Early Retirement Blog

Should I rent or a own a home in retirement?   Which makes more financial sense? Common questions that many people ask before they retire.

First, as I explained in a previous Early Retirement Blog article, “Should I Retire With A Mortgage?“, you should not retire with a mortgage.

Either pay off the mortgage, or sell your house and rent, you should not retire in debt. The interest you pay on your mortgage, no matter how small, negatively affects the overall return on your investments in retirement.

Okay, now the answer to “Is it better to rent or own a home in retirement?”   You should only own a home in retirement, if after the mortgage is paid off, the value of your home is not greater than 30% of your total retirement assets.

And you should only own a home in retirement, with the understanding that more than likely, at some point during your retirement you will have to sell your home to support your retirement.

Owning a home reduces the amount of income you have for retirement. If your house represents 75% of your retirement assets, then it’s the same thing as spending 75% of your paycheck on housing, leaving you only 25% of your income to pay for food, health care, vacations, and everything else.   Just like before you retire, no more than 30% of your income, should go towards housing.

Another reason why your home should not represent more than 30% of your retirement assets, is because the historical return of housing is almost 0%.

Even if your house only represents 30% of your retirement assets, the recent economic collapse, the collapse of both the housing and stock markets, shows why renting a home in retirement may make more financial sense.

If you were in retirement, and renting your home during the collapse, the fall in housing values had no effect on you.  Your losses would have been limited to your stock portfolio.   The owner of the property you rent from, would incur the loss of value in his asset, not you.   Renting gives you more financial flexibility.

If you rent in retirement, you can always increase your retirement income, by simply finding cheaper rental housing.   And, you don’t have to worry about property taxes going up, or the cost and hassle of maintaining your property.   Or being forced to sell your house when the housing market is weak. Renting a home in retirement gives you less financial headaches.

So, the answer to the question, “Should I rent or own a home in retirement?” is, you should only own a house in retirement if the value of your house represents no more than 30% of your retirement assets, you are prepared to take greater risks with the remainder of your retirement assets, and you don’t mind the inflexibility and financial headaches that come with owning a house.

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