Is selling the best way to get cash for retirement?
Retirement  blog tag

Is selling the best way to get cash for retirement?

If you're getting ready to retire and own a home, you might have considered selling and moving to a rental to free up cash for spending or maybe investments. But is the best decision? For some retirees, this is a great decision, but for others, it may not make much sense. Those on the fence should consider the pros and cons when considering this important decision. Renting can make sense, but it's not right for everyone.

Sell and rent – the reasons to make the move

Selling your home and renting in retirement can offer a number of benefits:

  • You’ll have a large sum of cash that you can use as you please, like taking care of living expenses or boosting retirement investments and savings

  • Renting can provide more flexibility. It can be quicker to pick up and move to a nicer or more affordable area or set off to see the world, living in different places while you travel, says

  • Often, your utility bills will be lower, or maybe even zero if they're included in your rent

  • You won't have to pay property tax, homeowners’ association fees, or home maintenance or repair costs

  • You can avoid expensive remodeling projects to make your home more accessible

Another reason to rent is to control your housing costs. While your mortgage payment will stay constant, property taxes and HOA fees can increase substantially, and maintenance and repair costs can vary year to year.

"When you own a home," says USA Today, "there's always the possibility of a major appliance going bad or a significant repair popping up when you least expect it."

The national average cost for a mid-range replacement of an asphalt shingle roof is $22,636, according to Remodeling magazine's 2019 Cost vs Value report. That's enough to pay $1,866 per month to rent a home for an entire year.

Selling and renting is not without its drawbacks, however. One consideration of selling is taxes. You should think about how much cash you'll get, and whether it's worth giving up your home. If you're married and you meet the IRS requirements, you may be able to exclude up to $500,000 of any gain from your home sale from your taxable income. If you're single, the cap is $250,000. Be sure to consult a tax professional to learn how selling would affect you specifically.

Sell and rent – the reasons to stay away

Even with all the expenses, owning a home as a retiree may be the better thing to do:

  • It can be more economical to stay, especially if you have paid off your mortgage or rental housing is expensive where you live

  • You will have an asset to leave to heirs

  • Investing in upgrades to help you live more comfortably longer in your home can be a smart financial decision

  • You can remain in your community  

Rent or own – 6 questions to help you decide

Where you live can be an emotional choice, but it's also important to crunch the numbers and figure out what's financially reasonable. To do that, ask yourself these questions:

  1. How much is my home worth?

  2. How much equity do I have? (If you aren’t sure, our tool will tell you how much equity you likely have in your home).

  3. If I sold my home, how much cash would I get after I paid the broker's commission and other sales costs?

  4. How much income will I have as a retiree?

  5. How much additional income could I earn if I sold my home and invested the proceeds?

  6. How much would it cost to rent a home that I like in a place where I want to live

When you've answered these questions you'll have a good picture of what's possible, and you should be closer to making the decision that's best for you.

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