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I grew up in a Red Sox household. The mere sight of the Yankees’ logo caused a gag reflex until my early 30s when I realized just how ridiculous that 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.  

In the first half of this article, I’ll side with the majority and give you the four reasons it may make sense to buy a property again in retirement. In the second half, I’ll point out four reasons to rent (or move to a retirement community) as a retiree.  

Reasons to buy

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 group, or would because of a purchase instead of a rental, then there are tax advantages to homeownership. You can deduct property taxes and mortgage interest, subject to various significant limits, from your gross income.  

[Ed. Note: However, you may have to pay capital gains taxes if you don’t reinvest in another home. You can exclude up to $250,000 of gains ($500,000 if married filing jointly) if you have owned and lived in the home you sell as your primary residence for two out of the last five years.] 

3. You’ll have control. If modifications are necessary in order to stay in the new home — a ramp, hand railings, etc. — there is no landlord who has to approve that decision. As a homeowner, you control pretty much every aspect of the interior.

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 over 6%.

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. 

Start with location. Social circles are especially important in this decision. From there, 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! 

Reasons to rent instead 

I know: You’re a homeowner. You’ve owned a home for 40 years. You’d rather pay your mortgage than someone else’s. I have heard it before. And, sometimes, I agree. 

When I finished college, I moved to Philadelphia. It was a city that I knew very little about outside of its snowball-throwing football fans. A year later, I moved again. A year after that, my company moved me to Virginia.  

The point is that when life is shifting quickly, it makes sense to have housing that is flexible enough to shift with it. I find the retirement downsize to be one of those times.

1. You can try (the neighborhood or new city) before you buy. If you’re moving to a new location, a Google search of “best neighborhoods in (fill in the blank) for retirees” probably isn’t sufficient. My retired dad loves the walkability of his neighborhood. My retired father-in-law loves the privacy his neighborhood offers him. 

I worked with two couples who bought and sold, sold and bought, all during Covid. It turned out that the places they loved to vacation weren’t as appealing when they moved there. This eliminated almost 25% of the equity they originally had.  

The option to rent is admittedly easier in urban locations than in rural ones. It’s possible that the home style, layout or location is only available for purchase.  

That said, there are a number of companies, such as AMH (formerly American Homes 4 Rent), that are attempting to institutionalize single-family rentals. In the future, the rental experience may be more consistent across the country.

2. Your costs are more predictable. Initial homeownership costs tend to be unpredictable. The third home I bought required three new basement floors within the first year due to flooding. 

When you rent, you can reliably plan your costs during your lease term. The flip side of this is that you have no control upon renewal of the lease and may find yourself moving again.

3. Your home is turnkey or move-in ready. We often think of turnkey in terms of moving in. You “turn the key,” and your move-in is complete. I view the benefit of renting as being turnkey more based on the fact that you can “turn the key” and leave.

It is rare that I come across a retiree who doesn’t have travel as a major line item in their annual budget. When I leave my own home for vacations, I check the HVAC, sump pump and outside drains, and I make sure my dog is taken care of. Renters only have to think about their dog.

4. Your kids won’t fight (as much). Several years ago, I was teaching a course to a local group of estate attorneys. One of the attendees, a well-respected trust and estate attorney, claimed he had never handled an estate with three or more children where there wasn’t conflict. 

The center of the conflict is often the real estate. Michael wants to hang on to the property so all the grandkids have a place to gather. Katie wants to turn it into a rental to increase passive income. Sean wants to sell it because he needs the cash. 

People incorrectly assume that real estate is more tax-friendly to inherit than a more liquid taxable investment account. This is incorrect. Both are considered capital assets that should receive a “step-up” in basis at death.  

Of course, your financial situation and the life you want to lead should dictate whether you rent or own. The Financial Planning Association published extensive research in six different markets to try to figure out which was more advantageous. It was inconclusive. 

To be clear, I am not for one over the other. I am for being open-minded.  

I am against the idea that all of us should count on this scenario: “You get married, you buy a house, you have kids, you die happy.” Life is more complicated than that. 

Evan T. Beach is a certified financial planner.  

© 2024 The Kiplinger Washington Editors. Distributed by Tribune Content Agency LLC.