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Renting vs. Buying For Retirees

According to research by Trulia.com, “buying is slightly cheaper than renting compared to last year.”1 In fact, buying is 34.2% cheaper than renting. That figure is the midpoint between New Orleans (52.3%) and Honolulu (14.2%).

Digging deeper into the study, Trulia found that for retirees specifically, in all major metropolitan areas in the U.S., buying is cheaper than renting by a factor of 41.8 percent. Retirees looking for the best deals should consider buying in popular retirement communities in places like Sun City, Arizona, or down in the Sunshine State, Florida.

A Representative Example

Florida leads the pack in how much cheaper it is for retired folks to buy rather than rent. In one retirement complex the median home value was slightly over $250,000. The Median rent was $3,100, a whopping 71.6 percent more expensive than average monthly costs of buying.

When It’s Time to Downsize

According to AARP empty-nest retirees are frequently faced with the decision to downsize a large, aging home and seek a more manageable habitat.2 They must decide on how to dispose of or invest the proceeds of their home sale.

Use part or all of the windfall to buy another house or condo, and that pot of money is now tied up. Alternatively, renting could work out better. For example, put those proceeds to work immediately into an investment portfolio mix. The resulting dividends and interest could augment the monthly retirement income and subsidize most or all monthly rent costs.

Likewise, renting a home or high-end condo is an option if you would rather spend your money than leaver it as an inheritance. Many retirement communities charge very high rents and entrance costs. In return they offer perks, care and services as well as luxury living.

Sit Down and Do the Math

AARP recommends setting up a retirement budget both with and without the purchase of a home. Calculate the costs and where the money comes from for housing expenses. Yes, rent tends to increase at a current rate of about 3 percent as does home insurance, taxes, and maintenance/upkeep. (Remember that last astonishing plumber’s bill?)

So, if your budget shows that you can pay cash for a new home or condo and still have plenty of money left over for living expenses, AARP says that “you are a good candidate for buying.” Likewise, if owning your own place strains your budget, you are a good candidate for renting.

Renting Has Other Rewards as Well as Drawbacks

If you have just sold your home and plan to move to a new area, renting is a way of checking out your new environment before committing to buying. Renting is also a way of divesting yourself of the cost of maintenance and unexpected expenses. You have a landlord to call in the plumber or fix the furnace.

But if you are a longtime homeowner, there are negatives. For example, you cannot modify your living space to suit your living style. The landlord could decide to sell, leaving you no choice but to move out. Your beloved pet might not be welcome or might cost you a hefty security deposit. Then there’s the absence of the satisfaction and independence you felt by owning your own place.

Weigh the Factors and Decide

The bottom line when deciding whether or not to rent during retirement is all about income, assets, and how much you will receive from selling your present home. AARP points out that generally speaking, renting is cheaper than buying if you live on either coast of the U.S. Buying is cheaper than renting in flyover country, even though some markets in our country’s midsection are becoming expensive.

1 www.trulia.com/research/rentvsbuy_retirees_spring16/

2 www.huffingtonpost.com/entry/should-retirees-rent-or-buy-a-home-a-new-study-has-the-answer_us_5716cb9be4b0060ccda4caa1

This content is developed from sources believed to be providing accurate information, and provided by Twenty Over Ten. It may not be used for the purpose of avoiding any federal tax penalties. Please consult legal or tax professionals for specific information regarding your individual situation. The opinions expressed and material provided are for general information, and should not be considered a solicitation for the purchase or sale of any security.