The Costs of Rising Rents and Their Implications for Active Retirees
August 29, 2016
Many active retirees are looking to simplify their lives, so they can get the most out of the next stage of life. This often means selling their current home, where they raised their families, in an effort to downsize. But this move also requires answers to several important questions, such as: Should they rent or buy a new place?
When looking to simplify, it may seem a natural move to rent rather than buy, and avoid the potential headaches of homeownership. While that may make sense at face value, consider the implications of paying higher and higher rents, if you are looking to conserve your assets for the next 25 years or more.
The State of the Rental Market
According to the annual “State of the Nation’s Housing Report” from the Joint Center for Housing Studies of Harvard University, the number of renters dedicating at least half of their income towards housing hit a record high of 11 million people in 2014. A total of 21.3 million are spending 30 percent or more of their paycheck to meet rent demands—also a record high.
While many personal finance experts suggest budgeting approximately 25-30 percent of monthly income for housing costs, that is getting harder and harder to do with rents rising faster than wages. This means that many American households are losing buying power as they need to devote more resources to rents—a situation which active retirees must face as well.
Middle Class and Affluent Renters
Especially in some of the country’s most appealing cities, middle-class renters are struggling. In the 10 cities with the highest housing costs, middle-class renters are regarded as “cost-burdened,” meaning they spend more than 30 percent of their income on rent.
The shift towards renting is widespread among different age groups, household types, and incomes. According to the report, there was the biggest surge of new renters ever in 2015, which brought the number of people in rental units to almost 110 million—or about 36 percent of households. Middle-aged (30-49) renters are making up a growing percentage of demand, while for the past three years, top-income households have been the fastest-growing segment of new renters.
With this growing participation of affluent renters in the rental housing market, developers are focusing more on luxury apartments, which provide a higher return on investment. This is driving rents higher while reducing the number of affordable rental units.
What This Means for Retirees
For renters, these trends mean that the cost of renting will continue to rise. While rents cannot go up forever, as long as demand continues to go up, so will rents. This makes saving and conserving assets much more difficult—especially for retirees who are no longer working.
Especially in this low interest-rate environment, homeownership makes a great deal of financial sense. While active retirees may not wish to be burdened by home responsibilities, one of the many benefits of active retirement communities is that they can be maintenance-free for members.
So, if you are considering active retirement, consider visiting one of McKee’s 55 plus communities in Delaware. We will also help you sell your current home, so you can move with ease into this next stage of your life.