Many older homeowners are grappling with ownership for a variety of reasons. Some have mortgage payments they couldn’t afford if they stopped working, while others simply wish to forgo the hassles of home maintenance. Others desperately need access to their home’s equity in order to afford basic necessities needed in retirement, a few may be looking to downsize or right-size their home for a more joyous retirement, while others might be planning to move. The bottom line is that homeownership is more work and more costly than many people realize.
If a retiree has owned a home for a long time, chances are they have accumulated equity in their home. What could using some of this home equity mean during retirement? Could the home’s equity be converted into additional retirement income?
In order to use your home as part of your retirement income strategy, you must be willing to tap into its equity. That could mean carrying a mortgage into retirement or selling the home. These options have various pros and cons associated with them.
For some, keeping the house may be the best route, especially if they have a low tax base and a small mortgage. For those who have purchased more recently, or who don’t have much equity, they may need to sell in order to have any chance of not going broke later on in life.
Other considerations include whether or not you will be able to age in place in your home.
If you have common ailments such as knee or hip pain, the ability to go up and down stairs could become impossible. Is there a bedroom and bathroom downstairs for ease of accessibility?
In other scenarios, selling the home may be the only option because a large number of baby boomers have not saved anywhere near enough for retirement. Many are also living much longer than expected and past ages of previous generations.
While money may be sufficient early in retirement, many have failed to realize that the last years are often the most expensive years of life.
Because of this, a home’s equity could be used during these years for those who are lucky enough to live longer than expected. The equity could also be used to help cover unexpected, or extreme, medical costs such as long-term care for a spouse.
Homeownership has many positives, but it can also come with responsibilities that may become more challenging as one ages. You are responsible for upkeep, taxes and everything else—while renting offers more flexibility and less responsibility. When renting, your landlord is responsible for repairs, yard maintenance, and even things like shoveling snow.
If you are planning to move in retirement, consider how long you plan on staying in your new home. If your time frame is less than five years, you will often have a tough time recouping the costs of purchasing and selling the home. This is true when the real estate markets are hot and especially when they are not. The shorter your timeframe, the more likely you should rent.
You may have equity built up in your home, but should you or a spouse have a major health issue arise, it can be challenging to get a mortgage later in life, let alone in a timely fashion.
You don’t want to be in a position where you have to sell your home because you are out of money. Getting approved for a mortgage, without a job, is much more difficult. Real estate is hot right now, but it will not always be, and if you are forced to sell during a downturn due to a lack of planning, it could be devastating.
Owning real estate complicates estate planning. Children often fight over what happens to their parents’ home after death: one might want to sell and another may want to move in. And selling the home is time-consuming, stressful, and often emotional for the heirs.
Selling your home now, renting and placing the sale proceeds in an investment vehicle that grows annually and is designed to be left to your heirs could be a much better solution.
Moving into a rental property gives retirees an incentive to downsize, handle clutter, and give away their possessions as they see fit, all while they are still alive. Unneeded possessions may be gifted or sold to friends, family, neighbors, or worthy charities. By doing so, the family burden of disposing of their loved one’s belongings after death is reduced.
Flexibility is a key advantage for renters. For older adults, flexibility may mean having the option to move near grandchildren, travel more and simply lock your apartment door on the way out, and to move into gradually easier housing as they age.
Time-consuming and costly chores associated with maintaining a home such as lawn care, landscaping, painting, removing snow, cleaning gutters, raking leaves, trimming trees, and keeping the water heater, furnace, air conditioning, plumbing, and major household appliances in good operating order is not a concern or responsibility for those who rent.
Beyond chores, when preferences or needs change, moving out of a rental can be much faster than moving out of a house and does not have the same transaction costs. Most apartment leases are a yearly commitment. Once the lease is up, or if you choose to pay a relatively small early break fee, you are free to move. Selling a house can take months or years, depending on your home’s condition and your local housing market, and can cost as much as six percent of the sales price in real estate agent commissions, plus anything you spend to fix up the home and make it more appealing to buyers.
Buying another home to replace it can also be a slow and costly process since you not only have to find a place, but also negotiate with the sellers, get a home inspection, and, if you are not paying all cash, close on a mortgage, which typically takes 30-60 days. And remember, obtaining a mortgage when you are older and no longer working can be much more difficult. Plus, mortgage legal and closing costs usually total two to five percent of the purchase price.
As we get older and nearer retirement, physical challenges can make a once-comfortable house difficult to navigate.
Nearly forty percent of people age 65 and older have at least one disability, most commonly trouble walking or climbing stairs.
Climbing stairs or clearing a snowy path can become more difficult, and the risk of slipping and falling becomes more serious. Indeed, falls are the leading cause of injuries and injury-related deaths among adults age 65 and older. One in five falls causes a serious injury such as a fractured hip or traumatic brain injury. Stairs, steps, and steep walkways become challenging and possibly dangerous.
The entrance to your home and your interior hallways and doorways might not accommodate a wheelchair or a walker. Doorknobs and faucets can be difficult to use if you have arthritis in your hands or wrists.
In some cases, it might be easy enough to modify your home with lever-style knobs and faucets, a stair lift that takes you to the second story, grab bars in the bathroom, or a wheelchair ramp to the front door. In other cases—for example, if your home does not have a first-story bedroom and bathroom—a rental unit that is designed with seniors’ accessibility needs in mind might be an easier, less expensive, and more comfortable solution than a major remodeling project.
The benefit of renting is that you do not have maintenance costs, taxes, or renovation expenses. Renting can reduce expenses and significantly simplify a retirement lifestyle. Investing the money from selling the home can augment a cash flow that would otherwise be too low to meet expenses, or be used to enjoy more travel, hobbies, and leisurely pursuits.
Home ownership is a concept that many retirees have a tough time abandoning. It is important to think long-term when deciding to rent or own in retirement. Make a sustainable choice to avoid stressful and rushed choices down the road, when fewer options are available.
For retirees who can see how the practical aspects of renting might outweigh the emotional aspects of remaining a homeowner, renting offers the opportunity for increased cash flow, greater flexibility, more accessible accommodations, and a simpler lifestyle.
If you are looking to sell your home and rent an apartment, Thrive Living has a beautiful rental suite waiting for you. At Thrive Living we strive to deliver a remarkable lifestyle for our residents. Creating a beautiful and comfortable home that is safe, clean, and convenient is our duty to you. With an abundance of amenities and connected to beautiful communities, living with Thrive delivers on happiness, while granting you the lifestyle you deserve.
Contact us today! We are always happy to answer any questions and help you find a location that works best to suit your needs.