Older Couples Renting in Retirement: Can You Really Rent for the Rest of Your Life?

For most of our lives, we are told that owning a home is one of the foundations of financial security. Pay off the mortgage, build equity, and eventually you will have a place to live without a monthly housing payment.

But what if you are an older couple who would rather rent?

Maybe you sold your home and don't want the responsibility of owning another one. Maybe you have lived in a house for decades and are ready to forget about mowing the lawn, shoveling snow and fixing the roof. Or maybe you simply like the freedom of being able to move without having to sell a property.

Renting in retirement is becoming a much more realistic option for some older couples. The question is not necessarily whether renting is "good" or "bad." The more important question is whether your retirement income and savings can support rent for as long as you and your spouse may live.

That is a very different way of thinking about retirement housing.

Why Would an Older Couple Choose to Rent?

There are plenty of reasons a retired couple might prefer renting over owning.

Less maintenance

Home maintenance becomes a bigger consideration as we get older. A leaking roof, broken furnace, plumbing problem or large repair bill is not just a financial inconvenience. It can also become a physical burden.

Renting can shift many of those responsibilities to the landlord or property manager. You may still have responsibilities under your lease, but you generally do not have to worry about replacing the roof or repairing the building's major systems.

More flexibility

Retirement can change the way you think about where you want to live.

You might want to spend a few years near your children, then move somewhere warmer. You might want to try city living after decades in the suburbs. You may eventually decide that a smaller apartment or retirement community makes more sense than a traditional house.

Renting can make those transitions easier because you are not required to sell a property every time your plans change.

You can keep your money invested

Selling a home can release a substantial amount of capital.

Imagine a couple owns a $700,000 home outright and decides to sell it. After selling costs, they may have a significant amount of money that can be invested or used to fund their retirement.

Instead of having much of their wealth tied up in the house, they can use some of that capital to support their lifestyle while paying rent.

Of course, investing the proceeds introduces market risk. But the important point is that home equity and retirement savings are not the same thing. A home may be valuable, but it does not automatically pay the grocery bill or the rent.

The Biggest Problem With Renting in Retirement

The biggest concern is simple:

You have to keep paying rent.

A homeowner who eventually pays off a mortgage can potentially have a relatively low housing expense. A renter does not reach a point where the rent becomes zero.

That means an older couple who plans to rent throughout retirement needs to treat housing as a lifetime retirement expense.

This is especially important because rent can increase over time. A couple that can comfortably afford $2,000 per month today may have a very different housing expense 15 or 20 years from now.

Canada's federal financial consumer guidance also points out that housing needs can change as people age, with options ranging from remaining in the current home to retirement communities and retirement homes that provide additional services and care.

Renting Doesn't Have to Be a Bad Retirement Strategy

One mistake is to look at renting only as a monthly expense.

If a couple sells a $700,000 home and invests the proceeds, for example, they have created an asset that can help fund their retirement rent.

Consider a simplified example.

Suppose a couple sells their home and ends up with $600,000 available to invest after selling costs and paying off any remaining debt. They then rent an apartment for $2,500 per month, or $30,000 per year.

The $600,000 is not enough to permanently pay $30,000 of rent every year by itself. But it is also not sitting idle. If the money remains invested and earns returns over time, it can become an important source of retirement income.

The couple may also have CPP, OAS, Social Security, pensions, RRSP or 401(k) withdrawals, TFSAs, IRAs, investment income or other sources of cash flow.

The real question is therefore not:

"Can we afford $2,500 a month in rent?"

It is:

"Can our entire retirement plan support that housing expense for the rest of our lives?"

Rent Versus Owning: Look at the Whole Cost

Another mistake is comparing rent with only a mortgage payment.

Homeowners have many expenses beyond their mortgage. Depending on the property, these can include:

• Property taxes
• Home insurance
• Maintenance and repairs
• Utilities
• Condominium or homeowners association fees
• Major capital expenses
• Snow removal and landscaping
• Renovations and accessibility modifications
• Transaction costs when eventually selling

Renters obviously have expenses too. But the comparison should be between the total cost of each housing strategy, not simply the rent versus the mortgage.

This is one reason retirement planning software can be useful. Instead of making the decision based on one monthly payment, you can model what happens to your entire financial picture under different housing assumptions.

What Happens When One Spouse Dies?

This is one of the most important issues for an older couple renting in retirement.

A retirement plan should not only work while both spouses are alive.

Eventually, one spouse is likely to die before the other. When that happens, the surviving spouse may have a very different income picture.

Some pension income may disappear. Government benefits may change. Investment withdrawals may need to increase. At the same time, the rent may not fall by much at all.

A two-bedroom apartment costing $2,500 per month does not necessarily become a $1,250 apartment when one spouse dies.

This is why couples who rent should model the surviving spouse's retirement separately from their joint retirement.

What About Moving Into a Retirement Home?

Renting can also make the transition into a retirement community or retirement home more natural.

Housing needs can change significantly with age. A couple may initially rent a regular apartment, later move to a building designed for older adults, and eventually need additional services or care.

In Canada, retirement homes are generally privately operated and residents pay for accommodation and the services they choose. Costs can therefore vary significantly depending on the residence and the level of care required.

This is another reason not to assume that today's housing expense will remain the same forever.

Rent Inflation Needs to Be Part of the Plan

Suppose your rent today is $2,500 per month.

At an average 2% annual increase, that becomes roughly:

• 10 years: $3,047 per month
• 15 years: $3,365 per month
• 20 years: $3,715 per month
• 25 years: $4,098 per month

At a higher rate of inflation, the numbers become much larger.

This does not mean that rents will necessarily increase at exactly these rates. Actual increases depend on the local housing market, the type of rental, government rules and the individual lease.

The point is that a retirement plan should not assume today's rent will remain today's rent.

What If the Couple Owns a Home Right Now?

This is where the decision becomes especially interesting.

Suppose a couple owns a $750,000 home with no mortgage. They could stay where they are and continue paying property taxes, insurance, maintenance and utilities.

Or they could sell the house, invest the proceeds and rent.

Neither option is automatically better.

The decision depends on things like:

• How much the home is worth
• How much it costs to maintain
• How much rent would cost for a comparable property
• How long the couple expects to remain in the area
• How much investment income the sale proceeds could generate
• How comfortable the couple is with investment risk
• Whether the home will remain suitable as they age
• Whether leaving the property to children or other heirs is important
• How much flexibility they want in the future

Renting Can Be Part of a Successful Retirement Plan

There is a common assumption that entering retirement without owning a home means you are financially behind.

That is too simplistic.

A homeowner may have a valuable property but relatively little investment income. A renter may have substantial investments that can generate retirement income.

What matters is the entire balance sheet and cash-flow plan.

A couple with $1 million in investments and $30,000 of annual rent is in a very different position from a couple with $200,000 in investments and the same rent.

Housing cannot be evaluated separately from the rest of the retirement plan.

Five Questions Older Couples Should Ask Before Renting

1. How much will our rent cost in 10, 20 and 30 years?

Don't plan using today's rent alone. Build reasonable rent increases into your projections.

2. What happens if one of us dies?

Calculate the surviving spouse's income and expenses. Make sure the remaining spouse can continue paying the rent without relying on an unrealistic withdrawal rate.

3. What happens if our investment returns are poor?

Selling a home and investing the proceeds can create a larger investment portfolio, but it also exposes that money to market fluctuations. Your plan should be able to handle periods when investment returns are disappointing.

4. What happens if we need more care?

Your housing needs may change. Think about accessibility, assisted living, retirement communities, home care and other potential expenses.

5. How much flexibility do we really want?

Retirement is not only about maximizing net worth. If renting gives you the freedom to travel, move closer to family or avoid home maintenance, that lifestyle benefit has value too.

Fun Facts About Renting in Retirement

• Renting doesn't necessarily mean having less wealth. A renter can have substantial investments outside of real estate.
• Your house is an asset, but it is not automatically retirement income. You generally need to sell it, borrow against it or otherwise access its equity before it can fund your spending.
• A roof is not free just because the mortgage is paid off. Property taxes, insurance, maintenance and repairs continue for homeowners.
• Your housing needs may change more than you expect. A house that works perfectly at 65 may not be the ideal home at 85.
• The surviving spouse matters. A retirement plan designed only around two people living together can miss one of the biggest financial changes a couple may eventually face.

The Bottom Line

Older couples do not have to own a home to have a successful retirement.

Renting can provide flexibility, reduce the responsibilities of home maintenance and allow a couple to keep more of their wealth invested rather than tied up in a property.

But renting also creates a permanent expense that needs to be funded for potentially decades. Rising rent, investment returns, inflation, longevity and the loss of one spouse's income all need to be considered.

The best way to evaluate the decision is to stop thinking about renting versus owning as a simple housing question. It is really a retirement cash-flow question.

If you are considering selling your home and renting in retirement, try modeling both scenarios. See what happens to your investments, taxes, income and spending over the rest of your lives.