Are you better off renting in retirement?
With a mortgage nearly paid off and retirement just around the corner, many baby boomers are considering trading home ownership for the simpler life of a renter.
Your kids are grown and retirement beckons — it's time to downsize. Even if it's been 30 years since you last wrote a rent check, it might be wise to trade in the mortgage for a lease. Barbara Delaney, at Stone Street Equity and frequent speaker on finance, weighs the pros and cons.
Location, location, location.
"My advice is very dependent on what part of the country you're in," says Delaney, who lives in the Northeast. "Here, the property taxes are ridiculous." On the other hand, if your taxes are reasonable, owning may still make good sense if you are benefitting from the interest deduction.
Don't forget the deduction.
Delaney points out that the current economic climate is also a huge factor. "At retirement, you may still have taxable income," she says. "A home mortgage may be your only deduction. You can't deduct rent." But don't discount your emotions in this decision: Paying off your mortgage may override other financial considerations.
What's on the horizon?
When someone says "retirement," do you hear "travel"? If you can't say with certainty where you'll be in five years, you don't want to tie yourself to a particular housing market. However, even if you plan to take flight, you'll need to land eventually. "If you can afford it, it still makes sense to have a home base you own," Delaney suggests — and not just for yourself: "You may need a space for your children and grandchildren."
A middle ground for downsizers? "Consider the condo market," says Delaney. "You don't have to maintain it, but you still own it, so after taxes you may be better off."
The best of both worlds.
Escaping the snow? Think about renting and buying. "Some people, for example, buy in Florida and rent in New York," Delaney says. You can benefit from the current buyer's market down South but still have an apartment in the more expensive northern markets. Your well-established credit history will generally help make it easier to qualify for today's excellent mortgage rates, and if the plan is to eventually relocate to the warmer climate full-time, you can let go of the rental with no fuss.
Is renting for you?
Keep your financial and retirement goals in mind when evaluating your housing decision.
For help figuring out the best option for you, schedule a one-on-one conversation with a financial professional.
Barbara Delaney and Stone Street Equity are not affiliated with the Principal Financial Group or any of its member companies.
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