Renting is often seen as something that young Americans do before they can afford to buy a house of their own. However, with rising home prices and persistently high mortgage rates, renting has become a popular — and necessary — long-term option for people of all ages.
Though renters can’t build equity through their monthly payments, committing to a mortgage payment, property taxes, homeowners insurance, and consistent maintenance costs may not make sense for seniors living on a fixed income.
Financial guru Suze Orman cautions seniors about the real cost of renting during retirement and discusses what they need to consider when renting over several decades.
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Landlords typically increase rents — often by significant amounts — every year or two. Still, as long as these modest raises are budgeted for, it may be a wiser financial decision for retirees to rent rather than run the risk of holding onto a home with higher costs.
Notably, renting may even allow seniors to downsize and save money during their golden years.
Orman details how retirees should plan for increasingly high housing costs over the next twenty years.
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Suze Orman warns seniors about planning for housing cost hikes
Most financial advisors recommend spending under 30% of total income on housing. However, over 11 million older adults were cost-burdened in 2021, meaning they spent over 30% of their income on housing costs.
The Bureau of Labor Statistics found that housing costs decrease as seniors age, but they remain a significant burden.
Americans aged 55-64 spent over $24,000 on annual housing costs, while those aged 65-74 spent $21,000. Seniors 75 and older spent an average of $19,000, considerably less than their younger counterparts.
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Orman notes that planning for housing costs — particularly rental hikes — will allow seniors to budget accordingly and thrive in retirement.
“When you choose to rent, you need to plan for the fact that your landlord will raise your rent from time to time,” she wrote. “I know that may sound obvious, but it’s not human nature to carefully think through what things might cost five, ten, or twenty years from now.”
“Yet when you make a decision to rent in retirement, that’s exactly what you must do.”
Understanding the hidden future costs will allow seniors to decide whether maintaining a house with a mortgage or renting will be the most cost-effective option in the future.
Orman stresses the importance of weighing renting costs vs. homeownership
Every senior’s financial status differs, meaning their housing set-ups will vary. Some may choose to stay in their home, while others prefer to rent or move in with family members.
However, experts agree that renting offers flexibility in retirement, from lower maintenance costs to ease of living.
Related: Suze Orman has blunt words on Social Security for retired Americans
Selling a home and downsizing to renting an apartment may offer a greater financial payoff, but it is crucial to plan for how housing costs will change over time.
“At a 4% average rate, your cost to rent doubles in 20 years, but that doesn’t make renting a bad option,” Orman continued. “The issue I want you to address today is making sure you have the ability to keep up with rising rents.”
For example, she notes that a modest $1,000 monthly rental cost will increase to $1,220 after five years, $1,480 after ten years, and $2,190 after twenty years.
Mapping out how your cost of living will increase over time will allow seniors to accurately pace their retirement savings and make wise decisions regarding living arrangements.
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