Retirees should plan before renting

SELLING THE FAMILY HOME FOR THE CASH CAN BACKFIRE IN THE LONG RUN

Here’s how the American dream has traditionally worked: Rent as a young adult, while saving for a down payment; buy a home and maybe buy again a couple of times; leave when advanced age means you require care or can’t maintain your home.

Now, though, a significant number of households age 55 and over are short-circuiting that process by selling early and opting to rent.

According to the Harvard Joint Center for Housing Studies (JCHS), there are about 1.9 million more households 55-and-over renting now than in 2006. Part of the increase is due to the greater numbers of the Baby Boom generation, as well as owners who lost their home to foreclosure during the recession.

But there’s a burgeoning group of 55-plus homeowners who would rather rent, notes Richard Fry of the Pew Research Center.

For some, the draw has been the many newly built apartment complexes catering to the 55-plus demographic, adds James Chaknis, spokesperson for JCHS.

“A lot of people talk about (selling and then renting),” adds New York City financial planner David Schneider. “They may have a lot of equity but not a tremendous amount of retirement savings.”

But using equity — which is the amount of a home’s value that is not mortgaged — early in retirement can be risky, especially for those in their late 50s or 60s, Schneider notes.

Funds must be invested conservatively to avoid potential losses. At the same time, Schneider says, very conservative investments might not provide the cash flow needed to pay rent and other expenses.

It’s a complex calculation, and would-be retiree renters should consult with financial experts about it, he says.

“It may be more (economical) to stay in your house,” Schneider concludes, noting that renting a room Airbnbstyle or taking in a roommate are increasingly popular options for house-rich retirees.