A larger number of retirees are opting to forgo homeownership and instead prefer renting to give themselves additional mobility and disposable income.
Renting has emerged as a viable option, because it allows retirees to have more money to fund other retirement expenses, said Robert Johnson, president of the American College of Financial Services.
“For many retirees, renting is a preferred alternative, and selling a home frees up equity that can be used,” he said.
Renting is cheaper in many cities and areas unless Baby Boomers plan to leave behind the equity in the house for their children.
Research shows that if a retired household doesn't care about passing along the equity to their heirs, then in most places it would actually be more expensive to buy a home than rent one.
During the period of 2005 to 2015, the largest group of renters to increase was Baby Boomers or those 50 and older with a 55% gain. Gen X-ers ages 30 to 49 reported an increase of 34% and a rise of 11% occurred among those under 30.
A greater proportion of Americans are renting with 37% doing so in 2015 compared to 31% in 2005, the highest level since the mid 1960s.
Renting is spreading across income groups since 18% of the increase in renters during this decade earned $100,000 or more, and the number of renters in the top income bracket grew by 61%.
Since 2000, the number of people age 55 who have chosen to rent has risen by 6%.
If you rent, you don’t feel stuck or trapped. They are looking at this to make a change in lifestyle and one that has less maintenance involved.
Renting is more affordable, because consumers do not have to shell out money toward property taxes, insurance, maintenance and HOA fees.
Some retirees also chose not to renovate their home and found the supply of new construction shrinking or exceeded their price range.
Some people rent, because they could not find anything new where they wanted to live and decided they would rent in the meantime.
In many major metro areas, renting remains cheaper than buying a home. While the price of renting has risen 4% each year during the past six years, exceeding inflation, the prices are predicted to “moderate going forward” as more new construction occurs and the increase in supply will bring down price appreciation and the number of people renting.
Longevity plays a large role in this rising trend, since many retirees don’t want to be responsible for the upkeep on a home.
It pays for individuals to try and take the emotion out of the financing decision with respect to a place to live. Many people grew up equating home ownership with ‘the American dream,’ but in retirement, that dream can actually become a burden and renting can be liberating in many ways.
Renting can be a good decision financially for consumers who chose to invest the difference in the stock market in a balanced portfolio because they often “come out ahead,” said Johnson.
The problem is people spend and don't invest the difference. The other problem is that when people retire, they often stay in their home that is too large and do not downsize, sometimes for sentimental reasons.