Rent or own? What is the best option for retirement housing?

As you approach retirement, you may be wondering: Should I rent or own? What is the best financial decision? With today’s high home prices and the highest mortgage rates in nearly 20 years, purchasing your own retirement home could be a disaster for your financial security. On the other hand, if you plan to retire in your current home, we should be having a completely different conversation about retirement planning.

Some retirees will need to reduce their housing costs. Others may want a fresh start in a new location after retirement. At some point in retirement, you may not want to deal with all the hassles (and costs) of maintaining a single-family home. Unfortunately, with many people lagging behind in saving enough to maintain their living standards after retirement, access to home equity may be necessary to finance their retirement lifestyles.

For our readers who are currently renting and approaching retirement, running out of a new home and buying it now likely won’t help you reach your goal or retirement any faster or easier. For homeowners, you may be shocked to see what junk apartments are being rented out these days. Moving after retirement is not a decision you should make lightly. It’s one thing to be house poor in your 20s. It’s a completely different struggle once you retire.

Here are some areas to consider when deciding whether to rent or own a home as a retiree.

Will you need access to your home equity?

A home is often the most important asset most people have. Even if your mortgage payments are low (or nonexistent), there is still a cost to remaining on that home. What would your retirement income look like if you could convert your home equity into retirement income?

To use your home as part of your retirement income strategy, you must be willing to leverage its equity. This could mean carrying the mortgage until retirement, selling your home, renting your home, or perhaps taking out a reverse mortgage. All of these options have different pros and cons associated with them.

For some, keeping the home may be the best route, especially if they have a low tax base and a small mortgage with historically low interest rates. Those who may have recently purchased or do not have a lot of stocks may need to sell to reduce their cost of living in retirement.

A friend likes to say, “The only way I’m leaving this house is feet first.” She has a one-story house that she hopes to never leave. Consider whether you will be able to age in your current home. Do you even want to stay in the same city or state?

^{Will you need to sell your home for retirement?}

Many baby boomers own homes they won’t be able to afford in retirement. Selling may be the best option to control housing costs once they retire. The good news is that many baby boomers will live much longer than expected. The bad news is that their retirement savings will also need to last longer as their longevity increases.

Is owning a home an asset or a hassle?

Yes, owning a home is an accomplishment and worthy of pride. At the same time, it can be a huge responsibility or even a money pit. Live there long enough, and there will always be costs of repairs, replacements, and maintenance, not to mention property taxes, thanks The Tax Cuts and Jobs Act of 2017 (Trump’s tax plan), is not fully deductible for many California homeowners.

Rent can be cheaper, especially in the short term. However, the big drawback for renters is the higher rental cost over time. Let’s be honest: If you start renting in your 70s or 80s, inflation and rent increases will be less of an issue over your lifetime than someone in their 20s or 30s.

How much should you spend on housing in retirement?

Whether you plan to rent or own after retirement, try not to spend more than 30 percent of your income on housing costs. In an ideal world, this number would be closer to 15 percent, allowing the most spendable earner to do everything she dreamed of after retirement. You’ll likely be able to afford housing costs if you own your home, and your mortgage will be paid off in your early retirement years.

Realize that allocating this little of your income to housing may not be realistic for many retirees Cities with a high cost of living such as Los Angeles Or even Palm Springs. However, a lower cost of living will greatly reduce the chances of running out of money in retirement, not to mention freeing up money for other things like travel and maintaining your health.

Related: How to Keep Health Care Costs in Check During Retirement

Are you planning to move into retirement?

If you’re planning to move into retirement, think about how long you plan to stay in your new home. The shorter your time frame, the less beneficial home ownership will be.

If your time frame is less than five years, you will often find it difficult to recoup the costs of buying and selling the home. This is true even when real estate markets are hot And even truer when they’re not. The shorter your time frame, the more likely you are to benefit from renting as a retiree.

The purchase may be better for those who expect to stay in the same home for at least 10 years. Even if you have the funds to pay for the house in cash, consider taking out at least a small mortgage or home equity line of credit. This will allow for the greatest financial flexibility as you age.

Owning a home is still a part of the American dream that many retirees find difficult to give up. Think long term when you decide to rent or own during your retirement years. The decision is a little easier if you are already a renter or owner. Sticking to the status quo is always easier. Make a sustainable choice to avoid stressful, rushed choices in the future when there are fewer options available.