Downsizing in Retirement - Should I consider Renting?
By Kathleen Erickson
In just about any metro area in the US, investors, developers and builders are trying to keep pace with the demand for multifamily housing, especially rental apartments. I started to think who is moving into apartments so I decided to delve into this further and found that there are two things that are driving the rental market – population shifts and affordability. Homeownership rates have been decreasing for years. The decline is largely due to the downsizing of aging Baby Boomers, elevated housing prices in some high-population markets, and high student loan debt that prevents many younger buyers from saving enough to make a down payment. Therefore the profile of today’s renter has changed to include all age demographics with the surge in demand being driven mostly by households aged 45-64.
My focus today though is on the Baby Boomers. Many are at a point in their lives where they no longer need that big house and are considering downsizing to a condo, a smaller house or perhaps renting. Many may argue that it is best to own a home in retirement instead of renting one but there are many exceptions. For starters, renting can be flexible and a way to check out a new area before you buy or move to a place closer to family. Another thing to consider is that while the equity in a home is considered an asset on paper that “wealth” is of little use until you sell your home. By selling you free up this money that can be put into a savings account or other investment vehicle where it’ll be more readily accessible when you need it, for say, medical expenses or for that special trip you’ve been dreaming about.
Owning a home is a major financial responsibility but it also means a substantial investment of your time to keep it properly maintained. Renting allows you to pass these burdens onto the landlord. The tradeoff is that you sacrifice some of your control for the sake of convenience. When you are living in a property that someone else owns there are drawbacks - you are bound by their rules of what you can and cannot do, rents can go up in time as well as owners selling out from under the tenants. As a tenant you also forgo any tax benefits afforded to homeowners.
Retirement is meant to be enjoyed but stressing over your housing situation can tarnish your golden years. Comparing the rent vs owning numbers can give you a feel for which option is the best fit financially and for your lifestyle.