupt your retirement and legacy goals. Here's how.
-
Four Reasons It May Be Time to Shop for New InsuranceYou may be unhappy with your insurance for any number of reasons, so once you've decided to shop, what is appropriate (or inappropriate) timing?
