Contributed by: Nick Defenthaler, CFP®, RICP®
“Why would you ever rent? It’s a waste of money! You don’t build equity by renting. Home ownership is just what successful people do.” Sound familiar? I’ve heard various versions of these statements over the years and every time I do, the frustration of these words makes my face turns red. I guess I don’t have a very good poker face! As a society, we have conditioned ourselves over decades to believe that homeownership is always the best route and that renting is only for young folks. If you ask me, this mindset and philosophy is just flat out wrong and short sighted.
Below, I’ve outlined the various reasons retirees might consider renting if you’ve recently sold a home or planning on doing so in the near future:
Higher Mortgage Rates
The current rate on a 30 year mortgage is still close to 7%. “Cheap money” and seeing rates below 3% have simply come and gone and might not ever return. Other financing tools such as a Securities Based Line of Credit and Home Equity Line of Credit also still have elevated rates and are variable.
Interest Deductibility
It’s estimated that roughly 92% of Americans now take the standard deduction. In 2025, the standard deduction for single filers is $15,000 ($17,000 for those 65 or older) and $30,000 for married filers ($33,200 for a couple 65 or older…and possibly another $12k depending on income level due to the new, additional ‘senior deduction’!). This means that if a married couple (both age 60) adds up all their deductions for the year (ex. mortgage interest, property tax, charitable contributions, etc.) and they do NOT exceed $30,000, they will then take the standard deduction. If your deductions don’t exceed this threshold, there is no economic benefit of the ‘deduction’.
Maintenance Costs
Very few of us move into a new home and keep everything the same. Home improvements aren’t cheap and should be taken into consideration when deciding whether it makes more sense to rent or buy. A general rule of thumb is to expect spending 1% - 4% of your home value each year for maintenance/improvements (ex. $500,000 home, you can expect $5,000 - $20,000 each year).
Housing Market “Timing”
Home prices have increased significantly over the past 10 years (especially since the pandemic). In 2015, the median sales price of a home in the U.S. was $289,000. Today, the median sales price is $417,000 (source: click HERE). Many professionals suggest homes are fully valued so don’t bank on your new residence to provide stock market like returns anytime soon.
Tax-Free Equity
In most cases, there are no tax consequences when you sell your home. The tax-free proceeds from selling your home could be a great way to help fund your spending goal in retirement. If using home proceeds for a portion of your retirement income needs, you open up the possibility to convert funds from Traditional IRAs to Roth IRAs and while attempting to strategically maximize historically low tax brackets.
Flexibility
There are some things you simply can’t put a price tag on. Maintaining flexibility with your housing situation is certainly one of them. For many of us, renting and the flexibility it provides is a tremendous value-add compared to home ownership.
Quick Decisions
Rushing into a home purchase in a new area can be a costly mistake. If you think renting is a “waste of money” because you aren’t building equity in a home, just look at how much it costs to move, what closing cost are (even if you won’t have a mortgage) and the level of interest you pay early on in a mortgage. Prior to buying in a brand new area, consider renting for 1-2 years if you wish to move to a new area to make darn sure it’s somewhere you want to be long-term.
While every situation is different, if you’re nearing retirement or currently in retirement and are considering selling your home, I would encourage you to consider all options when it comes to housing. Be sure to reach out to your advisor when thinking through this large financial decision to make sure it is aligned with your long-term goals and objectives.
Nick Defenthaler, CFP®, RICP®, is a Partner and CERTIFIED FINANCIAL PLANNER™ professional at Center for Financial Planning, Inc.® Nick specializes in tax-efficient retirement income and distribution planning for clients and serves as a trusted source for local and national media publications, including WXYZ, PBS, CNBC, MSN Money, Financial Planning Magazine and OnWallStreet.com.
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