Renting vs. Owning in Retirement
For many people, buying a home fulfills a dream tied to important personal, professional, and financial goals. The feeling they would be abandoning that dream can be a big reason why homeowners resist the idea of downsizing and renting in retirement. But as you age, owning can create a series of challenges that might affect the Return on Life you’re getting from your home. Here are some of the reasons why renting might be an attractive alternative.
1. Pad your nest egg.
While the housing market has improved in early 2024, new housing starts (i.e. construction) are still at multidecade lows. Due to the current high-interest rate environment, many homeowners are staying put. This negatively impacts the relative supply-demand balance for people willing to make higher mortgage payments to move. Add all these factors up and your house could be an unbelievably valuable asset. You could use proceeds from a sale to top off your savings and investment accounts. Or a sale could finance a big move to a beachfront condo or an apartment closer to your grandkids that you can pay for in full.
Speaking of your heirs, downsizing doesn’t mean you have to sell. If your home is part of your legacy plan, you could start that transition now and rent it to your kids or grandkids. You’ll earn a little extra income, and you’ll get to enjoy seeing your family and the family home begin a new chapter.
2. Give yourself a break.
Have your knees had enough of going up and down the stairs?
Are fix–it projects piling up faster than you can tackle them?
Is fiddling with your appliances to get them to work a chore in and of itself?
As you age, you might find that keeping up your house in retirement has become another job. You also might start having a little trouble getting around, which could turn that creaky step or loose handle into a potential hazard.
When you rent a home, you can retire from being a landlord and handyman. And if you move closer to loved ones, or into a retirement community, you’ll also be around people who can help you with household tasks so that a trip to the laundry room doesn’t lead to a trip to the emergency room.
3. Make new connections.
If your kids have started their own families, your house might feel much too big and much too empty. Senior living rental properties often foster a sense of community that helps folks meet new people and explore new activities.
Or, if you spent most of your career living in the suburbs, renting could allow you to try city living. Your new downtown condo could put you within walking distance of theatres, museums, athletic clubs, restaurants, and senior centers.
You could also move somewhere that will help you enjoy one of the most meaningful retirement experiences: being a grandparent. Instead of seeing social media clips of dance recitals and baseball games, you can have a front–row seat.
4. Take a new adventure.
And what happens if you decide your new home isn’t for you?
Next year, live somewhere else!
As a retired renter, you’re only tied to the terms of your lease. Turn your retirement into a multiyear tour of places you’ve always wanted to visit. Rather than organizing your life around where you live, you could change your place of residence to suit your evolving interests, relationships, and financial goals.
Plus, if your rent is affordable and someone else is responsible for the maintenance and upkeep, renting can make it easier for you to spend more time traveling. Rent a home or apartment that fits your needs when you’re home while still allowing you to get out in the world and explore without worrying about your home while you’re away.
How would you rate the Return on Life you’re getting from your home? Are you considering moving in retirement? Make an appointment and let’s review your Life Plan and Goals for Life to identify areas where we can help you get more from your money.
This Week’s Favorite Reads
In this week’s favorite reads, we share an article with suggestions to help you appeal a college’s financial aid award. Another shares the writer’s experiences after moving into a Continuing Care Retirement Community (CCRT). You will also find suggestions to help you manage your lifetime tax bill and tips that can potentially help you lower your chances for dementia later in life.
Here are the links to this week’s articles as well as a brief description of each and why you should check it out:
1. Appealing a Financial Aid Award.
Issues associated with this year’s changes to the Federal Application for Federal Student Aid (FAFSA) have delayed financial aid awards. But decision time approaches. Our daughter must decide where she wants to go to college next year within the next couple of weeks. Financial aid awards can play a big role in determining which college you can afford. You don’t have to accept the award offer the school gives you. According to data referenced in this article, about 75% of financial aid appeals have a positive outcome. With this year’s problems with FAFSA, it makes even more sense to appeal an award. If you would like to appeal your child’s financial aid award, I suggest you check out this article for some suggestions on the best approach.
2. Gift to Myself.
Have you ever considered living in a Continuing Care Retirement Community (CCRC) as you age? Several Apprise clients are in the process of looking for such a community. While this article’s author has heard complaints about living with “a bunch of old people” she hasn’t found that to be the case. Yes, people in CCRCs often live a long time – my grandmother lived in one until 102. However, there are a lot of less old people, too. Some residents are still working and younger spouses who are at least 55 can live there – the older spouse must be at least 62. There are also plenty of activities to keep you busy. The article includes some things to consider while doing your research, too.
You can also think about living in a 55-plus community. You can read more about an individual’s personal experience with one of those in this article: Aging With Others.
3. How Retirees Can Avoid the ‘Tax Torpedo’.
The long-standing approach to retirement drawdown strategies has centered on preserving the benefits associated with tax-sheltered investments as long as possible. But that’s changing. The focus is moving toward the approach Apprise favors – reducing your lifetime tax burden. This can also allow you to delay the start of Social Security by starting to draw down your retirement accounts before you begin collecting Social Security benefits. It can also help lower any of the Medicare income-related monthly adjustment accounts levied on high-income tax retirees. Good planning might help those with comparatively low income avoid the Social Security tax torpedo. (See this blog for more on the Social Security tax torpedo and how it can cause your tax liability to spike at certain income levels.)
The article shares examples showing how much your lifetime tax bill can fall if you complete Roth conversions at the appropriate time. It also shares some thoughts on the benefits of delaying the start of Social Security so your benefits can grow. Keep in mind that your income may be too high for the tax torpedo to matter. Reducing your lifetime tax burden can apply to everyone.
4. What Middle-Aged People Can Do Now to Help Prevent Dementia Later.
Many clients I work with have a history of dementia in their families. While it’s not in mine, the possibility of me or someone in my family being diagnosed with dementia is worrisome, to say the least. According to the article, brain changes that can pave the way toward dementia start midlife, not in your 70s or 80s. It seems possible that earlier intervention and studying the midlife brain more closely could improve brain health and help people stay sharper as they age. Activities including regular exercise, getting enough sleep, and engaging in activities that keep your brain stimulated can all help. For women in midlife, the added complications of the menopause transition, which causes sudden changes in hormone levels can also affect the brain. You don’t have to wait until midlife to make the necessary changes. There’s no better time to start than now.
5. Why car insurance rates are so high.
Most, if not all, have seen sharp increases in their car insurance premiums. According to the most recent Consumer Price Index (CPI) report, the price of car insurance jumped 22% compared to the same time last year. Rates are also up more than 38% since January 2020. Why? Inflation certainly plays a role. Cars and car repairs cost more. Insurance companies pass those costs onto their customers. But it goes beyond that. According to the article, driving became much more dangerous during the pandemic. People started speeding and using their phones while driving more. This results in more fatal accidents and more expensive repairs for cars. Simultaneously, many law enforcement departments reduced traffic safety enforcement. Cars continue to become more technologically advanced, too. That also makes repairs more expensive.
For some tips that can potentially help you lower the cost of your car insurance, check out this article: How To Get The Best Car Insurance For Cheaper.
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Phil Weiss founded Apprise Wealth Management. He started his financial services career in 1987 working as a tax professional for Deloitte & Touche. For the past 25+ years, he has worked extensively in the areas of financial planning and investment management. Phil is both a CFA charterholder and a CPA.
Located just north of Baltimore, Apprise works with clients face-to-face locally and can also work virtually regardless of location.
