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Owning vs. Renting In Retirement: What’s The Better Choice? Thumbnail

Owning vs. Renting In Retirement: What’s The Better Choice?

Approaching retirement can be both equally exciting and stressful at the same time. Sure, after years of juggling a full workload along with family, children and other obligations, having the freedom to set your own schedule and come and go as you please is enticing.

However, given the recent spike in inflation and subsequent high interest rates, the basic cost of living has jumped significantly. Money isn’t going nearly as far as it used to, and you might be wondering if you’ve actually saved enough to enjoy your retirement years.

Running out of money is a legitimate concern. Many retirees live on a fixed income, such as government benefits, a company pension plan and maybe RRIFs. While some retirement income sources are indexed to inflation to help keep pace with rising costs ( CPP, Group Pension Plans etc), ultimately, you’re drawing down your retirement savings rather than adding to it as you did when working. Nobody wants to experience a shortfall that may require changing retirement plans or result in financial insecurity.

Should You Sell Your Home in Retirement?

A major decision you're faced with approaching, or while in retirement is if you should sell your home and rent instead. Although renting isn’t typically a goal for people who already own their home, let’s consider the potential benefits of this strategy.

Higher mortgage rates dampen the enthusiasm of prospective buyers, which is why we have seen a drop in home prices recently. However, if you’ve owned your home for several years or even decades, chances are you’ve built considerable equity in that property as housing prices have risen steadily over the long term.

If you sell your home and rent when you retire, you’ll have a tidy sum of cash available and this can be very attractive to some. If you've had this discussion with us before, especially when assets are dwindling down and putting the house up for sale now becomes a topic of discussion, you’ll often hear us say “you can’t put your debit card in your house in retirement”. Well you can…but its not that simple…  Selling your home in retirement can mean you have excess funds available to put toward regular living costs and discretionary expenses like a travel, a new vehicle or pursuing hobbies. You may also wish to invest for the future. With our guidance, you can decide how to allocate your money across various investment products.

Having the potential to grow your assets through investing is a proven way to extend how far your money can stretch in retirement. Over longer periods, the stock market (red) has generated higher returns than real estate (black).

Source: Stocks vs. Real Estate - 132 Year Chart | Longtermtrends

Solely relying on the value of your home might not be the best option to achieve long-term growth. Also, a wide range of assets provides diversification as you tap into different sources of growth potential. This approach may help reduce overall risk if one (or more) of your investments decline in value at a given time. On the other hand, when the bulk of your assets is invested only in your home, you may face a sharp decline in wealth if the real estate market weakens at the point of time you chose to/need to sell. 

Other Benefits of Renting

Home ownership involves maintenance and repair costs, property taxes, insurance, utility bills and other expenses that add up in a hurry. The older your home, the higher the expenses could be. Also, the older you are, the less likely you’ll want to deal with the maintenance and repairs. Renting will shift the burden to your landlord.

Property taxes usually increase each year, taking a bite out of your retirement savings and cash flow. If you sell your home, you avoid property taxes, plus capital gains from the sale of a principal residence are tax exempt, leaving more money in your pocket.

Selling your home gives you flexibility to decide where to live. Maybe you can get away from these Ontario winters or be closer to children and grandchildren. Perhaps relocating near parks, golf courses, large airports or other preferred amenities is appealing. Selling also provides an opportunity to downsize from a large house to a condo or apartment, for a more carefree lifestyle with less hassle and fewer responsibilities.

Deciding whether to rent or own in retirement is a complex and highly individualized choice. Every situation is different. There seems to be a stigma surrounding home ownership vs. renting and there shouldn't be.  We understand the unique factors that affect your financial circumstances and can help create a personalized plan tailored to your needs. Remember, retirement is meant to be a time of enjoyment and relaxation.

There are several successful paths you can take to reach your goals in retirement, not just one. Sometimes that means shifting the course to stay on track. With careful consideration and professional guidance, we can help you make an informed decision that aligns with your retirement aspirations. Your job is to create your wish list and our job is to help you get there.