Most people imagine living comfortably during their retirement in a mortgage-free home that has been paid in full. Renting a home or apartment isn't normally a topic of interest to many planning their retirement, but, in some circumstances, it can be a good idea to consider—at least temporarily.
Renting can pose challenges, such as unpredictability. Ownership of the building can change, causing uncertainty about rental rates and the potential for being asked to leave if the owner decides to move in or has some other change of plans for the dwelling. However, renting can provide mobility home ownership may not be able to match.
Most retirees benefit from ownership
Recently, the Mortgage Bankers Association (MBA) issued a report, "A Profile of Housing and Health among Older Americans" and concluded that retirees usually benefited by home ownership. One of the authors of the study, professor Michael D. Eriksen of Texas Tech University, said, "The study found older Americans who own their homes are more financially secure and generally experience fewer impediments to good health than their peers who rent."
Having control over the use of the space is an advantage for older people who may face health problems, Eriksen noted. "Owning a home provides the single largest asset in most Americans' retirement portfolios, while renters have far more difficulty modifying their living space to adapt to any of the myriad physical ailments that tend to affect older people."
The study showed the median housing equity for older Americans was about $125,000 and represented about 50 percent of an average retiree's portfolio. Some count on this equity to pay for big expenses such as health care costs by using a home equity line of credit to tap the reserve. However, not everyone wants to have that much money tied up into a house which doesn't pay interest or dividends, and some people want the mobility renting can provide.
Advantages to renting
Sometimes older Americans choose to rent, because they aren't sure where they'd like to put down long-term roots. It's not uncommon for parents to move nearer to locations where their one or more of their children have settled, and renting in the interim can provide flexibility.
Renting in retirement can also provide a way for retirees to explore new places and try out different lifestyles. While not every rental offers month-to-month or short-term rental agreements, a healthy retiree may want to live temporarily in a new location, perhaps near their children or in a warmer climate, to really know if they'll be happy living there. It's also a great way to try living out the snowbird lifestyle without being saddled with two properties.
For others, renting can be a smart choice in volatile housing markets. Temporarily sitting out of the market until home prices level off can be a smart decision.
In many cases, renting an apartment can have perks such as swimming pools, tennis courts, on-site gyms, spaces for entertaining and other amenities all in one place and in easy reach. Apartment living can also reduce the number of lifestyle responsibilities without sidewalks to shovel, lawns to mow, maintenance to perform ore repairs to make. Unfortunately, renting a house can include these responsibilities, and the owner may not be quick to fix issues that arise.
Not perfect for everyone
The MBA reported that 44 percent paid of older renters paid more than 30 percent of their annual gross income in rent. As a common rule of thumb, most financial managers advise against spending any more than 30 percent of income on housing at any age, but this statistic suggests affordable housing many not always be available.
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