As retirement approaches for Boomers across the country (including my own parents), these future men and women of leisure face a big question: Where should they live out their golden years?
For some, this question is a no-brainer. Staying in the same house that has long-since been paid off, is in close proximity to children and grandchildren, and holds a lifetime of memories simply makes sense. For others, however, this question is much thornier. What if your house is not paid off? What if it’s too big for the two of you? What if your children have moved to a different part of the country? What then?
There are certainly pros and cons to each course of action, depending on your situation. Here is a breakdown of what might make the most fiscal sense for you:
Why you might want to stay:
- Home ownership offers both financial and emotional security. Having a home that is paid off will ensure that you always have a roof over your head, and it can also serve as another long-term investment should you feel at all nervous about your other retirement investments. In addition, with the availability of reverse mortgages for seniors over age 62, keeping your paid-off home will provide you with an opportunity to continue to live independently rather than move in with children or siblings, even if your retirement savings are not as healthy as they should be.
- On a month-by-month basis, staying in your house will cost you less than renting. Though you will still need to pay property taxes and maintenance costs, your monthly outlay for housing will be less than any landlord will charge you for a rental property as long as you own your house outright.
Why you might want to rent:
- If you still owe anything on your mortgage, you owe it to yourself to free up as much equity from the house as possible by selling it. Your monthly rent will cost you less than your mortgage, and you will additionally have the liquid equity to add to your retirement portfolio.
- Even if you do own your home, renting might make sense. If you are no longer comfortable doing your own home maintenance, renting takes that headache off your to do list with the added benefit of giving you the proceeds from the sale of your house. Selling your home early in your retirement will also be less stressful and possibly more lucrative than waiting to sell until you have to. If you or your spouse needs to move into an assisted-living facility, for example, you have no guarantee that your house will sell quickly or at a fair price.
- Also, renting makes a great deal of sense if you are moving to a new community for retirement. Even if you decide you eventually want to buy a new house or a condo in your new home, living in a rental unit for a year or two as you get settled in the new place allows you to take your time about deciding where you want to live. Renting also gives you flexibility to move to new places, something you may be interested in doing if each of your children live in a different part of the country.
Why downsizing might make sense:
A third option in the stay vs. rent conundrum is to downsize from your current home. Even if you feel better with the security of home ownership, you can free up some of your equity and relieve yourself of the burden of maintaining a large home by downsizing to a smaller house or a condominium. This can help you to reduce your tax bill without giving you an additional monthly bill, and it can protect you from the vagaries of leases, which can change from year to year.
Ultimately, the decision to stay, downsize, or move is extremely personal, involving financial and emotional factors. It is important that you remain clear-eyed and flexible throughout the decision-making so you can come to the best option for your family.
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