Rent or own? It’s a question many young adults face as they try to find the right balance between their housing needs and financial situations.
These days, many older homeowners are grappling with it, too.
Home-sales data and anecdotal evidence suggest that more baby boomers are putting for-sale signs on their homes this year, seeking to unlock the equity they have regained since the housing downturn.
The median age of home sellers has risen to 54 from 46 since 2009, an indication that empty nesters who were waiting for a housing-market recovery are starting to list their properties.
Of course, planting a for-sale sign in the yard raises the question, “Where to next?” And for baby boomers—especially those with oversize houses and inadequate savings—it is a decision that could have a major impact on how they fare financially in retirement.
Although investors have been told for years not to think of their primary homes as investments, having a healthy chunk of home equity can make a big difference when it comes to planning retirement finances.
If retirement savings present the risk of a shortfall, one of the best things you can do is liquidate real-estate assets. That’s more palatable than hearing you need to keep working until you’re 72.
It is important for older consumers to consider their needs not just for the next few decades, but for the final one-third of retirement.
We know that the boomers haven’t saved enough for retirement. What they do have is equity in their homes; but do they know how to spend it? Most of them haven’t thought about the last five to seven years of their retirement, which will be the most expensive.
Asset or albatross?
Renting has advantages for older consumers. On the plus side, renters typically enjoy a wider range of housing options, flexibility (a one-year lease is a short-term commitment) and the fact that building managers handle repairs, landscaping and snow shoveling.
If a rental starts out at 30% to 40% below the prior mortgage payment, it may be worth considering. But seniors not spend more than 15% of their annual retirement income on housing—rented or owned—because as the years progress, medical expenses typically rise. (Other financial planners say seniors should spend no more than 25% on housing, and less if they own a home outright.)
The goal is to find a home that is simpler. They want a home that gives them more freedom—maybe it has no yard, or a smaller footprint.
Wall Street Journal