Financial advisors warn against buying a home near retirement — renting beats owning in 27 of 50 largest U.S. metros

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Neither option for paying for a house is great

The next thing Samantha and Ryan have to consider is how they’d pay for a home. They have two options, and both have their own problems:

1. They could borrow: Far more people (8) are carrying mortgages into retirement than ever before, but that doesn’t mean it’s a good idea. Committing to a monthly mortgage payment, especially if it is higher than rent, could mean straining their retirement budget.

2. They could pay cash: This would probably mean making a large withdrawal from their retirement accounts, which could have tax consequences and potentially raise their Medicare premiums. They also risk taking so much out of their accounts that they don’t have enough left invested to continue to earn sufficient returns that help cover other costs annually.

If they did want to consider buying, they’d have to make sure doing so wouldn’t affect their retirement income over the long term.

“You should start by seeking out a financial professional and build a retirement income plan,” Domenick D’Andrea (9), founder of DanDarah Wealth Management, told Moneywise. “The last thing you want to do is to overextend yourself and your finances when deciding to retire.”

Continuing to pay rent, retaining the flexibility to downsize easily to a cheaper rental if needed, and maintaining a safe withdrawal rate from their accounts may be a better move than straining their budget to buy a house and potentially leaving themselves with too little money in the future.

“You want to have additional funds available to put aside to be able to give yourself a raise in income in the future as costs increase,” D’Andrea said. “The last thing you want to do is to have to go back to work to cover the additional costs.”

Maintenance and unexpected repairs could become a big issue

Beyond the cost of a potential mortgage or raiding retirement plans, there’s another key consideration: The cost and labor involved in maintaining a home. Owning a home will come with wear and tear repairs along with emergencies like a new boiler or AC system. Your finances need to be able to handle that.

This isn’t something you have to worry about if you aren’t a property owner. “Most maintenance is covered when you rent, and it is easier to get up and travel when you aren’t worried about day-to-day maintenance of a house,” D’Andrea said.

And remember, maintaining a home will only get harder as you get older. “If your health is ailing or your finances are stretched, no need to burden yourself with all the things being a homeowner brings,” said Delgado.

So, it turns out Samantha and Ryan aren’t wrong to continue renting, and anyone who tells them otherwise is giving them advice they probably don’t need to follow.

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Article Sources

We rely only on vetted sources and credible third-party reporting. For details, see our ethics and guidelines.

National Association of Home Builders (1); U.S. Census Bureau (2); The Hill (3); Empower (4); Freddie Mac (5); Federal Reserve Economic Data (6); Campos Wealth Management (7); Visa (8); Dandarah Wealth Management (9)

This article originally appeared on Moneywise.com under the title: Financial advisors warn against buying a home near retirement — renting beats owning in 27 of 50 largest U.S. metros

This article provides information only and should not be construed as advice. It is provided without warranty of any kind.