Downsizing retirement? The big question: rent or buy?

The age-old question of whether it makes sense to rent or buy changes in retirement.

Once you have a steady income, downsizing may seem more attractive than it did when you were in your 20s, 30s or 40s. After all, if you are more interested in traveling, you may not want to pay for the upkeep and upkeep of a large house. It can also be difficult to budget for repairs in retirement. On the other hand, purchasing a home can enable you to leave a legacy to your heirs. Whether to rent or buy, choose carefully. This is a big decision.

Average monthly payments

Although real estate agents often stress that the housing market is highly localized, it can help to take a look at average housing costs across the United States.

The average monthly rent payment is $2,072, while the average mortgage payment is $1,907 per month. That’s a difference of $165 per month, or roughly $2,000 per year.

Again, though, this will vary based on your local housing market. In some large cities, renting is the only option, because the cost of ownership is too high. In some rural areas, ownership may be better, because rental options are limited.

In addition, there are many other costs to consider, such as maintenance, repairs, and upkeep.

Rent in retirement

With a rental, you probably won’t need anything for repairs – that’s the landlord’s job. However, maintenance costs may be limited, such as hiring a local teenager to handle snowfall in the winter and mowing in the summer. But these costs are usually much less than what homeowners have to deal with.

Renting also provides the flexibility to change your housing situation as your needs change. Maybe you moved to be close to family, but eventually they moved on. Or maybe you want to divide your time between family members. It’s easier to move as a renter than as a homeowner: As a renter, you don’t need to sell the property you’re leaving. Additionally, you may look for a more flexible option — a month-to-month lease — so you can move quickly if necessary.

However, as we mentioned above, on a monthly basis, the rent payment is usually more than the mortgage payment. Additionally, your rent may go up every year, it’s up to the landlord.

Buying in retirement

Buying a home — whether it’s a house, townhouse, or condo — has some distinct advantages over renting. If you buy, you are building equity in your home against which you can borrow. Having credit can help in retirement if you need to increase your cash flow or have unexpected expenses, such as medical bills.

Buying a home can make financial sense if you want to leave it to your beneficiaries as part of an inheritance. In the meantime, you can enjoy peace of mind knowing that you can age in the property you own. Just make sure the house has accommodations you may need later in life.

Weighing housing costs

When deciding whether to rent or buy in retirement, it’s important to choose a housing option that won’t leave you house poor. In other words, you don’t want to spend so much of your fixed income on housing that you won’t have enough to cover other expenses. Being poor at home can make it impossible to live the lifestyle you want for your retirement.

What can you do to avoid this? Take an honest look at your cash flow needs. Consider all the potential expenses you may have in retirement, including food, transportation, medical bills, and caregivers. Then, weigh these costs against your housing options.

Disadvantages of renting versus buying

We’ve highlighted the benefits of each housing option, but each has its own drawbacks to consider.

Bottom line

It can be difficult to decide whether to rent or buy when downsizing for retirement. In the end, it’s a personal choice. Review your finances and the cost of housing in your area. Also consider what you want for your retirement, from a support network to travel. Create a pros and cons list for both options and consider working with a financial advisor to guide you through the financial implications of each option.