If you’re approaching retirement, chances are you’re starting to think about what kind of life you’d like to lead.
When you’re (hopefully!) no longer working, would you appreciate seeing more of the world? You might envision yourself living in Costa Rica’s popular Central Valley where a 2-bedroom house costs only $500 per month and a restaurant meal at just $4 per person.
Or, you might prefer to be near your grandkids so that you can volunteer to babysit them, pamper them, and watch them grow up.
What if you could do whatever you wanted to AND had some extra cash saved up as well?
Too good to be true? It might seem that way, but it could actually be possible if you sell your house and rent in retirement.
That’s exactly what a growing number of retirees are doing—the percentage of renters over 60 grew by 43% in the last decade.
So, if you’re tempted to sell and rent and you’re wondering “Should I sell my house and rent in retirement?” you’re not alone.
Of course, renting after retirement can also have it’s challenges so, before you take the plunge to sell your house and rent in retirement, it’s best to understand all your options and what they involve.
Table of Contents
What are your reasons for wanting to sell your home to rent?
Just like any major life decision, selling your home and renting in retirement requires careful thought and planning. Understanding your reasons for wanting to sell your house when you retire will help you decide if the decision makes sense for you.
So, why should you opt to sell your home and rent in retirement?
There can be many reasons that make renting after retirement a good idea. Though, more often than not, your reasoning will fall in one of the following categories:
Why worry about retirement funds when you can just sell your biggest asset?
You could just move to where it’s cheaper to live and rent a smaller house. The cost of living varies by city, so you could consider moving to a less expensive place where you get the most value for your money.
If you’re wise with your funds, you might also be able to invest the profits from the sale of your house to generate a steady income each month.
So, there are plenty of financial incentives to sell your house and rent when you retire.
A natural fact of life is that once you age you’ll get physically weaker.
What you can do now, you might not be able to do 10 years from now. Things like mowing the lawn, cleaning large windows, or even moving around comfortably in your own house need to be considered.
True, you could make your home more accessible by adding handrails, modifying flooring, or installing a walk-in shower, and that’s what 19% of retired homeowners do.
But you could also save yourself the trouble and just move somewhere more appropriate for your retirement years. Small rental units will usually be easier to clean and to navigate as you age.
Chances are you won’t be tied down to a particular area in retirement, which frees you up to move.
You may have bought the house in a neighborhood that was convenient for work, or in a good school district, as those things mattered at the time. But, you’re eventually going to stop working and your kids may have long moved out.
You want to take it easy and enjoy a more laid-back lifestyle. A smaller space could be better suited to your lifestyle needs.
Maybe you can even find areas where there’s a community center for retirees, or move wherever you fancy, really. The sky is your limit!
Is renting better than owning in retirement?
At this point, you’re probably thinking that all this sounds very similar to downsizing. But, rather than buying another place, you’d just be renting after retirement.
Matt Cosgriff, a BerganKDV certified financial planner and retirement consultant, says in an Investopedia article that “In many cases, it makes financial sense for retirees to downsize as it eliminates maintenance costs and higher rent or mortgage payments”.
If you’re wondering whether renting is better than owning in retirement, it’s not necessarily the case. To answer whether is it better to rent or buy in retirement will require figuring out how much you’ll need to comfortably retire, and how certain you are of your decision.
To determine the best approach for your situation, start by comparing how much is owed on your home and how much it’s currently valued at. Ensure you’re not over or under estimating these figures as that’ll mislead you.
Then, add in other sources of funding such as pensions, social security, retirement accounts, etc. Your financial position should tell you whether it is better to rent or buy in retirement.
Generally, having less funds suggests that you should rent in retirement, because that’ll give you the option to invest the money and generate a revenue stream.
You might also be able to save on all the costs of buying a home. Unless you can afford to buy in cash, chances are you’ll have to take out another mortgage if you elect to buy rather than rent.
And, a new tax law that came about in 2018 means that you might not be able to claim the mortgage interest deduction—standard deductions were raised to $24,400 in 2019 for married couples filing a joint tax return and $12,200 for single filers.
Considering this, the answer to the question “is renting better than owning in retirement?” is a complex one.
Aside from not having to pool most of your money into a house and dealing with a mortgage, renting means you may be able to get all-inclusive deals for utilities, and not have to worry about maintenance work.
It also allows you to “test the waters,” which can be especially beneficial if you’re trying out a new neighborhood or you want to see what living in Costa Rica is really like! There’s always a big risk when it comes to moving and you may turn out not to like it. That’s why people often say “to rent is better than to buy in retirement,” as it gives you the flexibility to move again if things don’t work out as planned.
That might make the debate of should I sell my house and rent when I retire a solid yes. But, of course, there are also downsides to consider.
Renting means you’ll be at the mercy of landlords and, let’s be honest, they can sometimes be a pain to deal with, and they could increase your rent without much notice. Did you know that the median rent grew 2.6% over the last year?
Considering whether you should rent in retirement given the year-over-year increase in rent, is a perfectly valid concern to have. But, that can also just mean you should look at past trends of rental increases, choose cheaper areas, and go with well-reputed landlords. There’s always a smart way around everything.
By selling your home, you’ll also be losing a big asset that you may be able to cash in for unforeseeable expenses. Though, if you invest wisely, you can actually have an ‘in case of emergency’ funds that is more liquid, and therefore more accessible in times of need.
Lastly, selling your home and renting in retirement also means that you wouldn’t have a home to pass down to your children. But, this may not be the worst thing, because it saves them having to deal with it years later and possibly having to pay capital gains tax.
Funding your retirement and other renting benefits
If you’re wondering if you should sell your house and rent when you retire, that’ll depend on whether you need to tap into your home equity, and how much money you have available.
The average American would find this to be a good strategy as they have roughly twice as much value in home equity as they do in other savings.
Choosing to sell your house and rent when you retire means you can utilize your most valuable asset and save on housing-related expenses—HOA fees, property taxes, home insurance, maintenance costs, utility bills, etc.
You can also take advantage of tax breaks as long as you’ve lived in your home for the last two out of five years. You’ll be able to exclude up to $250,000 of the profits from the house sale if you’re single and up to $500,000 if you’re married.
So, if you want to sell your house and rent in retirement for a better cash flow, then be on the lookout for when the market is most favorable to sell. The extra money from selling might also enable you to delay starting social security until you’re 70, for the highest possible benefit.
Before we move on, let’s recap the main pros and cons of renting to make the “should I sell my house and rent in retirement” question easier to answer.
+ More retirement funds to live comfortably and invest, for steady monthly income
+ No expenses related to home owning
+ Flexibility to test out new areas without committing
– Rent cost might increase over time
– Must rely on the landlord for things like repairs
– Lose your “in case of emergency” asset
Based on this summary, if you think renting is better than owning in retirement, then you can start planning how to achieve this.
Use your home equity for your own good and consider iBuying for ease of mind
Still wondering if you should sell your house when you retire and rent in retirement instead?
It’s a big decision to make, so take your time deciding what’s best for you. At the end of the day, you should consider what makes the most sense based on your home equity and lifestyle plans.
If you want to know what the expert’s verdict is, a hypothetical retirement analysis in a Kiplinger article found that renting tops buying in the short run only. In the long run, it might be better to buy a smaller home.
Whether you sell to buy a smaller house, or to rent, keep in mind that preparing a home to sell it can also be time consuming and costly.
Of course, you could always consider the iBuying option, which will allow you to sell your house with the click of your mouse. iBuyers offer instant all-cash offers for homes, saving the hassle of house repairs, upgrades, house staging, and showings.