Downsizing in Retirement? The Big Question: Rent or Buy?

The age-old question of whether it makes more sense to rent or buy changes in retirement.

Once you’re on a fixed income, downsizing might look more appealing than when you were in your 20s, 30s, or 40s. After all, if you’re becoming more interested in travel, you may not want to pay for the upkeep and maintenance of a large home. It can also be difficult to budget for repairs in retirement. On the other hand, buying a home can enable you to leave a legacy for your heirs. Whether it’s renting or buying, choose carefully. This is a big decision.

Average Monthly Payments

Although real estate agents often stress that the housing market is hyperlocal, it can help to take a look at average housing costs across the U.S.

The average monthly rent payment is $2,072, whereas the average mortgage payment is $1,907 per month. That’s a $165 difference per month, which is nearly $2,000 per year.

Again, though, this will vary based on your local housing market. In some large cities renting is essentially the only option, because the cost of owning is so high. In some rural areas owning may work better, because the rental options are limited.

In addition, there are numerous other costs to consider, like maintenance, repairs, and upkeep.

Renting in Retirement

With renting, you’ll likely nothing for repairs—that’s the landlord’s job. However, you may have limited maintenance costs, like hiring a local teen to handle snow blowing in the winter and mowing in the summer. But these costs are typically far less than what homeowners have to deal with.

Renting also offers the flexibility to change your housing situation as your needs change. Maybe you moved to be close to family, but they end up moving. Or maybe you’d like to split your time between family members. It’s easier to move as a renter than as a homeowner: as a renter, you don’t need to sell the property you’re leaving. In addition, you might seek out an even more flexible option—a month-to-month lease—so you can move quickly if needed.

That said, as mentioned above, on a per month basis, a rent payment is typically more than a mortgage payment. In addition, your rent may go up every year—it’s up to the landlord.

Buying in Retirement

Buying a home—whether it’s a house, townhouse, or a condo—has some distinct advantages over renting. If you buy, you build equity in your home that you can borrow against. Having access to credit can help in retirement if you need to increase your cash flow or have unexpected expenses, like medical bills.

Buying a home can make financial sense if you want to leave it to your beneficiaries as part of an inheritance. In the meantime, you can enjoy peace of mind knowing you can age in place in a property you own. Just ensure that the home has accommodations you might need later in life.

Weighing Housing Costs

When deciding whether to rent or buy in retirement, it’s important to choose the housing option that won’t leave you house poor. In other words, you don’t want to spend so much of your fixed income on housing that you won’t have enough for other expenses. Being house poor can make it impossible to live the lifestyle you want for your retirement.

What can you do to avoid this? Take an honest look at your cash flow needs. Consider every potential expense you may have in retirement, including food, transportation, medical bills, and caregivers. Then, weigh those costs against your housing options.

Cons of Renting vs. Buying

We’ve highlighted the benefits of each housing option, but each has its own drawbacks to consider.

The Bottom Line

Deciding whether to rent or buy when downsizing in retirement can be difficult. Ultimately, it’s a personal choice. Review your finances and the cost of housing in your area. Also, consider what you want for your retirement, from a support network to travel. Create a pros and cons list of both options and consider working with a financial advisor to walk you through the financial implications of each choice.