Should I buy or rent a home if I am 67 years old and retired?
I am 67 years old and I have $300,000 in savings. I am retired and receive Social Security benefits. I would like to buy a home. Should I buy or rent?
I would say that you should continue renting as long as you are happy in your current home. The problem is that in retirement you ought to have your assets be liquid and spendable, and home equity most assuredly is not. Besides, it's very hard to get a mortgage if you don't have income besides dividends and SS.
You would tie up a lot of money in the down payment and then assume the extra costs of mortgage, property taxes, insurance, maintenance, etc. Don't saddle yourself with that responsibility. You would reduce your available savings and simultaneously increase your monthly obligations. I think you would hate yourself for having done that.
Besides, as you age, you're going to need less space and not more, right?
The question of buying or renting is one of my favorites. There are many variables that I'm sure other advisors will advise you to consider, so I'm going to be the unconventional one.
I'm going to suggest you consider purchasing an investment property that you wouldn't mind living in some day, and then rent your personal residence. Here are the reasons: With the new tax law, you'll likely just use the standard deduction going forward, so mortgage interest won't be a deductible expense. Even if you were to pay cash for your house, you would not be able to write off any of the maintenance expenses on your personal residence.
However, with your investment property, you will likely be able to have enough cash flow to pay your rent, and then for any maintenance items, you can take a tax deduction! Home Depot here you come!
The current tax code incents real estate investing, but no longer owning a personal residence. Think about that, and maybe try it for a year or two, and decide if you'd rather just move in to the house you purchased as an investment after reviewing the effect is has your taxes!
Unconventional? Yes. Intelligent? For sure!
First, it depends what type of account your savings are in: traditional investment account in a brokerage, OR a tax deferred retirement account, OR a Roth IRA.
if you money is all in retirement accounts (IRAs, 401k or other tax deferred retirement accounts), you have to think about all the tax you will owe if you buy a house. Every dollar you take out of a tax deferred account is taxed at ordinary income tax rates. While some banks give mortgages to people who have only SS benefits, it is generally not wise.
Taxes may not be as big an issue with a brokerage account (although likely would have to pay some capital gains taxes), and they won't be a problem at all with the tax free Roth accounts.
The biggest question then is whether you really want to transfer your liquid assets into an illiquid building? It is not easy to get the money out of the house if/when you need it. Meanwhile, the cost of home ownership is quite high: maintenance, property taxes and insurance, and especially those big unexpected once-every-ten-year expenses.
We usually find that renting is the better plan for someone in your circumstances because you can move or adjust your living costs much faster if circumstances change.
Carol A. Hoffman, CFP(r)
This will really boil down to where you want to live. In most places you will end up spending more money (at least in the short term) to own a home. People make up for the added cost with tax breaks, and long term appreciation. Based on your age and guessing your income range this won't really make sense for you. You would also have to put a large down payment which could lower you retirement income.
On the other hand if you live in a part of the country where you can buy a place you like and it cost less than your rent- you should consider it. This will mean you have locked in your basic housing cost. Of course you will still have maintenance and taxes to deal with.
Best of luck.
There are a lot of variables here worth considering. For starters what would it cost to rent vs. purchase? If only $300,000 to your name do you want to dump all that into a home with expenses? Might actually be better off renting as your fixed expenses are known. Ideally you could rent chepar than your Social Security benefit and live off of the difference with some subsidy from your savings. Remember there are a lot of costs with owning a home such as maintenance, insurance, taxes, and the list goes on. I would determine which path ends up being least expensive for you and maintains some form of liquidity as it would be ashame to lose it all to an illiquid home.