There’s been a lot written about the advantages of renting rather than owning a home for young people as they try to find the right balance between their financial situations and their housing needs. These days many older homeowners are struggling with this decision too.

Empty nesters are thinking, “Our 5-bedroom house is too large for us now, not to mention the money drain. It’s time to move to a smaller place.” Downsizing retirees should examine whether renting would be a smarter solution for them instead of buying a smaller home.

Given that housing can be your single greatest monthly expense, it pays to put some thought into renting versus owning once you’re retired and on a fixed income.

What’s the best option for you moving forward? Here are some of the benefits and drawbacks to both options.

Downsizing Retirees: Should You Own Or Rent?

Pros of buying a home in retirement

While home ownership is expensive, many retirees opt to buy and there are some good reasons to own in retirement.

  • Selling your family home and buying a newer, less expensive property reduces your expenses and you may also have money left over from the sale to invest.
  • Buying a house or condo can appear financially attractive because of the ability to benefit from potential price appreciation and build equity.
  • The equity you build in your home can become a source of income – either through a line of credit or receive an income stream with a reverse mortgage.
  • You’ll have a potentially valuable asset to leave to your heirs, even if you spend down your savings in retirement.
  • You can decorate or renovate to make your place look the way you want.
  • Owning is more predictable. There’s no landlord to increase your rent or tell you to move.

Cons of buying a home in retirement

Here’s the downside of owning during your senior years:

  • When you buy a new place with the proceeds from your house sale, that money is tied up and not easily accessible should you need it.
  • Depending on what city you are considering, you may be buying in at a potentially high point in real estate prices.
  • Maintenance can be costly even with a newer home. As you age, your ability to tackle maintenance items yourself might decline, which will only add to your costs. Dealing with major repairs on a fixed income can be a risky prospect.
  • Even with no mortgage payment, you’ll always have increasing property taxes and homeowners’ insurance to contend with.
  • Consider how long you expect to live in your new residence. Just because you’re retired doesn’t mean you’ll stay in your new digs permanently. Down the road you may want something more accommodating to aging or to a disability. The shorter the stay the less financially attractive owning a home becomes.
  • Your home may not be as valuable an asset as you think. While it’s true that owning offers an opportunity to tap some equity or leave something behind to your heirs, you won’t know the value until the “For Sale” sign goes up on your lawn. You may be better off finding a cheaper rental and using whatever money you save as a source of income or potential gift for your heirs.
  • If you do need to sell you are at the mercy of realtors, buyers, and market conditions, plus selling takes time and effort.

Pros of renting in retirement

Many argue that it’s best to own a home in retirement, but home ownership isn’t for everyone. When you sell the family home, it might be worthwhile to rent instead. The biggest difference is in the level of responsibility and freedom. Here are a few benefits of going this route:

  • Your housing cost is whatever your rent is. Fixed costs tend to work better, and can be cheaper, when you are living on a fixed income.
  • You can let the responsibility of maintenance and unanticipated repairs be someone else’s problem.
  • You can test out different homes and locations. You plan to move from an urban centre to a quiet coastal town, for example, or an apartment instead of a house. If the move turns out to be a bad idea, you can just move on. By renting you may be able to try out a couple of options to see which one is the best fit.
  • An apartment building could offer aging-in-place amenities such as elevators, wheelchair access and bathroom grab bars.
  • You have the flexibility to pick up and move when your lease is up. If your health situation changes, or if you decide you’re ready to relocate to someplace warmer or cheaper or closer to family or a care facility, it’s a lot easier to get out of a rental situation. Tenants don’t have to worry about market conditions or liquidity.
  • You could use the cash from the sale of your home to build your nest egg or boost your finances. With this money freed up, you may feel more comfortable spending it on vacations or other items you have dreamed about while you are healthy enough to enjoy it.
  • Being a tenant might be more suitable for people who travel a lot or require ready funds for health issues.

Cons of renting a home in retirement

While renting in retirement has its benefits, switching from home ownership to rented accommodation isn’t necessarily the best move for everyone. Here are a few drawbacks to think about:

  • Usually retired people who are selling their family home have paid off their mortgage. If you move to an apartment, you’ll have to pay rent. Your rent payments will be an expense and you can expect it to increase over time. Granted, you’ll have the option to go elsewhere if that happens, but picking up and moving is costly, and easier said than done, especially as you get older.
  • While there’s something to be said about not having to deal with maintenance and repairs, when you’re renting, you are at the mercy of your landlord or management company to fix problems in a timely manner and keep things running smoothly.
  • You have less control than owners over things like decorating and renovating. Renters often have difficulty modifying their spaces if they acquire any physical ailments as they age.
  • Many retirees with pets may find it difficult to find a suitable rental.

Downsizing: Run the numbers

The decision whether you should buy or rent in retirement often comes down to the particulars of your situation.

First, estimate your monthly cash flow. Then you can compare the costs of home ownership with renting. Add up expected maintenance costs, utilities, property taxes and insurance. Figure in the opportunity cost – what this money could earn if you invested it instead of having it tied up in home equity.

Final thoughts

Where to live is one of the biggest decisions retirees face. For many people approaching retirement, the decision to keep the family home, downsize to a smaller property, or rid themselves of the stress and expense that can come with home ownership altogether is a difficult one.

By the time many of us retire we’ve become so accustomed to owning a home that the idea of renting might never occur to us. A house is likely the largest single investment you’ll ever make and as you enter retirement – a time when most mortgages have been paid off – it can represent a sizable asset.

But if you are pondering a change of address in retirement, it’s worth considering all the advantages and disadvantages of being an owner versus a renter, even if you haven’t been a renter since avocado coloured appliances were in style.

There really is no right or wrong answer. A lot depends on your personal financial situation. The more thought you put into your decision, the better your chances of making the move that’s best for you.

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