Is it better to own or rent in retirement?
For most of us, the cost of putting a roof over our heads is one of our biggest monthly expenses. This can be challenging enough when we're young and earning a salary, but is even more important to plan for when we reach retirement. "I often get asked whether it's better to rent or own property later in life," says Tony Clarke, MD of the Rawson Property Group. "In reality, there are pros and cons to both options, and no easy answer that fits all situations. My best advice to people nearing retirement age is to consider all the possibilities, and choose the one best suited to their particular needs."
OWNING PROPERTY IN RETIREMENT According to Clarke, one of the biggest reasons homeowners hold on to properties in retirement is sentiment. However, he cautions against letting happy memories tie you to a property that no longer fulfils your needs. "When deciding whether homeownership is appropriate for you in retirement, you need to try to remove emotion from the equation and take an objective look at how it may impact your lifestyle over the coming years," he says.
Potentially lower monthly expenses: If you're lucky enough to be bond-free by retirement, homeownership may be more cost-effective than renting, with monthly expenses limited to rates, taxes and utilities.
Stability: Owning your own property means you'll never have to worry about a landlord not renewing your lease. Your home will be home for as long as you want it.
Access to emergency capital: Property can provide a useful source of emergency capital, and tends to maintain its value better than many other investments. Tapping into equity in an existing bond, or taking out a new mortgage on a paid-off property, should never be done impulsively, but can be a comforting safety net in retirement.
A legacy for your heirs: The idea of being able to pass a property on to your heirs is often an attractive prospect. Just be sure to plan out how that'll work if you have multiple heirs and only one property, and remember to take estate duties into consideration.
Cons Buying late in life can be difficult: If your current home is unsuitable for your retirement, or you've spent your life as a renter, you may find it difficult to get bank financing for a property postretirement. Banks vary on cut-off ages for bond approval, but very few will grant favourable, long-term loans to people over 70.
Unpredictable costs: Mortgage repayments are reasonably reliable, but rising interest rates, taxes, insurance and maintenance costs can introduce unexpected expenses to property owners. On a fixed income, that can be a serious budgeting challenge.
Ongoing maintenance: While you may have been a DIY superstar in your younger years, bigger home maintenance chores will likely be beyond you as you get older. Contracting this work out can be both expensive and stressful, but is essential to maintain the value of your property.
Less sense of community: Owning a property, particularly a freestanding home, can become isolating as you get older. Being part of a rental or retirement community, on the other hand, means more social contact and more hands on deck in case of an emergency.
RENTING PROPERTY IN RETIREMENT Renting property in retirement may seem like a downgrade after a lifetime of ownership, but Clarke says retirees often find themselves pleasantly surprised by the freedom a rental property offers.
"That freedom does come with certain sacrifices," he admits, "but a lot of people find it well worthwhile. Depending on your circumstances, you may or may not agree." Pros
Cheaper than a new bond: Rent is almost always cheaper than bond repayments on a comparable property. That makes it a more affordable option for people who aren't looking for a long-term investment.
Predictable expenses: The great thing about rent is you know exactly how much it's going to be each month, and even rental escalations happen on a predictable schedule. When you're living on a fixed income, that kind of foresight can be invaluable. Any nasty maintenance surprises are also not for your account.
Flexibility: Renting gives you the option of moving as often as you please, with no more limitations than the duration of your current lease. That makes it much easier to adapt your living arrangements to suit your changing needs as you get older, and can also help you stay close to family and friends.
Up-to-date facilities: Rental properties are often regularly updated to maintain their income potential, which means you can benefit from the latest fittings and finishes without having to undergo the stress and expense of doing your own renovations.
Rent is a sunk cost: A rental property will never become an asset to its tenant. That rent is a sunk cost that eats into retirement savings every month and doesn't generate any (financial) returns.
Landlords can be unpredictable: There is no guarantee that your landlord will continue to renew your lease in perpetuity. There's always the chance that they decide to go a different direction, and you'll be forced to move. That uncertainty can be unsettling, particularly since change often gets more stressful as we age.
It can be difficult to get a lease at an advanced age: Properties in security estates and villages geared towards retirees often have waiting lists of a decade or more. Landlords of ordinary rental properties, on the other hand, may be reluctant to lease to the elderly for fear of age-related complications.
"Whatever you choose, whether it’s homeownership or rental, remember: your golden years should be about you and what makes you happy," says Clarke. "Choose a property that supports your needs and enables you to live your best life."