Ask a Trust Officer
Dear Trust Officer:
As I grow older, I’m wondering if I should be renting or if I should just hold onto my home. I’m not sure what the best option is for me.
—Curious and Overwhelmed
For those who have not saved enough for retirement — and even for many who have — the appreciation in the value of one’s home may make a welcome addition to the nest egg. Special tax provisions for homeowners encourage sales, as the first $250,000 of gain is tax-free ($500,000 for married couples filing jointly, in most cases).
After a sale to allow a move to smaller retirement quarters comes the decision to rent or own. Renting can be a short-term decision, as leases generally are year-to-year. Renting an apartment leaves more money in the portfolio to earn more income or to cover additional retirement expenses. With a rental, the chores of lawn care, snow removal, and repairs are taken care of by the landlord, making retirement living more worry free.
On the other hand, as rent prices rise in the future, there is no offsetting appreciation in the value of the residence to provide a cushion. Those who have unlocked their equity need to husband some of that gain to cover future increases in the cost of living.
In 2009, the average age of a person selling a home was 46. Last year, according to the National Association of Realtors, it was 54. The Wall Street Journal reports a notable increase in the number of older renters. There were an estimated 7.5 million renters age 55 and older in 2005, and about 10.8 million in 2015.
Those changes are not just the result of the continued aging of the baby-boom generation. They are a sign of empty nesters who are making adjustments to their living arrangements in anticipation of their retirement. In some cases, they are choosing to rent rather than own.
Some experts advise those selling before retirement to invest their proceeds in a smaller home that they can own debt-free, and bank the difference. Debt-free does not mean expense-free, however. One rule of thumb suggests that taxes, insurance, and maintenance will come to 3% of a home’s value. For a $500,000, home that comes to $15,000 annually, or $1,250 per month.
Another important consideration is the desire to age in their own place. What renovations might be needed to keep the residence accessible and livable? Grab bars, walk-in tubs, and doors wide enough to accommodate wheelchairs could be a few of the considerations.
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