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3 Dangers of Owning a Home in Retirement

There are certain pitfalls you might encounter as a senior homeowner.

[Updated: Feb 04, 2021] Jan 17, 2020 by Maurie Backman
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If you've owned a home all your life, then you might assume that it makes sense to continue doing so in retirement. After all, you're used to your living space, and if you're lucky, your property will already be paid off by the time your golden years kick in. But while owning a home in retirement is both a common practice and a smart move in some cases, you should still be aware of the following dangers of going that route.

1. Still having a mortgage hanging over your head

Many seniors enter retirement with their mortgages paid off -- but many don't. In 2018, AARP reported that 44% of Americans between the ages of 60 and 70 still have a mortgage when they retire. If that's the boat you're in, it means you'll have one major bill hanging over your head that you can't easily reduce or get out of paying.

Of course, in many markets, the amount you'll pay in rent will be comparable to, if not greater than, the amount of your mortgage. But remember, if your finances are somewhat shaky in retirement (which is often the case for seniors on a fixed income), with a rental, you’ll have the option to sign a year-long lease and move when it expires if you find that your rental payments are too high. With a mortgage, you don't get that leeway, and while refinancing could help you lower your payments, you may not qualify for a better rate unless your credit is stellar.

Another way to look at it is this: If you sell your home prior to retirement and get a rental, you'll have the option to live in a less expensive neighborhood that may prove more affordable. If you insist on staying in your home because that's what you're used to, you could end up stretching yourself financially.

2. Rising property taxes

Property taxes have a tendency to rise over time, even during periods when home values drop. The problem with rising property taxes is that they can be brutal when you're limited to a fixed income, which is the case for a large percentage of retirees. And while there are programs in place that offer property tax relief (the option to freeze your taxes, for example), those may not apply to you if you're a moderate-income household. As such, you run the risk of seeing your tax bill continue to climb while your annual income remains largely stagnant.

3. The physical and financial burden of maintenance

When you rent a home, your landlord is responsible for maintenance and repairs. When you own a home, both aspects are on you. And that could prove quite difficult from both a physical and financial perspective.

The physical maintenance you were capable of doing in your 40s, 50s, and 60s may prove too difficult as your body ages. And remember, as homes age, they tend to require more maintenance, which means that as you become less and less adept to handle upkeep, the demand for it might increase.

Also, owning a home comes with a host of variable costs, whereas seniors, as mentioned earlier, are often on a fixed income. And clearly, there's a mismatch there. While you can generally assume that home maintenance will cost between 1% and 4% of your property's value annually, that estimate doesn't account for major repairs that could pop up out of the blue. And those could constitute a huge strain on your limited income and savings.

Should you own a home in retirement?

To be clear, there are still plenty of good reasons to be a homeowner during your senior years. For one thing, you'll have the option to use your home as a source of equity if the need arises. You can borrow against your home via a home equity loan or line of credit, or you could even take out a reverse mortgage (though be aware that there are serious drawbacks to going this route). When you rent, that option is off the table.

There are also tax breaks available to homeowners that renters can't capitalize on, like the ability to deduct mortgage interest and property taxes. That said, many seniors who still have a mortgage are paying very little interest at that point in their loan's lifecycle, and those who live in areas with high local and income taxes may not get to deduct their property taxes in full thanks to the cap on the SALT deduction.

Before you decide to own a home in retirement, weigh the pros of doing so against the cons. There's a compelling argument for both owning and renting in retirement. The key is to make an educated decision, no matter which option you choose.

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