If housing is scarce in the area, I'd rather own.

How likely do you think it is that the person would want to move again? Do you think the person would benefit from forced savings?

Only a small sample size and a unique housing market, but the single retirees I know who own seem to be in a better position than my friend's mother who rented. Forced savings would have helped her quite a bit but from her perspective the biggest issue was being forced to move when her landlord died and heirs wanted to sell the house. She loved that house but by that time she no longer could afford to buy it.

Owning gives one the advantage of a fixed housing cost monthly. In this instance it sounds like it would be zero. Rents can go up. Condo fees can also rise. Real estate taxes rising impact rental costs and owning costs so that part of the equation is less important.

In my area paying a landscaping service for 5 months to mow and trim is less than paying most condo fees for a year.

Aside from the financial analysis, there is also quality of life to consider. I personally hate renting. My home is my sanctuary and I get a lot of joy from making it beautiful through decorating and updates. Other folks might have other priorities, such as travel or less responsibility for maintenance. I'm 55 and just bought a house with a 30 year mortgage.

This is a very interesting question - hard to answer without more specific information on the person and lifestyle preferences and the rent/own location and market specifics. For example, in my home town a nice condo, town home or patio home generally costs as much to purchase as a house and that's not including any fees. The taxes will be somewhat less than a house but taxes are very high there and it could easily be between 7 - 10k depending on the size and amenities. And that's now - taxes there increase every year and often substantially. If you're looking to buy or rent in a less costly area, or one that does not see much in the way of property value increases, then purchase price, taxes and rents may be far more manageable and predictable.

Since you mention the purchase price would be outside of retirement savings, I'm going to assume you have the input of an investment adviser or financial planner available (that may be off base) and this is something to discuss with them. You don't mention if there is a pension in addition to income that could be generated from investments and that could certainly change the picture as well.

Personally, I would not be happy in a traditional condo or apartment where there is one common entrance and common hallways to private entry doors to the units but lots of people find that to be instant community and offer a sense of security. As I think about it, if I find myself as a widow, my feeling about that could change. Many different aspects to consider in this equation - I don't think it's simple.

How's the health - especially your back? If you have to pay or get someone to do every little thing even putting salt in the softener then renting makes sense.

FWIW - if you have the inclination (and the right market for it) an owner-occupied apartment bldg. or duplex can be a good move for someone on fixed or modest income - the key would be if its desireable neighborhood, attracting large pool of applicants and netting a good rental income. Ive been doing this -I figure even if and when my back goes or I have to hire someone to do all the maintenance I'll be able to write most of it off my taxes and still will come out ahead ( vs renting).

Home ownership comes with challenges. You never own anything that doesn't own you. You own it, you fix it, maintain it and pay for every little thing. You don't like your neighbors? You are stuck with them.

I think owning a condo or patio home is better for a retired woman because the HOA takes care many things and you have control over payments and design choices. You will need a handyman for repairs that will happen.

Renting does give you flexibility, but landlords make decisions that can turn your life upside down.

I vote for ownership, but that's just me.

You folks are just awesome. Many thanks for your prompt inputs. It is better than talking to an investment advisor as the standard answer is "it is personal choice". We know that, we need help to brainstorm the subject.

Additional information:

In excellent health but not handy at all. Therefore most house maintenance, repairs would need to hire out.

If the place is paid for; without any huge expense such as big medical bills, pension and SS would cover living expense, income tax, may be even property tax and maintenance.

Travel definitely is in the plan. Move to a different city is unlikely.

A duplex is an interesting suggestion. It is definitely worthwhile to take a close look.

A friend who owns many rentals and a good size equity portfolio, yet chose to rent. This is only one sample. Hope more woman retirees would share their experience regarding their housing choice.

It sounds like need to find out:

1. real estate appreciation rate in this city for the next 15 -20 years to compare with the stock market appreciation rate.

2. fees for a condo or patio home in a nice area and their appreciation rate.

3. Anything else need to find out?

I'm single, have always been single .. and will shortly be looking for a smaller place to buy to retire into. I'm 56 and have some years yet before I retire. My current home is actually a small farm, and I'm tired of the upkeep, though I am very handy. My goal is to simplify my life before retirement.

My Mom just moved into a senior community and that's what I see for myself after this next house. I don't think I'll wait until I am 84 though, like she did! LOL!

If you are not handy, being a landlord can be a pain ... it can be a pain even if you are handy. I was a landlord many years ago and don't think that is something I would ever choose again.

Good luck!

The OP is not relocating so the following would not apply to her, but in general if relocating to a new area, I would consider renting for, say, a year.

This would allow you some flexibility if you decide the new place isn't as great as you'd hoped. Also, it would give you a longer period of time to decide on which neighborhoods might appeal, etc.

I retired at age 52 - twenty years ago and never did move.

I would think about checking into independent living in a retirement community. There are so many options, types of accommodations, etc., to choose from and the option for continuing care is there if needed down the line. My husband and I live in a retirement community and we love it. We are older but very active and healthy. Many of our neighbors travel, go to Florida in the winter and are on the go all the time. They just close the door, lock it and are on their way. No need to get someone to mow the grass, shovel snow, etc. There are so many activities available for every interest, plus exercise classes, bridge, trips, knitting, lectures, etc.

A single person needs to think about who would be there to take care of her if she needs it at some point. One's life can change in an instant and one needs to think ahead and plan for the unexpected.

This was a great question. While I agree that a house offers fixed costs, I think renting or a condo would be great for peace of mind. I think a condo would be a terrific option.

There is no real advantage to renting if you plan to stay in a home for more than 5 - 8 years. But right now I would advise anyone who comes to me to get a 15 year mortgage, even if you can afford to pay outright, mortgage rates are so low that you are very likely to be better off investing the money. And you will be much better equipped to handle any emergencies that could arise. There are plenty of safe places to invest that will easily outperform a 3% mortgage rate.

Real Estate appreciation rate - Unless you live in an incredibly "hot" real estate market, there is no way that real estate will outperform the market. I have never seen it happen anywhere, but it is possible that if you bought at the exact right time in parts of Southern California and sold again at the exact right time you may have beaten the market. I don't see it happening again. There is really no need to look, the market will be better.

Upkeep - It is a common misconception that upkeep and maintenance, since covered by the landlord, are not the responsibility of the tenant. This is a misconception really, landlords generally want to make money so they just pass these costs on in the form of higher rents. There are some discounts to complexes, as the landlord has some bargaining power, but often things are more expensive. As a landlord when something breaks you have to get it fixed. This means that if the plumber I used will not be back in town for 4 days then I am calling someone else, if it is an emergency then I am paying after hours rates, since it is rental property many of the things a homeowner would take care of require a licensed tradesman.

I have lived in several countries where I had to rent and I never found the experience as rewarding as owning. I would rent if I needed to, but there is something to be said for deciding I want to change something and doing it. Not to say that the opposite is not true for others.

As a single woman, I think about housing/retirement/old age/saving a lot. These are big decisions when you have no pinch hitter. Upkeep on a home can be stressful.

I live in a small condo community where are there are 74 condos and we have a clubhouse with a small pool, exercise room, library and a great room for functions. I am on the Event Planners and we have cocktails every other week, coffee and donuts on the weeks we don't have cocktails, potlucks once a month, separate monthly luncheons for both the men and the women and at least one or more other functions every month. At last count we have 31 single women who are either divorced or widowed living here. They all love it as they all feel like they fit right in and participate in most everything. Everybody also feels very secure as we all look out for each other. Our units are 4 plexus and in the $200+ range and the owners are all ages. I absolutely love condo living!

Hello Bry911,

Thank you for joining this discussion as I was hoping you would share your financial aspect that has always been outstanding.

In general, I too think it is a no-brainer to use current 15 yrs low rate and invest the funding in the market. But does it still make sense for a retiree whose income usually would be significant less than the income received during working year as tax advantage will be much smaller?

I am also wondering if real estate appreciation is less than market return, the rent increase should be milder (may be this is a wishful thinking), therefore it may be better off to rent.

Definitely the cost of maintenance and repair will always be passed from landlord to tenants. But as a single woman, finding workers for maintenance and repair tends to be much difficult than by a single man, regardless how unhandy or clueless he is.

Hello blueheron,

What is the age restriction of the retirement community? I may have a pessimistic view as I see every person is a 'single'. Spouse may not be available by divorce or illness or death, and children have their own responsibilities and lives.

Yes it's a very interesting question.

Bry, I disagree with your idea that it might be better to get a mortgage instead of paying outright (if the choice made is to buy instead of rent). Making this sort of move at this age is in my opinion a big risk. Plus, there would be a certain lack of 'peace of mind'. Just my opinion. But interesting thought nevertheless.

Here in Australia the age restriction on moving into a retirement village is 55.

As far as investing goes - One problem with extremely low interest rates is that it reduces the impact of the mortgage interest deduction. Certainly, many retired individuals don't have a tax burden even high enough to get any benefit from the mortgage interest deduction. Fortunately, even without the mortgage interest deduction 3% is a pretty low rate. Of course, you are also hampered by risk aversion, you should not invest the same way you did when you were 30. But there are several safe options out there that will allow you to grow wealth safely considering the ultra low rates right now.

Even GNMA funds are paying 3.5% these days and these are Federally backed securities. Many brokerages have targeted retirement funds and even those that had a target retirement date of 5 years ago run an average of 6% return and 8% over the last 5 years (the time since the investor stated they were going to retire.)

One thing that many people fear is, the idea, that when you invest, you could lose your money. This really comes from a misunderstanding of how to invest and how the markets work. Conceptually, it is possible that a properly diversified portfolio through a reputable brokerage can lose everything. However, at that point unless you happen to have a piece of land that you are quite good at farming, then you are in trouble anyway, since it will mean the collapse of our financial system. You can lose a bit, the advice I usually give, is try to invest money that you can do without for 5-10 years. That will be plenty of time for the market to recover from any hits the market as a whole takes.

The maintenance is a real concern, but I think there are options for you. One is to find a good handyman and ask him to come by four times per year to repair things for you. This is the arrangement that my father currently uses and it has worked out great. He calls him if needed between seasons but has him come as the seasons change to do things. He even does things like gets out the lawn furniture in the early summer and puts it away in the winter. The guy ends up charging $300-$400 for the year.

Having written all of that, there is nothing wrong with renting. Rent increases would again be handled through proper investing strategies. They are really not a concern. I see many people have mentioned retirement communities and those are great, but one advantage to renting is that renters tend to rent in demographic pockets, so you might have great luck finding age and lifestyle appropriate rental property.

Edit: Sorry so long - I am trying to be comprehensive - And thank you for the compliment Azmom - it is appreciated.

@ tete_a_tete

People often see houses as low risk - This is simply not true. The risk potential for a house is far far greater than the risk potential for an age appropriate properly diversified investment portfolio. I think the idea comes from the fact that if you lose all your money, you will still have a place to live. But no person who can't afford to go to the doctor or put food on their table ever keeps their house.

Lets look at a hypothetical. Who is better off - Person A, who has no mortgage, owes $0 on a house that needs a $20,000 new roof. Or Person B, who has a $100,000 mortgage, $100,000 in the bank to help pay for a $20,000 new roof. This is the far more likely scenario than your investment losing 20% exactly when you need the money.

This may seem like a reason to rent, and it is a strong case for renting. The problem with renting this house is the rent will run you about $800 per month on the house we just talked about while you total cost of ownership (excluding repairs and maintenance) is about $500 over 10 years (less if you stay longer). Your repairs and maintenance should come in under $300, and this would be further offset by any value increases in your home.

Many people live in high rental markets and it increases yearly. It is difficult to plan for your future if your future housing cost is unknown.

But Bry, what about Person C and Person D?

Person C decided to buy her home. She took out a mortgage even though she could have paid cash.

Person D, her twin sister, also bought her own home. She decided not to go the no mortgage route.

I see Person D as not having spent all her pennies.

It sounds like Person A, in your example, spent too much on her dwelling and now she can't afford to have a new roof. The silly thing. Now the whole town is talking.

So I think Person D is better off. She has peace of mind. She can't predict the market (any market) but she owns her home, likes where she has chosen, didn't over-extend herself, has nice neighbours (hopefully) and can do whatever she likes with her home.

No, I don't necessarily think houses are low risk. But I am betting that Persons A, B, C and D all liked the areas in which they bought their homes. And want to stay there for as long as possible.

Your example, is not relevant to the argument. Whether you bought too much house or not enough house is a different thing altogether. I used a house expense because a serious house expense is more likely than a serious investment decline. But that was for simplification, in the real world, unexpected expenses happen, as you reach retirement age and beyond sometimes those unexpected expenses can be significant.

(1) What happens when D has a medical expense that her pennies don't cover? (2) How is D better off than C? Your statement was "making this sort of move at this age is in my opinion a big risk," so you have to include risk. If both live happily ever after then we are just walking around the subject.

The simple matter is, there are two very important considerations when investing your money, (1) risk, and (2) liquidity. So lets take both of these things and talk about them.

Risk - There is one and only one thing that you can do to keep your money that arguably has no risk - leave it as cash. Anything else you do has risk. We mitigate risk through diversity, investing in any one thing is more risky than investing in a lot of various things. After diversity you are still exposed to market risk, which is cyclical. If you can stay in the market between 5 - 10 years then market risk is mitigated to the point of irrelevance. Your assertion that we can't predict any market is only partially true. We can predict that overall the equity markets will trend positive. I will not go into a detailed explanation why, but suffice to say the government just lowers lending rates, which causes capital injection which leads to growth. The reason the market has grown so much in the last 5 years is because of free money from loans for capital expansion. If we start trending negative for any extended period of time they will drop again and correct it.

Liquidity - You can't eat your house, but if you need to eat and unplanned expenses have reduced your savings, then you are going to be forced to sale your house. I think most people would starve to death prior to closing a home sale even if they price it to sell.

Homes and risk - Again, the myth that homes are low risk is simply not true. The truth is, that you probably have to pay to live somewhere, and since you are paying to live somewhere then you might as well get something out of it (a home worth X.) You kind of prove my point for me above with your person D. Homes are so knowingly risky that most people would not even think of buying a home that took most of your money (as you pointed out above). Yet most people would have no trouble investing most of their money.

Edit: There are really several discussions going on here, and I might be giving off the impression that I prefer a mortgage over a paid off house. This is not really true. I will happily take a 3% - 15 year loan from any source. Is is not that I am in love with mortgages I am just in love with someone giving me money that is practically free.

'Your example, is not relevant to the argument. Whether you bought too much house or not enough house is a different thing altogether.'

But why isn't it part of the argument?

Should someone rent or buy? The answer depends on all kinds of things of course, as we all know, but for someone who decides that they would like to buy, then why is how much they spend irrelevant?

If the question had been 'Should I spend every cent I own on my own home or should I rent?' I would probably say no. I feel I would definitely have said no. But that wasn't the question. There are other moneys. This person will not be putting all their eggs in one basket.

"Should someone rent or buy?" - This is not the discussion we are having. I answered that with posts that you didn't take issue with. The discussion that we are having is whether someone who has decided to buy should do a mortgage. The two things are separate.

"then why is how much they spend irrelevant?" - because it is a constant and not part of whether or not a mortgage is risky compared to no mortgage. If you buy a house for X amount the decision whether or not to mortgage it doesn't change how much you paid for the house. My position is that in either case you are better off with a mortgage @ 3%. Your case is that a mortgage is too risky.

Edit: At this point I think I am going to step out unless Azmom has any other questions. I am happy to give you my opinion on rent vs. own and mortgage vs pay. Also, I can help walk you through investment stuff or give a second opinion on investment advice you get if you need. However, I like to argue a bit too much, and I don't want to turn this into my thread.

We decided to buy a house when we retired. We weighed this decision back and forth for years before we did. Our reasons for buying.

We had lived for 45 years in a large, expensive home in NY. High taxes, fuel, upkeep etc. We had good income during those years.

My husband worked until age 78. We realized we did not want to keep our house because the taxes and upkeep. We lived close to Manhattan and in a very desirable area.

We decided to retire to Florida. We began to look at condos, apartments and houses in 2011. Real Estate had crashed and over a few months of looking we had seen condos in trouble financially, apartments in trouble with people not paying rents and landlords trying to evict them. It was a very disturbing time.

There were many foreclosures and short sales on the market. Luckily, we had family in Florida and had a place to stay while we decided. We decided it would be best for us to buy a small house which was not in trouble financially.

I feel it was the best situation for so many reasons I can't go into.

Your situation is different. If I were single, I might consider buying a condo. I wouldn't want to be alone in a house unless I had a bunch of dogs!

We paid cash for our house, so no mortgage. We have done work on it over the past 3 years but nothing major, just cosmetic. If we need a roof, it would cost about $6,000 which we have in savings. We watch our expenses but I do feel a house offers more security than renting. We can always sell the house if necessary. In Florida there is the homestead law which would prevent creditors from taking your house. This is important in case medical expenses take most of your savings. They can't attach your house.

There are so many factors to think about when retiring. Not positive we made the right decision, but it felt right at the time and still feels right. I like to garden and have a nice yard. My husband loves music and can blast his speakers as loud as he wishes. We have a dog who we don't have to walk as there is the yard. We both like the privacy a house affords. Renting, you are at the mercy of the landlord. You have no control about costs. Our son rents a nice apartment and his rent has risen each year considerably.

You have to think about all these things.

Good luck,
Jane

Ha ha, Bry. I kind of like a good argument too. And money matters fascinate me.

The Vanguard (my personal fav) GNMA product had a more significant drop in 2013 than it did in 2008/2009. In fact, it increased in 2007, 2008 and 2009.

Feel free to look for yourself Vanguard

Edit: I still prefer a targeted investment account - only a little more risk and lot more return

Actually I think what Bry was saying that if you didn't need the principle for 5-7 years, then investing in GNMA is very safe. Someone who invested $10k back in 2005 for example would have approximately $15k today. Anyone who kept their money in the market back in 09, when the market plunged is well ahead of the game today. those who pulled their money out are the real losers.

I am back for more input....with dumb questions.

It seems homeowner association fee is one unpredictable expense that could go up greatly. Does it tilt the decision toward buying a small single family home? I wonder if people pick their new place before or after their retirements. I wonder how to decide this coming up change is one step prior to an assistant living of it would be the very last home.

Bry911, I totally agree with your suggestions as they are what we have been following for all of these year. We too like using other people's low cost dollars to generate more returns. Yet the rules of picking retirement housing seems are very different. Or are they not different at all?

I sincerely appreciate your offer: "Also, I can help walk you through investment stuff or give a second opinion on investment advice you get if you need". I will see a financial advisor soon, I will definitely ask for your second opinion on the advice I would receive.

HOA fees can be fairly predictable, they usually don't take huge jumps. We have an HOA on the lot we bought and there is a limit to the increase. It should be published somewhere. I think it is a consideration but I wouldn't think it is a vast swing one way or the other.

Full disclosure - I am not retired, but I believe that most people go through several phases of homes - The starter home, the family home, and the retirement home and each of those phases are a departure from the things we wanted/needed before. It really all depends on what you want.

My mind always goes to the financial perspective when thinking about these things. If you find a community that you like, there is nothing wrong with doing things for non financial reasons. There is no point in having a little more money if you are not going to use it to be happy. From a financial perspective there is no real difference. Rarely have interest rates been good enough to see a spread once you are retired and have a low risk appetite, but they are now.

I personally prefer a small single family house, my grandmother turned 94 in a small "shotgun" house. There are some good Christmas memories as we packed a lot of people into that tiny house. I have lived in condos and townhomes, they don't seem the same to me. But that is just me.

Haven't read everything re mortgage or cash payment. However, also to consider: Depending on your income level, your mortgage deduction goes down, you pay taxes on your investment income (including AMT plus another new tax for high incomes), so paying cash is basically like a 5% return. Not great, but not bad, either if you have enough funds left for emergencies and other investment.

The Alternative minimum tax (AMT) isn't that new, it has been around in some form or another for 45 years. The OP talks about an income reduction so I think we can safely say that she will not hit the AMT.

Investment tax penalties generally have a lower effect on retired individuals as they often have less taxable income. Even so, the recomendations considered full tax effects and no mortgage interest deduction.

I thought you were talking in general about mortgage vs cash --- and while the AMT has been around for decades, unlike regular tax it hasn't been indexed for inflation. As a result, it is now affecting millions, especially in high earning expensive areas.

I gave some specific criteria about when a mortgage vs. cash is good. The AMT is now indexed. Capital gains qualify for the same lower rate under AMT that they do for regular tax.

Even though I am a CPA - I hate taxes, if Snidely sees this he might have more specific information. Most people regardless of how much money they make are not effected by AMT. The AMT catches people who have a lot of itemized deductions or income that is not taxed. The idea is to catch tax "avoiders", now capital gains even though taxed at a lower rate can eat into your deduction and so there is a specific range of income that can trip a higher AMT. But you also receive a credit for future regular tax. So if you get out of that AMT zone then the additional taxes you paid will give you a credit against future non-AMT taxes.

If you can, find a house that has an in-law apartment, an apartment over a garage, whatever, through which you can derive rental income…and hopefully a tenant who'll help you with shoveling and other things.

Good thinking, tibbrix.

Don't judge expenses by monthly HOA fees alone. There are times, with HOAs, town houses and condos, that repair or replacement of streets, roofs, painting, other common areas, etc. are required, and if the reserves aren't there, special assessments are made which often involve very hefty amounts. Explanation of Special Assessments in HOAs, townhouses and condos.

You need to review the condo (HOA) documents, especially the reserves and an evaluation/estimate of capital.
I have seen HOAs that kept the monthly HOA fee low, only to requires special assessments for expenditures that were pretty obvious to expect and should have been planned for (e.g. replacement of an old roof after 20 years).

It comes down to what you can afford now, and what you can sustain going forward. Perhaps a financial advisor is needed to look at your entire financial outlook? (I'm not one)

In hot markets such as Hawaii, San Francisco, New York, Boston, etc. where purchases are through the roof for small places (and get into bidding wars), I've seen financial articles that suggest renting over buying. You could perhaps not have to own a car if you're in a neighborhood with access to common needs such as groceries, etc.

In average markets and neighborhoods in the US, I'd buy a small house with minimal upkeep (newly built or remodeled) and where yard maintenance (paying a service) would be around $50 every other week.

Run the numbers. If you're going go have to pay $2,000 per month in rent, that's $24,000 per year without growing equity. Where I live, that would be a good chunk for a down payment on a small house or apartment and more than some mortgages.

HOA fees can be outrageous in some neighborhoods, so make sure you'd use the club house, pool, concierge, etc.

Best wishes.