Ready to shake up your retirement game plan? Brace yourself for a deep-dive into the world of renting in retirement. We're breaking away from traditional concepts and exploring fresh, innovative approaches to retirement living. Our journey starts with an intriguing look at the potential advantages and pitfalls of renting a home during this exciting phase of life. Drawing on the real-life experience of a client, we delve into the compelling interplay between renting and the 'regret gap' – those precious years from 55 to 70 when you've got the energy and health to live life to the fullest.

Ever wondered if renting could actually be more cost-effective than buying a home? We bring you an enlightening discussion on the cost implications of renting versus buying. Unearthing the price-to-rent ratio, we tackle the age-old debate between lifestyle flexibility and stability. But the financial maze doesn't end there. We also navigate the intricate pathways of tax strategy and estate planning, highlighting their importance in the rent-or-buy decision-making process.

But wait, there's more! As we tread further into the realm of retirement living options, we shine a spotlight on early retirement. Discover how renting could play a pivotal role in your retirement strategy. We dissect the cost of renting versus buying, scrutinize the lifestyle flexibility renting affords, and reveal how selling a home could pave the way to a lasting legacy for future generations. We also address your burning questions and equip you with the resources you need to make a sound decision. Remember, when treading these uncharted waters, it's best to consult the experts. So, grab a cup of tea, settle in, and join us as we rethink retirement!

Create Your Custom Early Retirement Strategy Here

Ari Taublieb, CFP ®, MBA is the Vice President of Root Financial Partners and a Fiduciary Financial Planner specializing in helping clients navigate the nuances of an early retirement.

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PS: Before anyone decides to move forward with our services, I want to ensure we're the best fit to help you reach your goals and I personally have the first conversation with you.

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PS: Before anyone decides to move forward with our services, I want to ensure we're the best fit to help you reach your goals and I personally have the first conversation with you.

Speaker 0: 0:00

An early retirement is available to more of you than you know Now. I'm not saying you hate your job and you have to stop tomorrow. I'm saying if you love what you do, great, keep doing it, but know when you're truly doing it because you want to, not because you have to. And if you don't love what you do, great, let's find out how much longer you need to do it. And sometimes people come to me and it's like all right, I've got $200,000 a year coming in every year. It's really tough for me to switch to this other role. It might only pay me a quarter of that or half of that. I'll say let's see if that even can help bridge the gap, because more often than not it makes a bigger difference than you think. So, part-time income, health insurance and the considerations around that how much can you withdraw every single year and make sure you're not going to run out of money? There are so many considerations with an early retirement and more often than not I find people go health insurance where's that going to come from? Well, I don't know, I'm just going to keep working. Or, you know, I don't know how exactly I'm going to spend in retirement. So because of that I'm just going to work one more year. It's just easier to do that. And it is easier because it's what you already know. You're comfortable with it. So part of my job for my current clients is challenging them to go hey, are you working because you really want to or because you feel you need to? And let's really get to the bottom of this. And if we find that they actually love what they do, but they just want to do it more on their own schedule, say great, what can we do to be creative? So why am I bringing this up?

Speaker 0: 1:17

These examples are because I'm going to talk to you today about renting in retirement. A lot of you are going. I have a home. I love having a home. I've had a home for a long time, but some of you and you might go and I just never even thought about this. But some of you do know this because you've sent me messages about the following which is I considering?

Speaker 0: 1:34

I'm considering renting in retirement. I really love the idea of going and traveling and if I can rent and have a home base that I can always come back to, but go travel maybe not forever, but for the first two, three, four, five, 10 years. I think that would be something that would really make our retirement special, and especially if you want to retire early. I have a link to it I'm going to put in the description. There's what I call the regret gap, which is you have your core years where you have your energy and your health from really 55 to 65, 70. And I want to make sure you are making the most out of those years. So I'm going to show you a client of mine who is actually renting, so you can go, wow, what's like a real analogy of someone who's doing this. That's a client of yours right now.

Speaker 0: 2:14

I think it's the best way to learn going through these examples, so I'm going to go through it. I'm going to give you some information on how to even think through renting and retirement, and if this is a concept you're like I didn't even consider this well, then buckle up, because I think it's going to be a little bit of fun for you. That is my goal, of course. My goal is a lot of fun, but this would not be, of course, the early retirement show if I did not go over a review of the week. So this comes from MTMD, as I look forward to an upcoming early retirement. I find so much helpful information, guidance from the podcast. You don't know what you don't know about this podcast and it's great highlighting what I didn't know but absolutely need to know before I make the leap. Thanks so much. You're very welcome.

Speaker 0: 2:50

And renting is an example of this, where you're like, hey, I've probably thought of it, maybe at some point, or I actually didn't know if this was something that I could think through. So, with that being said, I want to hop right in. So I listen to a lot of podcasts. As you guys all know, I shared this last episode and sometimes the podcast hosts are very nice and kind people and they just ramble on too long. I'm like get to the show. So I want to tell you guys stories, but I really do my best to not ramble. I assure you that. So let's hop right in. A lot of you are coming to me going. You know what?

Speaker 0: 3:19

It's even weird to consider renting because I have my home. I've kind of always had a home and some people are choosing to rent for financial reasons alone, and that's great. Others are doing it for personal reasons. Today I'm going to show you the pros and cons to both of those renting a home and retirement this whole concept. It can be really awesome actually for a lot of you, because you might have a low maintenance lifestyle, you might be single, even if you're a couple. You're like, hey, I am considering renting, but what are the downsides? So, just like with everyone and the way I do, my process is and I'm gonna connect the dots. I assure you guys right now I'm gonna go through some of the downsides of renting. Okay, then I'm gonna go through the benefits. But the reason I do that is the same way I show my clients the way we invest. Because if I showed you a graph showing all the awesome features by in the amount of money you can make if we invested XYZ strategy, you'd be like I want that.

Speaker 0: 4:08

What you're not seeing is the volatility in the level of discomfort that people go through to get those returns. So I wanna start with what are the tough conversations, the tough things to think through? Because when people come to me, they'll say, all right, do you get like 100 calls when the markets go down? I get no, actually get zero calls and they're like why I go? Actually, that's a lie. I get five calls and those calls are from people going. Please do more Roth conversions.

Speaker 0: 4:28

But mainly the reason I'm giving you this dopey example is because people are coming to me and we've already had the conversation about can they weather these downturns? Can their portfolio do that level of a 20 or 30% decline and still be okay? For some people it's no, for others it's yes. So, with that being said, here's some of the downsides of thinking through renting. Okay, then we're gonna get to the fun stuff.

Speaker 0: 4:50

Rent prices can go up over time and there's a benefit of having that home payment. Maybe you've had it for many years and you're like, hey, I'm just used to paying down my mortgage and now I don't have a mortgage and I love this concept of I've got property taxes and maintenance, but that's kind of it. With renting, you've gotta think about a little different in your budget because that's gonna rise over time. More often than not, it's really important if you plan to stay in that same rental for a long period of time. Now, when I say long, some of you are going. What is long? Long can be like five years or 10 years or 15 years. It can really be anywhere in there.

Speaker 0: 5:24

So these are just some basic stats that we've pulled up, which is Federal Reserve economic data from 1970 to 2020, should I say about 30 years Rent increases about 4% per year. Over that same timeframe, inflation went up by 3.9% per year. So pretty much the same Now. Rent today is essentially saying if you had to pay $2,000 every single month, that would turn to about $2,700 a month in 10 years. So if you wanted to pay that same rent payment, $2,000 a month wouldn't cover it. $2,700 a month would be the equivalent of a $2,000 payment After 20 years $3,600 a month, $3,800 a month and so on. So number one downsides to renting Costs are going to increase over time, but it's okay if you have a plan for it.

Speaker 0: 6:09

Number two you have less control over your living situation. Now, that's obvious. As a renter, you just have less control than if you owned your home. There's less customization and flexibility. Your landlord could just make you move at any point and that's disruptive to a lot of people. So I know some of you by now. I've gotten pretty good at my listener questions. You guys submit a lot of questions, so thank you for doing so and if you're unaware that, you can submit a question and give me a comment or just a question for a future episode. Of course, you can do it on my website, earlytriantpodcastcom.

Speaker 0: 6:37

But with that out of the way, I know a lot of you are like I don't like disruption, I don't want to be forced to move, I want to stay in my home Great, you can absolutely do that. But if you do want to rent and you're still thinking through this there are ways to accomplish having more flexibility, which is renting a single family home versus renting in a community. You could rent in a senior living community, so you can kind of choose the rent style that you want, the one that resonates with you. Now you don't have equity as a renter, you don't build equity in your home, but oftentimes that can be beneficial. Why? Well, now you have other assets that you can invest for more growth or you can spend more. You just have more freedom.

Speaker 0: 7:14

And so the ultimate kind of takeaway for renting, I want you to think renting flexibility, renting flexibility. I have clients that are spending more to rent than if they went and purchased a new home right now, and they're happy to do it, and the reason is they want to be in one place next year, in a different place the following year, and so on. So I want you to just be careful of this, because a lot of people make this mistake. Where they're like my home is my plan B, no matter what, I've got my home, I can tell it if I need to, and it's not bad. But the problem with that is often times people say it's my plan B but they really do refuse to leave and so it's really not a plan B. Now, for some of you it really is. It's hey, worst case, I could sell my home and I could be okay. But a home can be a really nice asset for that role of a plan B if you're willing to actually use it that way. So if you're renting, what this means is you don't have a home that you could sell if you need to, if you need more money in the future, this could be a problem if you're gonna outlive your savings and, on top of that, if you don't have long-term care insurance. We need to think about that. So I have a whole bunch of episodes dedicated to specific long-term care that you can check out if you go through my previous episodes. So those are some downsides and I absolutely wanna make sure that you think about them.

Speaker 0: 8:23

A few other quick ones, should I say just things to consider about should you rent or should you buy? Is taxes? Okay, if you lived in your home for a long period of time and you're going, I wanna sell my home, that's great. You might be paying a lot in taxes. So it depends what state you live in. But if you're in a community property state, of which there's nine, I believe yeah, there's nine. California is one of them and that's where I live today If one spouse passes away and it's a jointly owned home, then there's a step-up and basis on that whole property. So you're going. All right, that didn't sound like English. What are the you just say?

Speaker 0: 8:55

What I said is and we can use my parents as an example is my parents are house-rich, cash poor. Okay, they have a home in Malibu, california, worth $6 million and they're still working in their 70s, meaning they have a ton of assets in their home, their net worth looks good, but they're still working because they don't wanna leave that home and they'd be paying a ton of taxes if they did choose to sell it. So they're going, they're still working and they enjoy their work, fortunately, but they're working and it's because they don't have a ton of retirement savings. So house-rich, cash poor you've probably heard that concept before. Another concept I'll talk about is qualified rich, cash poor, which is the concept that you might have a ton of assets, you might have three or four, five million bucks, but it's all locked up in a 401k or Roth IRA or an IRA so great. It's there but we can't really use it. What good is it at that point if you wanna retire at 55 and need to tap into it? So, with that being said, example here my parents bought the home for about $700,000 nearly 30 years ago and now it's worth $6 million. So what that means is, if, god forbid, something happens to one of the spouses, there's a step up in basis and so now the cost basis, essentially what you purchased for, is now stepped up to that $6 million. So just so you know, fyi, community property, a little quick estate planning lesson for you Now with a common law state. So if you're not in Arizona, if you're not in California, if you're not in Idaho, if you're not in Louisiana or Nevada or New Mexico or Texas, washington or Wisconsin, if you are not any of those, you are in a common law state. What that means is you get a step up in basis on half of the home that essentially was deemed to be owned by you, by each spouse. So it's a little differently. I'll do a whole episode on that if you guys thought that was helpful, just general, let me know.

Speaker 0: 10:36

The budget the budget is a big one, so now we're gonna go to thinking through okay, what are some positives of renting? How do we think through this? Let's get to some fun stuff. So your budget how much can you afford to spend on rent each month? It depends where you're gonna be in the country, and I want you to look at what's called the price to rent ratio. That's of a starting spot. That's where you're gonna start. Divide now. This is gonna be a little nerdy, but if you wanna really have some fun, this is a way to think through it. Okay, so you can my clients call me nerds, by the way, I'm totally fine with it.

Speaker 0: 11:02

I want you to divide the medium, not the average, the median home price by the median rent price. The higher the ratio, the cheaper it is to rent versus buy. Okay, let's say that one more time. So it does sound like Portuguese the higher the ratio, the cheaper it is to rent versus buy. So a lot of you. I want you to pause and go.

Speaker 0: 11:21

Okay, what is Ari really saying here? Well, I have links to all these different things and I'll include some of them below so you can see what I'm clicking on, because there's a bunch of stats on this. If you're even considering renting and if not, totally fine, but I'm gonna include in the description below. You're gonna see what I'm talking about. The cheapest is Pittsburgh. There is a 12 times price to rent ratio. What does that mean? The median home price is about $200,000, really $188,000. The median monthly rent is $1,300 a month or $16,000 a year. Now, that's the cheapest on this price to rent ratio. If we're looking at the opposite, the most expensive that's about not about it's San Jose, where there's a 38 price to rent ratio, meaning the median home price is $1.43 million and the median rent is $3,000, a little north of that. So there's a ton of other factors and I'm not saying go, move to Pittsburgh because of this, unless you're in Pittsburgh and you're going ah, yep, people should live here. It's awesome, that's fine. But what this is really saying is, if you're in Pittsburgh and you want to stay in Pittsburgh, then it could make more sense to buy. That's what that means because of the price to rent ratio. What this is saying is, if you're in San Jose, it might make more sense to rent because of that, once again, price to rent ratio. So just cool stats to be aware of.

Speaker 0: 12:39

Lifestyle. This is probably the biggest one. I already mentioned it before. But flexibility, flexibility, flexibility. The more flexible you want to be, lean towards renting, even if you're paying more. It feels weird, I get it. But more stability, you just like that, that it's in your blood.

Speaker 0: 12:54

If you probably know what I'm talking about, if you were one of those people going yeah, I am a homebody, lean towards buying. These things should not be viewed in a vacuum. I am an anti-vacuum planner. You're going. What does that mean? I made it up, okay, so a lot of these terms I make up because finance can be intimidating and overwhelming and there's a million decisions. I want to distill this as much as I can, which is why I do this show, and so that when you guys reach out, you've interviewed us for thousands of hours so you know what we're all about.

Speaker 0: 13:18

The point here is, if you are considering renting and you're going, okay, what makes most sense? Should I rent? Should I not rent? As you're looking at this, I don't want you to go. Should I rent? Should I not rent? That's it, it's.

Speaker 0: 13:28

What about my tax strategy? What about my estate plan? What about how much income I need in retirement? Do I have a pension? Do I have rental income? When's my social security collection going to occur? All of these things have to rely on one another because more often than not, people do this in a vacuum. People say I don't know when I should collect social security, but 62 sounds good. They don't understand that if you collect social security early, it shoots your income up. So that's a good thing, more income. But wait a second. What about tax strategy? Well now, tax strategy is not able to be done as effectively because we have less of a bracket that we get to fill up. So there's nuance to this planet. So let's go back to the fun Clients.

Speaker 0: 14:05

More often than not, who are selling their home to rent. It's because they want to spend years driving across the US, slow travel in Barcelona or doing all this fun, awesome stuff, and that's awesome, but that can be very expensive. So if you had a home that you were paying for and you were doing all these things. It could be tough. So sometimes renting can make sense and if you are renting and going, you know what I'm going to rent, but I'm going to have that be an Airbnb or something else like that Like you can get really creative with this.

Speaker 0: 14:34

Now I always want to be careful with my clients. Sometimes they say they'll do that, I'm going to go rent, it'll be an Airbnb, I'll put my stuff in storage. But they're actually traveling, worrying about being a landlord and if something breaks, and what if they need to fix, and even though they have a property manager, if they have a question. So I call that the ROH return on hassle. Is it worth the hassle to travel and be worrying about these things? Probably not for a lot of you, especially if you have the money to do so. If you're like I'm absolutely miserable at my job, I want to go, do slow travel, I want to be out of the country and I'm open to working with a property manager because I've done it for 20, 30 years and I think it makes sense. Okay, then maybe it makes sense, but more often than not, I find my clients want to travel and not worry about what's happening back at home. So just pro tip there.

Speaker 0: 15:18

Now you don't know ultimately where you're going to settle down, if you're going to rent, and that's okay. But sometimes it's nice to go wait a second, like where's my daughter going to end up, where's my son going to end up after school? Or I don't know where I'm going to want to be. But based on family, I'm kind of earmarking this area. It's better to rent for these people more often than not, just because you're like I don't know where I'm going to want to live. So financially is one section, and then lifestyle is another section.

Speaker 0: 15:42

I'm going to give you two quick dopey jokes. Then we're going to get to the final pieces here. I'm going to connect the dots. If someone said, ari, I'm thinking about declining a bonus, I'm like why they go? Well, I'm going to get taxed on it. They go, yeah, but it'll be a net positive to you. Like Ari, I just don't feel like you're understanding what I'm saying. I don't think you're a very good listener. I just told you I don't want to accept my bonus, I'm going to have to bill our taxes, the government has enough of my money and they're going to get my RMDs later. I'm like, yeah, I know, and I tried giving a few examples. But you see, even if you get a bonus and you pay taxes, you'll actually have more money. So at the end of the day, you'll have more. Like I just feel like you're not getting my concept. So it's a dopey joke, of course, but the point here is I don't want you to just go. Okay, I'm not going to take a bonus because of taxes. So same thing.

Speaker 0: 16:23

That analogy there is silly, of course, but the point is I have someone who's like are I think I should move to Florida? I'm like why? They're like well, it's more tax advantageous. I'm like do you want to move to Florida? They're like no, I hate it there. Like, then why are you moving there? They go did you not hear me Like I'm not going to pay much in taxes? I'm like I know, but if you want to retire early and you need to have tax implications, be at this X level and Florida is a spot to do that, let's consider it. But I don't want you to just move because you're going to be paying less taxes. I want you to live an awesome life and for some people it's they want to be in Florida and that's where they want to be, or Texas, and that's awesome. Go live there because you want to live there, but don't let just a tax state essentially be the reason you move. So that's a little silly.

Speaker 0: 17:03

Now, regarding health always want to check in on this because I have a few clients. Health is big consideration. For a lot of my clients, I'll actually say you might need a more accessible home, so renting just might not be an option for you. Let's talk about investing goals for a moment. I know this is a bit of a longer episode, but there's a lot to renting and some people they want to build equity in their home because it's, once again, their backup plan. The question is, some people actually don't use it that way. They want to pass it to children for long term care. They're saying you know what and I'll get this question like all right, if I don't have a home, how on earth am I going to build equity?

Speaker 0: 17:35

I go well, let's look at this example. Let's assume you sold your home. You have one and a half million dollars Now you could buy a new home or you could rent, and if you go rent, you would need to invest that one and a half million and use withdrawals from that to pay your rent. I'm sure you guys are thinking through this going yep, it's kind of waiting for already. Get to this point. Well, if your rent is $3,000 a month at this point just conservative example that's about close to two and a half 2.3% of your one and a half million dollars. So if you could grow your investments by 6% over the next 20 years and take out two and a half percent For rent, well, you'd have about $3 million in your investment account at age 90.

Speaker 0: 18:13

Now, that's conservative because really, one and a half million it's not going to really cover all of your housing expenses. If you paid cash, there's still a property taxes and maintenance and more than that. So the reality is you probably have more than that. But these numbers I'm just choosing as an example so you can go. Okay, could I still leave a legacy to my kids if I wanted to? Yes, it's not as if renting is going to suck out the life, where now all your other goals aren't applicable or possible. Should I say Now, those are some numbers. Now we can? That's assuming you were in San Jose Now, if we want to use the Pittsburgh numbers that we talked about before, and both my partner, james Kanol, if you don't know, were big proponents of at least considering renting.

Speaker 0: 18:48

So this example we go through in our podcast because we want you to at least consider that there is a ton of creativity with early retirement planning. So let's assume that you live in Pittsburgh. I don't know exactly how much you receive if you did sell a home, but pretend it's $250,000. That's enough to buy a home for $188,000. That's assuming, once again, you want to buy a home and not rent, and that's assuming you'd have $62,000 left over. So you buy a home for $250, excuse me, let's assume you sold your home for $250, you buy a home for $188, that's $62,000 left over, so that $62,000 now can go to a fund to pay for property taxes and maintenance. And what have you for the next 20 years? Or a big or? Here you can invest that $250,000 and that can support your rent for the next 20 years. In other words, that $250,000 would cover your cost of living whether you rent or own. And if you rented for $20,000 a year, that essentially is going to represent about 6.5% of your $250,000. So a lot of numbers there.

Speaker 0: 19:45

I'm going to include the link to how I came up with these numbers like where did we actually find these in these popular areas? So, if you're considering renting, where should you think through for pros and cons purposes? It's so important, obviously, to weigh all of these before you actually make a decision. And please do talk with an advisor, either someone on my team or someone else that you're currently working with and if your current planner is not giving you guidance on tax and social security and renting or even proposing these ideas, it's not saying they're a bad advisor. It's saying, number one, the firm that they work with might not allow them to do their best work. That's a reality. Okay, I'm interviewing a lot of new advisors to join my firm so that we can specialize in more early retirement specific planning, and more often than not, they're awesome advisors and their previous firm just didn't let them do tax planning or didn't let them have a podcast or didn't let them share their thoughts on retirement, and I think a big aspect of having an advisor is to be able to help with decisions like renting and things like this.

Speaker 0: 20:40

So, number one, if I'm going to summarize this be prepared to move If you rent. Be prepared. You know it's weird because maybe you own for so long and now you're a renter, so prices are going to go up and you're going to go. Oh my God, do I still have enough money to be able to afford this? And yes, assuming your plan tells you you can. So, number one be prepared to move. Always have a plan. Now, that's pretty obvious.

Speaker 0: 21:01

Number two is consider your location. If you're worried about rising rent costs, consider a less expensive area. You may want a community, you know. Think about transportation and meal delivery and social activities. Think about all of those things before you actually do it. But really it's do your research. This all starts with are you going to be okay, meaning do you have enough money to retire early? Then it's. Am I leaving anything on the table? Am I optimizing? Then, once you've done those two things, that's really where I let my clients start to have some fun. I say fun I really mean should I rent? Should I buy? How much can I spend in retirement? What's the most, what's the least? But we can't do those things until we actually build out the plan.

Speaker 0: 21:36

So I hope there's been a helpful episode. I know a little bit different. I'm going to include a few links so in the description of this episode. Please do go check out those links to think through renting in retirement and what makes sense and what doesn't make sense. I hope this was helpful, if it was even remotely helpful. Maybe you think a little differently. Please do leave a review and let me know. I love reading those reviews and if you want a custom strategy in the link below you can also apply to work with us. So hopefully this was helpful for you guys. Talk to you soon.

Speaker 0: 22:01

Thank you for listening to another episode of the Early Retirement Show. If you have a question that you want answered in a future episode, you can always go to my website, earlyretirementpodcastcom. That's earlyretirementpodcastcom and you can go ahead and submit a question that I'll look to answer in a future episode. Thank you all for listening. Please do rate it, review it and share it with someone who you think would benefit from this information. If there's anyone out there that you know, I certainly appreciate it and I will see you all each week. Hey guys, it's me again. Please be smart about this. Nothing in this podcast should be construed as financial, tax or legal advice. Consult with your tax preparer or financial advisor before taking any action. This podcast is for informational purposes only.

Early Retirement - Financial Freedom (Investing, Tax Planning, Retirement Strategy, Personal Finance)

Why You Should Consider Renting In Retirement

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