Retirement’s around the corner, and with it comes a host of questions about how to transition into your new way of life. One of the more common sets of questions facing soon-to-be retirees revolves around your living situation and what to do with your home.
Your home is likely full of untapped equity, continual maintenance demands, stairs, special memories, and painfully recognizable empty spaces. It’s time to downsize, but what’s the right approach? You may be asking yourself:
“Should I sell my home and rent when I retire?”
Certainly, selling your home to rent when you retire is a major life upheaval fraught with potential benefits and inherent risks to your financial future.
In this guide, we’ve compiled a list of questions to ask yourself to help decide if this is the right decision for you. We’ve also infused guidance from Kelly Boulton, a top-selling real estate agent in Dallas with more than 20 years of experience, to offer an objective and informed perspective.
If you’re considering selling your home when you retire, ask yourself these 9 questions
These questions are designed to help you take some time to review the benefits and drawbacks of this decision carefully. If you find yourself answering “yes” more often than not, then this may be a legitimate course of action to help you flourish in your retirement years.
1. Do I need an influx of cash?
Most Americans of retirement age have more of their wealth tied up in home equity than any other asset.
Data from the 2020 Census shows the percentage of net worth in home equity for homeowners in the following age brackets:
|Homeowner Age||Home Equity||% of Net Worth|
|75 and older||$149,860||75%|
You may need to convert some of this equity into cash to handle any of the following typical financial needs that commonly arise for those in retirement:
- Increased healthcare expenses and medicare premiums
- Tax payments for tax-deferred retirement savings accounts
- Increased food budget to accommodate dietary adjustments
- Entertainment and travel
- Family support and legacy planning
2. Are my monthly housing expenses increasing too much?
According to a recent survey from Cinch Home Services, nearly half of U.S. homeowners report that home maintenance costs were higher than expected. Additionally, data provided by Angi (parent company of the Angi’s List website) shows home maintenance costs nearly doubled from 2019 to 2020 alone.
Hanging onto your home may increase your housing expenses beyond your comfort limit.
3. Am I able to continue maintaining my home?
As you well know, homeownership brings with it a sizable amount of work to maintain the home, especially as time elapses. Your ability to do maintenance tasks that you could do with ease when you were younger may become overwhelming and more time consuming in retirement.
Maybe it’s time to enjoy your home, while letting someone else take care of the expense and hassle of home maintenance.
4. Do I have enough surplus in my fixed income to cover inflation?
Most retirees are on a fixed income, which presents a challenge in a world with continually-rising living expenses.
According to the Bureau of Labor Statistics, overall inflation hit a whopping 8.5% increase from March 2021 to March 2022 and continues to trend upward. You may be able to sell your home to invest in dividend-paying stocks or annuities.
Invested wisely, those dividends can help cover inflation-related living expenses.
5. Does my home fit my new lifestyle?
Your lifestyle will change in a lot of significant ways in retirement. You may benefit from asking yourself whether your current home can accommodate these changes.
Some examples of lifestyle changes include:
- Spending significantly more time in your home because you aren’t working.
- Increasing difficulty navigating stairs, steep driveways, etc.
- Picking up new hobbies both inside and outside of your home.
- Hosting more family get-togethers, reading groups, etc.
- Different hygiene routines that come with age and other health factors.
- More time for staying active through activities like walking around the neighborhood.
You may find an increase in enjoying your new retiree lifestyle by finding a home that is a better match.
6. Am I the oldest person in my neighborhood?
If you’ve lived in your home for a while, it’s likely you’ve witnessed a significant amount of homeownership changes in your neighborhood.
According to 2020 Census Data, while the average length of homeownership is 16 years, more than 42% of homeowners have lived in their home fewer than 10 years.
You may be feeling like there are fewer neighbors that share your new retiree lifestyle, and it’s natural to want to be in a neighborhood where more people share the same lifestyle as you.
7. Do I have unused rooms or spaces — indoors or outside?
We’ve hit on this a bit earlier, but your lifestyle is changing. This means that your current home may have rooms or areas that go unused and take up empty space. Unused spaces may feel like a waste and create extra burdens for maintenance and cleaning.
Examples of rooms or areas that may become obsolete in your retirement years include:
- Game rooms
- Theater rooms
- Home office
- Exercise areas and equipment
- Swimming pools
- Mechanical areas in your garage
With a properly-timed home sale, you can literally turn these unused areas into cash in your account to better enjoy your retirement.
8. Do I have an emotional or psychological need to sell my home?
While this may not be a material question, it’s still significant to consider. Your home is filled with memories. Will constantly encountering triggers for these memories help you move forward in enjoying your retirement, or keep you in a state of nostalgia for what once was?
Selling your home isn’t the same as turning your back on its sentimental value, but may be a cathartic experience to have closure to one phase of life and usher in the next.
9. Do I feel uncertainty around being tied down to one spot during retirement?
A significant number, as many as two-thirds of retirees, plan on increasing their travel after they retire, according to data collected by the 19th Annual Transamerica Retirement Survey.
Reasons for travel include visiting friends and family scattered throughout the globe, crossing destinations off the bucket list, or following pleasantly-warm weather.
For any of these scenarios, being tied to a home mortgage may make it more difficult to make this type of travel happen.
What are the pros and cons of renting versus owning in retirement?
If you’ve answered yes to any of the questions above, then downsizing in retirement may be the right move for you. But now, the question comes down to whether it makes more sense to purchase a smaller home or find one to rent.
There are several financial, lifestyle, market, and timing impacts to consider when making this decision. Here’s a high-level list of pros and cons to consider:
Pros to selling your home and renting after retirement:
- You’re no longer tied to a house and a mortgage.
- Not having a mortgage frees you up to travel for longer periods of time.
- You’re able to test out potential retirement locales through short-term leases.
- The burden of home maintenance is no longer weighing on you.
- Having flexibility in housing options: townhouse, one-level single-family home, or condo.
- You’ll have more funds to fulfill your retirement bucket list.
- You can transfer equity into dividend-paying investments to increase your income.
Cons to selling your home and renting after retirement:
- Being dependent on a landlord for repairs and maintenance can be frustrating.
- Rental costs can be unpredictable and will generally increase over time.
- The money you spend on housing no longer applies toward an appreciating asset.
- You may have less space which limits your ability to host family.
- Your home will no longer be a part of your legacy to pass on to family.
- It may be more difficult to have pets living with you in your home.
No one has a crystal ball, but I think we’ve reached a peak in the market in terms of appreciation, and now would be a good opportunity to maximize on the equity of your home and to cash out and downsize and not take on any more tax liability and maintenance costs.
- Kelly Boulton Real Estate AgentCloseKelly Boulton Real Estate Agent at Better Homes & Gardens Winans Real Estate
- Years of Experience 20
- Transactions 858
- Average Price Point $163k
- Single Family Homes 752
What are the financial implications of renting versus owning in retirement?
There are plenty of benefits to renting, but there are significant financial implications to consider that accompany this decision. Detailed planning to estimate your retirement expenses is an essential first step. For starters, you should get an idea of how much money you’ll need to comfortably retire. The experts at AARP advise saving around 10 to 12% of your current income.
Market dynamics and timing the sale of your home
Once you have a good understanding of where you are in terms of your retirement savings goals, it’s important to understand the current real estate market. According to Nile Lundgren, a top New York agent and Bloomberg TV commentator, who was named Executive of the Month by the New York Real Estate Journal:
“It all depends on timing. If you sell too soon, you could be missing out on more appreciation. Let’s say your house is in a rapidly gentrifying area; if you hold on for another two years, then you might increase your value by 10%. But that could be speculation. You could be leaving money on the table.”
But on the flip side, if the market has peaked, selling sooner rather than later could have big implications. Boulton cautions, “No one has a crystal ball, but I think we’ve reached a peak in the market in terms of appreciation, and now would be a good opportunity to maximize on the equity of your home and to cash out and downsize and not take on any more tax liability and maintenance costs.”
Social security and tax implications
It’s important to look at how homeownership impacts your Social Security benefits. True, maximum benefits are available whether you rent or own. What really matters is your income. If you pull equity out and invest it, those dividends may increase your income which may, in turn, reduce your benefits.
Boulton adds, “There could be some ramifications to social security and pension payouts. They may lose some supplemental Medicaid benefits, but would need to talk with a CPA before they leaped into a final decision.”
Additionally, many people consider their homes one of the largest factors in estate planning for their family. While you’ll want to get professional advice from your legal team in order to facilitate your estate planning, it’s good to understand a few things about the process.
Unless your children are willing to move into your home for at least two years after inheriting it, they’ll be stuck paying a hefty capital gains tax. However, if you sell the property within your lifetime, according to the IRS, you’ll likely qualify to exclude up to $250,000 (or up to $500,000 on joint spousal filings) of the home sale price from your income.
Consider renting your home as an investment property
There are a variety of ways to modify the “sell and rent” scenario to fit your retirement needs.
For example, you might decide to travel with the tax-free equity and use the remainder to finance the purchase of a retirement home that can double as an investment property. Then, while you’re touring the world, you can temporarily lease the property to cover the mortgage.
With the help of an agent who also does leasing and basic property management, you can find tenants to rent your home at an amount that will cover living expenses in a retirement community.
Partner with a top agent and know your home’s worth
As you’re deliberating “Should I sell my house and rent when I retire?”, just remember to weigh the impact your decision will have on all aspects of your life and financial situation, including your monthly income and your lifestyle. With the right strategy, your home equity can help you achieve a relaxing, fully-funded retirement.
Curious how much your home might be worth now? Try HomeLight’s free Home Value Estimator tool to get a ballpark idea of your home’s worth so you can start penciling in your plans to reach your retirement goals.
While our free tool can give you an initial estimate, an experienced real estate agent can provide a comparative market analysis to show you what your home might sell for on the open market. In some cases, working with a designated Seniors Real Estate Specialist (SRES) may be the right move for you.
HomeLight’s Agent Match can connect you with a top-performing agent in your area who can help advise you on the right course of action and maximize your home’s value, whether you decide to sell or rent it out.
Curious how much you stand to make selling your home? HomeLight’s Simple Sale tool lets you compare instant cash offers from our network of pre-approved buyers along with an estimate of what a top real estate agent can sell for on the open market. Whether you’re more interested in selling quickly or for the highest possible price, it’s important to know your options.
Header Image Source: (Lightspring/ Shutterstock)
- "How to Minimize Social Security Taxes," U.S. News (March 2021)
- "American Housing Survey," United States Census Bureau (2020)
- "19th Annual Transamerica Retirement Survey," Transamerica Center for Retirement Studies (December 2019)
- "How Much Money Do You Need to Retire?," AARP (January 2021)
- "Topic No. 701 Sale of Your Home," Internal Revenue Service (January 2022)