To Buy or To Rent as a Retiree — That Is The Question
So, you’ve finally hung up your boots, and now, you have a few more big decisions to make before you can settle into your retirement. One of those big decisions is whether you should rent or own your next home if you intend on moving. Both of these options have their pros and their cons, and it is useful to assess them based on your specific needs and financial security.
Let’s say you are a homeowner. If you haven’t got any funds saved up for your retirement, which may have happened for several reasons, then you will need access to the equity of the home that you own. This will mean that you have to sell your current home and either downsize or take on renting living space. Downsizing will mean that you still have all the responsibilities that homeownership comes with, which comes with its own costs and effort.
If You’ve Been Renting, Why Buy?
Let’s say you aren’t a homeowner. You’ve been renting throughout your life until your retirement, and now, it just won’t make any sense for you to rush out and purchase a new home. You aren’t familiar with the responsibilities that come with home maintenance as an owner and this can blur your ideas about buying, making it a more attractive option than it really is.
Retirement is a Game-Changer
The ball game changes as you age. In your 20s and 30s, your home equity shouldn’t be touched, ideally. However, in retirement, the circumstances may likely be such that your home equity can begin working for you, rewarding you for all the years you paid for the mortgage. Home equity has the potential to supplement your retirement income. Tapping into the equity means either selling your home, taking it out on reverse mortgage, or even renting your home out. Taking a payout of a percentage of your home’s value means you will have to repay the loan, though, so be careful what you intend doing to cover these costs.
Renting vs. Buying – The Responsibilities
As a homeowner, your responsibilities are repair and maintenance, paying rates and taxes, and of course, it is advisable to have insurances in place to cover the structure of your home and another to cover its contents. As a renter, your landlord takes on the aforementioned responsibilities and you are responsible for paying your rent, and perhaps utilities. At retirement age, it can be exhausting to take on all the effort required to be a homeowner, even if renting is more expensive than paying a mortgage. Think of it like buying yourself peace of mind – if you can afford it, why not!
Renting Isn’t All Rosy
While renter’s advantage is freedom from homeownership responsibilities, the disadvantage is that rent increases over time. After 25 years, your rent could basically double. However, if you consider the increases in your financial plan for retirement and find that you can plan for it, there won’t be any nasty surprises to spring up on you. If your retirement income is a fixed income, it will have to be sufficient to pay for the rental when it has increased over time.
Do the Math
A good idea is to first calculate your finances. Looka t what your net income is, and allocate about 15% of that to housing as a start. If 15% is too low an allocation, then raise it until no more than 25%. Any more than this and you could find yourself in trouble with a fixed income. Running out of funds is the worst thing that can happen when you are on retirement, and your money needs to be spent wisely, on housing, health care, and personal needs, before looking at enjoyment.
What’s the Plan?
Have you planned out your retirement? Do you know what you will be doing or where you will be going? Retirement is often a time of change for people, and if you plan on moving, you need to decide how long you will be living at your new place for. Any less than 5 years will make it very challenging to recoup the costs of buying and selling in such a small time frame. In this instance, renting is a better option. However, if you are moving somewhere permanently and you have a fixed income, homeownership will give you security and peace of mind. Your assets will then be included in your will for whoever you choose since your money will be in equity and not in income.
These guidelines are helpful when you are considering what to do with your future in retirement, but there are several other factors that help you decide, like your health and your lifestyle. This is actually one of the biggest decisions of the rest of your life, so think hard and plan well!
More in Financial Advice
Top Billionaires Who Lost Their Fortune And Went Completely Bankrupt
Though things might look hunky-dory from the outside, reality might be otherwise. You may have always envied the billionaires and have...September 22, 2020
Why This Generation Is The Most Obsessed With Money & Fame
Millennials have long been ridiculed for their obsession with fame and fortune. However, Generation Z is glad to surpass them in...September 21, 2020
Antartica’s Biggest Glaciers Are Melting: Here’s What You Need to Know About It!
While global warming has been a serious and growing concern for the planet, many of them are still in denial of...September 18, 2020
Six Ways You Can Save Money on Your Electric Bill
Almost everyone is looking for ideas to save money, more so in terms of their electric bills. However, not many know...September 17, 2020
Five Reasons Why Nutritionists are Recommending You to Add Microgreens to Your Diet!
Bite-sized nutrition is the big thing these days, and there are many types of food that you can opt for, but...September 16, 2020
Five Financial Advice From Our Grandparents’ Era That Still Make Sense!
The pearls of wisdom that our grandparents share come from their love and years of experience. It is no wonder that...September 14, 2020
These Hacks Will Help you Follow in the Footsteps of the Rich and Famous
Mysterious and whimsical are the ways of fame. It comes easy for a few while it evades a few even if...September 11, 2020
Four Ways to Make Fashion Sustainable and Environmental-friendly!
The fashion industry is coming up with one trend after another, and frankly, we aren’t complaining. But did you know the...September 9, 2020
Five Ways Your Life Will Change When You Become a Dog Parent!
Did you know that research shows that having a pet can change your life for the better? Not just in terms...September 8, 2020