I grew up in a Red Sox household. The mere sight of the Yankees’ logo caused a gag reflex all the way until my early 30s, when I realized just how ridiculous this was. People tend to have similar feelings about renting vs owning a home. They pick a side and stick with it. Logic be damned.
For retirees, there are many more fans of owning than there are of renting, with Vanguard estimating that 80% of retirees are homeowners. Therefore, my previous article Four Reasons to Rent When You Downsize for Retirement was what Gen Z might call “a hot take.” Today, I’ll side with the majority and give you the four reasons it may make sense to buy again in retirement.
As you downsize in retirement, here are four reasons you may want to buy again:
Sign up for Kiplinger’s Free E-Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.
Profit and prosper with the best of expert advice - straight to your e-mail.
1. You’ll have stability.
Homeowners don’t have rent increases. Homeowners don’t have landlords who decide to sell their house. The homeowner is ultimately the one who gets to decide whether they stay.
Moving in your 20s with a friend’s pickup truck is not fun. Moving in your 70s after trying to get rid of 40 years’ worth of stuff is much, much less fun. Buying your retirement home increases the odds you’ll stay put.
2. You could benefit from possible tax advantages.
Prior to 2018, I would have deleted the “possible” above. Under the current tax code, the Tax Foundation estimates that only 13.7% of filers itemize their deductions. If you fall in that roughly 14%, or would because of a purchase instead of a rental, then there are tax advantages to homeownership.
If you are in that group, you will deduct property taxes and mortgage interest, subject to various significant limits, from your gross income. With the standard deduction and mortgage rates as high as they are, I don’t consider this a strong reason to buy.
3. You’ll have control.
The timing of these columns hits close to home (no pun intended) as we help my parents navigate their next steps. One thing that is certain is that several modifications will be necessary in order to stay in the home. If we install a ramp, hand railings or whatever, there is no landlord who has to approve that decision.
Beyond senior modifications, those control benefits apply to pretty much every aspect of the home. Love an orange front door, neon shutters and provocative lawn signs? Owning a home may be your only option.
4. Your home would be an inflation hedge.
Ah, the I word. Inflation hedges today are as beloved as the Macarena was in the ’90s. Unfortunately, homeownership as an inflation hedge was much more powerful when mortgage rates were at 3% instead of nearly 7%.
The idea here is that the principal and interest portions of your monthly payment are fixed, so long as your mortgage is fixed. Your payments should not increase by as much as rent can.
The decision to downsize, followed by what you downsize into, can be a make-or-break moment for many retirees. Do it properly and you’ll be financially secure as you sail into the sunset. Make a location mistake or overextend yourself and you could be in a very precarious position.
When working with clients, we typically start with location. Social circles are especially important in this decision. From there, we establish both rental and purchase budgets. Knowing where you’re going to go and what you can spend makes the other parts a lot easier. Happy hunting!
Related Content
-
Seven Local Social Security Offices Are Suspending In-Person ServicesA departure from closing locations, seven local Social Security offices will temporarily stop all in-person service and will only be available by telephone.
-
The Explosion of New AI ToolsThe Kiplinger Letter Workers and consumers soon won’t be able to escape generative AI. Does that mean societal disruption and productivity gains are right around the corner?
-
This Underused IRA Option Offers Tax Benefits and Income SecurityLooking to avoid running out of money in retirement? Consider longevity protection provided by a QLAC as a component of your retirement income plan.
-
These Four Books Explore How to Leverage Our Outrage PositivelyThe authors offer some powerful tools to help us find solutions to discord rather than remaining silent or blowing up in anger.
-
Financial Pitfalls to Avoid in Your 30s, 40s and 50sAs you pass through each decade of working life and build wealth for retirement, watch out for the financial traps that can hinder your progress.
-
Five Key Retirement Challenges (and How to Face Them Head On)Life will inevitably throw challenges at you as you get older. But making a flexible retirement plan — and monitoring it regularly — can help you overcome them.
-
Four Action Items for Federal Employees With $2M+ SavedIf you can't stand the chaos, maybe you can walk off into the sunset of retirement. Here are some thoughts on how to figure out if that would work for you.
-
How to Help Accelerate Support for Women's EqualityInternational Women's Day was earlier this month, and the theme this year is Accelerate Action. Here's how we can all pitch in to help drive gender parity.
-
How Tariffs Could Impact Affluent RetireesThe wealthier you are, the less price increases on groceries and cars will hurt you, but if markets dive or we enter a recession, that's a different story.
-
How to Help Shield Your Retirement From InflationPicking the right investments at the right time can help ensure inflation won't flatten your retirement savings. Here are some tips.
