Deb and Bruce Homan are in their 50s, empty nesters, and for the first time in decades, renters. They sold their large suburban home in Minneapolis and moved to a high rise in downtown Chicago when Bruce got a job offer in banking more than a year ago.
"We like renting. We are in walking distance of the theater, restaurants, shopping. We haven't decided where we want to live in retirement, as renters we can easily pick up and move without worrying about having to sell a home," says Deb.
The building offers a fitness center, outdoor pool and hot tub, resident-only bike share program, 24-hour concierge, on-site pet care service, nearby lakes, parks and more.
"Our space is smaller, but we don't miss our big home. It was cathartic getting rid of all that stuff. We don't have rakes, lawn mowers. Less is more."
The Homans are not unique. Many are finding that renting can be a real plus in retirement.
Conventional wisdom says home ownership is best. The arguments are well known. If the home is paid off by the time a person retires, there's no monthly payment. You can also make any structural changes to the home if needed, and remaining in a familiar environment can be crucial for people who become cognitively impaired, points out Debra Drelich, geriatric care manager and founder of New York Elder Care Consultants.
There's home ownership's promise of capital appreciation, though the last several years have tested that belief.
Then too, renters face the constant threat of increased rent at the end of their term, which can be a significant factor for those with a fixed income, says Patrick McGonigle, a certified financial planner with CJM Wealth Advisers.
However, there are times when renting can be a smart strategy.
How's the real estate market?
When you think the real estate market is overpriced and don't want to buy with the possibility of being under water in a few years, renting makes sense, says David Shucavage, president of Carolina Estate Planners. "This would have been my area, a retirement community in coastal North Carolina. Many of my clients are still under water in houses they bought in 2005-2007."
When Anthony Kirlew, a financial consultant, former realtor and mortgage banker, and his wife moved to Phoenix in 2007,they looked at buying and ended up renting a condo that was selling for $150,000. Within a few years, that condo value dropped to about $60,000.
Test drive an area
Maybe you're not sure where you want to live in retirement. Renting can serve as a way to test drive a city, says McGonigle. "Many retirees move to warmer locales. Renting for a year allows retirees to determine whether that neighborhood or city is truly the place where they want to buy a home without having to make the significant outlay of a down payment."
Or, for retirees who want to explore a new city or country, renting can allow them to live a in a place for fixed period of time, and them move on to a new city, without the hassle or expense of selling a home.
Do the math
Renting eliminates owing real estate taxes, having to pay maintenance costs and most of the "gotchas" of home ownership, like having to replace a boiler or huge home heating bills in the winter. "Renting in retirement makes sense when a retiree living on a fixed income can more reasonably predict the cost of the rental, than the cost of the home. Owning a home can be more or less expensive than renting, so it will depend on the retiree's personal situation," says Lock Bingham, a financial advisor and chartered registered retirement plans specialist with Sterne Agee.
Know too, that property taxes and mortgage interest deductions are only beneficial if you pay taxes and itemize deductions, says Anna Pfaehler, a certified financial planner with Palisades Hudson Financial Group. "Not all retirees will receive the full tax benefits of owning a home, which makes ownership more expensive."
What are your priorities?
If you find a retirement community that offers the amenities you want, like a pool and golf, for example, but it only rents, then forgoing ownership to get the lifestyle you want can make sense.
Renting is also a viable alternative if you want to preserve the part of your savings that would be devoted to the home, for other things, such as health care.
Speaking of health, there's a lot of upkeep of a home that can be demanding physically, such as maintaining the yard and doing repairs. If you're not capable of doing home maintenance and it will be a financial burden to hire someone to do it, this could sway your decision about renting, says retirement specialist David Alemian. Renters, of course, can simply call the super to make the repairs.
For the snow birds, those who flock to Florida in winter and are okay with New England in the summer, renting is ideal. Alemian says, instead of paying the costs to maintain two homes with each being empty for six months, a better solution could be to just rent for six months in each location.
Says Deb Homan, "We are enjoying our lifestyle. I'm not sure we'll buy a home when we retire."