Should you rent in retirement?

If, like many retirees, you've paid off your mortgage, you won't benefit from the mortgage-interest deduction. But your monthly overhead costs of property taxes and maintenance likely will be fairly low.

Arguments against renting

Warren Bland, the author of "Retire in Style: 60 Outstanding Places Across the U.S.A. and Canada," notes that converting the proceeds of a home sale into income via a certificate of deposit may provide what seems like a nice chunk of income -- $22,500 a year after tax on $500,000 invested at 6% -- but it may not go far in the rental market.

"In most urban real-estate markets, you would pay at least $2,000 a month -- $24,000 a year -- to rent a comparable property. Poof! There goes your additional interest income," Bland says.

When home prices are rising, rents generally increase as well, Bland adds, saying: "Higher rents will decrease the overall purchasing power of renters' incomes, whereas higher home values accrue to the homeowner or his or her heirs. The imputed rent rises, but the homeowner doesn't have to pay it or taxes on it."

Freddie Mac, the government agency that guarantees mortgages, provides a guide to owning and keeping a home and work sheets for budgeting homeowner costs, maintaining and repairing appliances, and hiring a contractor for renovations.

"Renting is generally cheaper in the short run, but there is a point a certain number of years out where it gets more expensive to rent and less expensive to own," Dorula says. "Homeowners can tap into their equity in a number of ways, and that option isn't open if you rent."

Emotions of owning versus renting

Though the emotional aspects of renting are less concrete than the financial aspects, they are an important part of the equation. Carefully exploring your attitudes and your ability to adapt to changes going forward is a must.

"There is no one-size-fits-all," says Somers, the geriatric-care manager. "I recommend that seniors talk to their friends who have been through the experiences of staying in their present home, downsizing or renting to get an idea of what it's like. You also need to think about your needs going forward: Do you want freedom from responsibility? Do you want to travel? That gives you a base line to make these types of big decisions."

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Renting provides more freedom, but owning provides more security. "Owning provides more control," Dorula says. "When you rent there is always a chance that ownership of the building where you live could change hands or the property could go condo and you'd have to move. If I decided to rent, I would insist on a long-term lease."

On the other hand, if your health or your spouse's health fails, you may need to move to an assisted-living or nursing-care facility on short notice. "In a down market, it can be very difficult to sell a house," Somers says.

Though owning a home can provide a lot of emotional security, a house isn't a liquid asset.

This article was reported and written by Amy Buttell Crane for Bankrate.com.

Published July 27, 2007

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