When Retirees Should Consider Renting When They Downsize
After all, if you rent, you can easily change your mind, get out when the lease expires and rent or buy another place.
The downside, of course, is that when you rent you do not have equity, and you can expect rents to rise with inflation. Recently, rents have been going up so fast that many renters are finding it cheaper to buy. Of course, the costs of owning a home go up too -- things such as property taxes, insurance, maintenance and any association fees.
It's a tough call, but probably boils down to this: If there's a better-than-even chance you won't stay in the new place longer than five years, renting may be the best option. If the odds favor staying longer than 10 years, buying will probably pay unless you have good reason to expect a big investment return on the cash saved by renting.
Between five and 10 years it's a tougher call and will hinge on a detailed look at the numbers: rent and likely rent increases, purchase prices and likely increases in ownership costs, potential investment returns on cash that is not used for a purchase. Use the Rent vs. Buy Calculator to check the numbers.
One thing you can be sure of: Renting will be a loser if you squander the extra cash from your home sale. The equity freed up in a downsizing should be put to work, so it will grow -- not frittered away on fancy dinners, cars or other expenditures that have no long-term payoff.