Retirement Planning If You’ve Never Owned a Home

Owning a home isn’t just about having a place to live, it’s also a financial asset. That’s important in retirement. For a lot of retirees, a big part of their retirement planning is selling their home and using the money they earn from the sale to help fund retirement. 

This makes a lot of sense for a lot of people. If you own a larger, multi-bedroom home, you may not need this space once your children are grown. It can be easier to sell the property, leave the hassle associated with caring for a large home behind, and use the money to pay retirement expenses.

The same is true for people who move out of the city and into a quieter area when they retire. They can reduce their expenses by settling in a less popular area while also boosting their retirement lifestyle.

Not everyone owns their home, however, and retirement can be tougher for those who don’t.

Retiring Without Owning a Home

Selling a home is a common retirement planning strategy, especially if the property is paid off. If you’ve paid off your mortgage and you sell your home, those profits can help fund your retirement. However, even if you don’t sell your home, a paid off mortgage means lower expenses in retirement and a more affordable life 

Without mortgage payments, you’ll be responsible for taxes and maintenance costs, but these are much lower than if you have a monthly mortgage to pay.

Rent is different. You can’t “pay off” your rent. It’s due every month and you need to pay it every month, even in retirement. This can make it tougher to afford your monthly costs, since you’ll always have a big payment to make. Rent can also go up for numerous reasons, so you’ll need to account for that. 

However, just because there are challenges if you retire without owning a home, it doesn’t mean it can’t be done.

How Non-Homeowners Can Handle Retirement Planning

The biggest potential problem when you retire without owning a home is that you can’t sell the property to help fund your retirement. In many parts of North America, house prices have increased rapidly over the last decade or so. This means that your house is probably worth a lot more than you paid for it. Selling it and moving into something smaller or relocating to a less expensive region can be a great way to fund retirement.

Without that option, you’ll need to put a stronger focus on saving throughout your working years. There are a few ways to accomplish this. The first is to save the difference between rent and estimated home ownership costs. If your monthly rent is less than it would cost to pay a mortgage, property taxes, and maintenance costs, figure out how much that would approximately be, then put this amount into your retirement fund each month.

The same is true for a downpayment. One of the benefits of renting is that you don’t need to save a lump sum first, like you do when you’re buying a home. This means you can redirect the money you would have spent on a downpayment towards your retirement.

In fact, not buying a home allows you to start saving for retirement earlier. A lot of future homeowners delay saving for retirement until they have a downpayment. Without this constraint, you can start building your retirement fund right away, letting you take advantage of compound interest sooner. By being disciplined and consistent with your savings, you’ll be able to afford retirement even without the benefit of being able to sell your home for profit.

Remember, you can still move to a smaller property or a less expensive region when you’re renting, you just won’t get the benefit of using the proceeds of a home sale to fund your lifestyle. However, what you will have is greater flexibility. 

If you don’t own a home, you won’t need to sell a home to live somewhere else. This makes it easier if you want to move to a retirement community, for instance. As long as you have the savings, there’s no need to deal with the often complex and lengthy process of selling a home. 

The same is true if you want to travel. Many retirees who rent simply put their things in storage and give up their rental while they travel. This can be a big benefit to those who want to travel for months (or even years at a time), since you won’t need to pay for a home that you’re not living in. Owning a home can be a huge financial asset, and it can make retirement easier, but it doesn’t mean you can’t retire without one. By focusing on savings and being regular and diligent with your efforts, you can happily leave the working world without financial stress.