Congratulations, you have made it to retirement or are close to being in your Golden Years! As you may be discovering, a successful retirement plan involves extensive planning and a lot of patience. Likely, one of the last and biggest decisions to make in your plan is deciding what living situation is most financially feasible. While you may have invested in home ownership for many years, it may be time to downsize and your decision to rent or to buy your next space can have significant impact on your hard earned savings. Considering all the pros and cons of both will help aid you in your choice!
Buying
The perks of homeownership don’t necessarily change in retirement. In fact, the rate of homeownership for people age 65 and up has remained at about 80% since 2006. There are property and tax write offs, the potential for appreciation/equity and the power to make your place look exactly the way you wish. However, your needs are changing and with that so will the benefits and disadvantages.
A question you need to ask yourself is whether you want to leave an inheritance with your home. If you are not, it might be better for you to choose renting, unless the median home price in your area is low. Don’t forget to factor in closing costs and taxes. Your home as an investment late in life can become less important. You should run the numbers in your desired living community.
The reality is, one of the major advantages of home ownership is building equity, which would require you living in the home for at least 5 years. Unfortunately, depending on health, living in the new home for 15 years may not be possible, especially if you need to move into assisted living sooner than expected. The bottom line with home ownership is that it would make the most financial sense to ensure that you are going to be in the house long term.
Renting
You may be of the belief that renting is primarily for the younger generation. However, from 2005 to 2015, the number of renters ages 60 to 64 nearly doubled, increasing from 1.2 million households to 2.5 million. The benefit that comes with renting is the flexibility that retirees have been looking forward to all of their working years. You can move as often as you like and have notably less responsibilities that your body may not be up for such as lawn care and basic home maintenance.
Estimate your cash flow needs and assess the relative costs of home prices and yearly rent for comparable properties. Would it make most financial sense for you to put the proceeds from selling your home into investments that you can use for renting? Don’t forget to consider that rental prices will increase.
You may be so accustomed to the idea of “owning” that the transition to renting might not be easy. If you are planning on moving away from where you have lived for years, starting fresh in a new community will be an adjustment, along with not being able to paint or make large changes to your home.
As with all major decisions, the right one will vary for each individual and location. At Heartland Bank, we would love to help offer some guidance in your financial decisions to make your Golden Years truly golden. Give us a call, or stop by today to see how we can help!