While installing solar panels may benefit the planet and could help lower your monthly electricity bill, for people of or approaching retirement age putting them in may not make fiscal sense.
In many cases, the decision of whether going solar makes sense involves simple math. If you buy, you'll have to consider how long it will take for your monthly savings to repay your upfront costs. Those numbers can vary quite a bit, but when you make the decision it's a matter of looking at the time it takes to pay back any front-loaded expenses weighed against your age and life expectancy.
And while it may not be fun to think of your own mortality when making a decision on how to power your home, it's a relevant fact in many cases. It only makes sense to make a money-saving move if it actually saves you money. Solar panels may not always be the best cost-saving measure for senior citizens.
Image source: U.S. Department of Housing and Urban Development.
Three ways to go solar
Residential installations of solar panels have increased 60% between 2014 and 2015, according to Consumer Reports. But that doesn't tell the whole story. Many people have chosen to lease instead of buy, setting themselves up for less energy savings in the long run and a whole lot of headaches if they need to move before the 20-year lease term ends.
Leasing can let you get a system with no money down, but overall, the monthly payments to rent the solar panel system will eat into the cost savings that those who pay cash get. Moreover, if you decide to move before the term ends, you could receive a whopping bill. One California couple highlighted in a Consumer Reports piece examining the "real" cost of leasing versus buying had such an experience. Andrew and Nora Barber had two potential buyers back out because of the solar panels on the home they were trying to sell. The couple had to buy out the lease at a cost of $21,000 because that's what the contract with the provider stipulated.
For a senior citizen, 20 years may be a longer timetable than you are comfortable agreeing to. You may move before that time period or the unfortunate may happen and you can end up leaving an added expense behind for your family. You'll have to make sure you know the terms of the lease and if it will be transferred to a spouse or your estate if you before the lease ends.
The better option for some people of retirement age is to purchase the panels with cash. But at an estimated upfront cost of $15,000 to $21,000 after a generous 30% tax credit, purchasing can come with its own set of problems.
At any age, but certainly over age 65, you have to consider how many years it will take to recoup the cost before you actually start saving on electricity bills and how you're going to pay if the panels get damaged or malfunction, not to mention routine maintenance.
Those who opt for a home equity loan can still take the 30% tax credit which extends until 2019 and write off the interest. But again, you'll have to determine if the energy savings you realize will offset the cost of repaying the loan on a monthly basis and at what point you'll start to save money. You still could face the same damage and maintenance costs as if you paid cash.
Do the math
If you purchase and install the panels with cash at age 40 and plan on being in your home until retirement, this may make a lot of financial sense. In a 20-year span, you can expect to reap thousands in energy savings depending on the size and location of your roof and your state's energy costs after you've recouped the original purchase and installation costs.
But if you install at 62, the numbers may not be on your side. At that age, in many cases, you're making a bet that you will live long enough (and be able to live in your home) to repay your upfront cost and start saving money.
The Center for Disease Control says the average lifespan in the United States is 78.8.
Now do the math: For a roughly 1,600-foot Cape in Central Connecticut the upfront cost to purchase a solar panel system will be about $12,000 with rebates and tax credits, according to a simple online calculator.
The estimated payback time is 11.3 years and the expected savings is $12,000 over 20 years. If you put the system in at age 62, according to the average life expectancy, you'll probably see a savings of about $6,500, which works out to $1,333 for every year after the cost of system is paid off.
In the meantime, you aren't generating any returns on the original $12,000 outlay. Equally important is that your children or heirs will have to deal with selling your home that may not be attractive to potential buyers who don't want to deal with panel maintenance.
The savings derived from buying the panels with a home equity loan would be about $4,300 after 20 years for the same home and the savings with a lease would be $9,100 after 20 years, according to the calculator.
The increase in the value of your home would be 3%. You'll have to weigh that against the possibility that you will have to pay off the loan or the lease if you need to move before the 20 years is up. You also need to consider if the panels will outlive your roof and how you are going to pay to have them removed and reinstalled.
Is solar right for you?
Solar panels will save you money, but it takes time for that savings to pay back your investment. Before making the decision to install them do an honest calculation of how much money you will save each month and how long it takes for that number to pay back your initial outlay.
If those numbers push out the savings until longer than you expect to live in the home (or live at all) then solar is not right for you.
