Baby Boomers Debate Merits of Renting Versus Buying a Home In Retirement

Renting Versus Buying A Home

One of the major decisions baby boomers contemplate when it is time to retire is whether to live out their golden years as a renter or homeowner. For the first time in decades, retirees have the freedom to relocate without any concern over being geographically close to an employer. While renting may seem like an unthinkable alternative to homeowners accustomed to homeownership, Kiplinger reports that renting is cheaper in 34 of 50 of the largest cities in the U.S.

Financial Advantages of Homeownership

Baby boomers came of age during the 60s, 70s, and 80s when homeownership was considered to be a rite of passage for young adults. Ambitious real estate agents promoted the idea that renting was throwing money away. This attitude is ingrained in the psyche of a majority of seniors.

Homeowners with fixed mortgages feel secure in the knowledge that their mortgage won’t go up in the same arbitrary way that rent can increase. Of course, that’s not entirely true when you consider that taxes and insurance often increase, effectively increasing your cash outlay as an owner. But, owners often cite concerns about rental rates going up as a major reason buying a home is preferable to renting.

Inarguably, buyers do build up equity in their home that can be cashed out or borrowed against, allowing buyers to build wealth. This benefit is amplified for investors who are lucky enough to time their buying and selling to take advantage of market conditions that maximize returns.

There are also tax deductions for interest paid by homeowners with qualified mortgages. The Washington Post reports that as of 2019, a couple filing a joint return is allowed to write off interest for a mortgage amount of up to $750,000. Homes purchased prior to December 2017, qualify for interest deductions on mortgage amounts up to $1 million.

While properties on both coasts tend to be more expensive making the prospect of renting more attractive in these locales, AARP reports that housing located in the middle of the country is typically cheaper to buy than to rent. For this reason, in the majority of the country, buying is considered cheaper than renting for most seniors. As is repeatedly pointed out by real estate investors and experts, location is everything in real estate.

Finally, by owning a home, retirees are often free to earn rental income on their valuable assets. The Airbnb craze has turned many homeowners into entrepreneurs. It is easier than ever to rent out a room or a vacation home for impressive amounts of income.

Financial Advantages of Renting

Baby Boomers Debate The Merits Of Renting Versus Buying A Home During Retirement

Renting provides an affordable and practical option for many boomers unlucky enough to find themselves in search of a home in a hot, buyer’s real estate market. The current 2022 real estate landscape is the perfect example of this type of market. Many buyers share their stories about bidding wars and competing for properties with several other buyers, only to drive the price through the roof.

Another reason many boomers turn to rentals during later life is that they view real estate ownership as too risky, threatening their fixed income limitations. There is nothing like an unexpected, large maintenance expense to upset a carefully planned budget. Changing tax and insurance rates as well as higher deductibles represent other risks that drive fear of homeownership for seniors living on a fixed income.

As mentioned above in this article, many renters who want to live on either coast find that renting provides an affordable option in expensive markets. Given that many baby boomers have dreamed of living at the beach, it is no surprise that homes near or on the water are a popular destination for retirees. Not surprisingly, major cities and beach towns in these areas are far too expensive for boomers preoccupied with the possibility of outliving their retirement nest egg.

Baby boomers with wanderlust who are intent on moving around frequently to experience different areas of the country find that renting is cheaper than owning a home for short periods of time. Factoring in mortgage closing costs and broker fees makes it clear that renting is their best option. Barrons recommends renting for periods of five years or less.

Non-financial Reasons that Favor Renting

While it is understandable that money directs the majority of decisions made by retirees, there are other quality-of-life forces that influence seniors as they choose to rent. Below are some of the more common reasons mentioned.

  • Provides more flexibility to move quickly and easily.
  • Renters don’t have to waste precious time worrying about property maintenance.
  • There is no yard work.
  • Shoveling snow is not the renter’s problem.
  • By cashing out of your home, you have liquid cash when you need it.

Nonfinancial Reasons that Favor Buying

Admittedly, buying a home is more than an investment for most people. There are many emotional and practical reasons boomers want to buy instead of rent.

Below is a list of reasons seniors decide to buy.

  • Buyers can modify their home to suit personal needs and tastes.
  • Buyers don’t have to worry about being forced to move by a landlord.
  • Retirees with pets have more options when they buy with limited rental choices.
  • Baby boomers have been taught to believe that homeownership is superior to renting.
  • Owning a home provides stability and community in neighborhoods of like-minded buyers.

The Takeaway

Like most important decisions in life, retirees all face a unique set of circumstances that are likely to influence their ultimate choice to buy or rent. By considering the factors mentioned above, baby boomers can move forward with a clearer picture about whether they want the freedom and flexibility that renting provides or the stability and sense of community that homeownership offers.

Belinda Tucker
A Baby Boomer herself, Belinda has a passion for investigating topics that are important to aging adults and then making any confusing concepts clear. Belinda's professional career included serving as a Corporate Recruiter, Mortgage Executive and Real Estate Salesperson. She writes for BoomerBuyerGuides.com on a variety of financial topics.