Renting in retirement

[Safire]

Having a special needs family member is difficult in every situation--especially on siblings that may end up responsible in the long run.

My cousin had Downs Syndrome, and he was institutionalized his entire life. Our state once had excellent care in group homes, but got out of the mental health field 30-40 years ago. Then Blake went to a nursing home for a few years.

The state ended up finally placing him with Volunteers of America where he and two other gentlemen lived in a rented triplex. He'd go to a day care center during the day and come home @ 4:00 p.m. where a gentleman took care of him until being relieved @ midnight. Another gentleman took care of the guys until they left the next a.m. I cannot tell you how wonderful Volunteers of America was until the end.

My cousin was very happy, and he received specialized care my elderly aunt (who died 3 mos. short of 100) couldn't provide. After all, Blake had his own life to live. He was happy to see his relatives, but 20 minutes later he was glad everyone left.

Too bad you're not mobile. I understand Atlanta has an incredible autism clinic and it's a very low cost of living city--for such a major city.

I actually think that institutions like Walbrook (Rainman) are far safer than individual group homes where abuse - I'm told - runs rampant with fewer eyes watching over disabled individuals. My hope is to outlive him, but I doubt that'd happen since my health is poor and he's still so young.

If our daughter chooses to be a teacher, I'm assuming she'd have more options on where to settle down, than if she decides to work in IT (despite likely making several times more money in IT than she could as a teacher). We probably shouldn't tie ourselves to her -- it's so unfair to her to have to take on this burden -- but I don't see any way out, esp as we get older and need help with him. Thank you for the heads-up on Atlanta. Someone else also mentioned MN. I am taking good notes on all these suggestions and hope I get more as we decide where to ultimately settle down.

 

[Safire]

I'm sure if one looks hard enough or reads the internet enough, one can hear horror stories of everything. Renting/Cab/bus/biking/group homes.

I worked in group homes for years, and then an apartment program, where I set up small group homes/apts consisting of 2-4 people.

It's very common for parents to be wary, nervous of a group home. Many times they make the mistake of delaying moving the adult "child" into a group home until it's an emergency due to their own old age.
I used the term "child" earlier as for many parents, that is how they viewed their 22->44 yr old son/daughter.

The most successful clients were the ones that came to us in their early 20's as they had less years of bad habits learned from the parental home, or even worse a mass institution.

None of the dozens of parents I met over that time, ever pulled their relative out of the group home, and most were pretty impressed to find out their son/daughter could do their own laundry, tidy their room, and participate in cooking.

I suggest looking at, and visiting group homes to see what is offered, as it's quite possible the nephews / niece will not want that life long Obligation as they probably want to have a life themselves. You may be surprised to find some very nice group homes, and possibly find ones that have short-term stays of a couple of weeks. A good practice for the potential client, and a nice relief break for the rest of the family.

Understand that a good group home, won't accept just anybody, they should have a specialty and stick with it. This means our group home rejected potential clients, as we discovered the parents covered up serious secondary issues.

I'm sorry, and absolutely no offense intended to anyone who runs a group home or is in charge of one, but I would prefer my son to live with his family over the long haul. Yes, you're absolutely right, my daughter, niece and nephews may simply not want that responsibility or "burden", but I believe he will flourish best among family and I want that to happen for him.

I'm working on his self-help and home care skills. I have the same "rules" wrt discipline I have for his sister, and I want him to be able to do simple things for himself, given his limitations and challenges. He's not allowed to sit around on his iPad all day long, and he spends considerable time outdoors. I'm with you on that.

However, if, after my time, he ends up in a group home that works for him and where he fits in well, that should be ok, too. I just want the best for him as any parent wants the best for their own children - neurotypical or special needs.

 

[Dtail]

It's foolish to unequivocally state that renting is more affordable than buying. It varies a lot from city to city and is very situational. I like the NYT rent or own tool.. it is very comprehensive.

+1

 

[bobandsherry]

@bobandsherry, did you read the word "apartment" in the post?

The OP is looking for a low cost living situation. Renting an apartment is the lowest cost living situation.

Yes, I read that - and not sure how that is relevant to what I said. Here's what I said.

Not sure how you came to this conclusion. A landlord experiences those same costs plus has an expected rate of return. In turn passes along to you in the form of rent. Perhaps more of a known or expected costs vs your own home. You also miss out on increase in the appreciation value of the home.

Additionally, there wasn't enough info in the OP's post to really provide a specific direction. As the OP has later stated, "We expect to be retired in 15 years", so time is on their side to consider a buy, lock in the current prices and rates and not have 15 years of inflation to try and factor in on what rental prices may be.

 

[FIREd]

I live in a fully paid condo. Between HOA fees, property taxes and insurance, it costs me about $300 a month. The identical unit above mine rents for $1,000 a month.

ETA: I rented for a while during the early part of my retirement and it had its perks.

 

[EarlyFIRE]

Renting an apartment is the lowest cost living situation.

A modest single family dwelling with no mortgage still requires maintenance and property taxes paid. Home ownership is a far over promoted idea. There are too many people who benefit other than the homeowner, therefore the over-promotion.

Apples for apples comparing all alternatives in the same city/metro, renting an apartment is the lowest cost living situation.

I agree with this in many parts of the country. It depends on your RE tax, RE appreciation rate, insurance and maintenance costs. You will need a new roof, HVAC, windows, etc at some point, and I don't think everyone accurately discounts the effect of this.

If you are in an area with high RE tax and modest appreciation, for example, renting might make sense.

Another option someone suggested is a lock and leave condo, if that is more affordable, since it reduces the maintenance costs compared to a SF home.

As others have said, being a short drive from a good university town may provide options for good healthcare at a relatively low cost.

 

[VanWinkle]

Perhaps I wasn't clear with bad choice of words in a rapid response... my point, other expenses make up a large portion of cost of living. So look at options to reduce those costs. You disagree?

BTW, what % of your total expenses does your housing make up? 5 years retired myself. In my prep for FIRE I had already lowered my housing costs by moving to a more cost friendly area. New home, slightly larger (2,600 sq ft) than I had before, but lower cost of house and way lower taxes and less costly to maintain. New home also saves me $$$ on utility costs as it's very energy efficient. Also reduced number of cars lowering my depreciation and insurance costs. Now travel is my big nut and by choice.

I agree there are other expenses that can be reduced, but most retirement studies done on expenses have reported housing costs the be the largest expense and reduction to have the most impact on retirement success. Just one example:


https://www.fool.com/retirement/2019/08/21/how-to-cut-down-on-your-largest-expense-in-retirem.aspx

I think he/she may be on the right track to making retirement more feasible.

VW

 

[bobandsherry]

I agree there are other expenses that can be reduced, but most retirement studies done on expenses have reported housing costs the be the largest expense and reduction to have the most impact on retirement success. Just one example:


https://www.fool.com/retirement/2019/08/21/how-to-cut-down-on-your-largest-expense-in-retirem.aspx

I think he/she may be on the right track to making retirement more feasible.

VW

OP has come back and said they plan to retire within the next 15 years. So, buying now locks in today's house price and rates, providing they know what area they want to live. Just think of the appreciation a property could accumulate in that 15 year window. Do you know what inflation will be over the next 15 years and impact on rental rates? So are you really that sure the OP is on the right track?

As I originally said, I'm sure there are cases where renting may make more sense. I disagreed, and still do, with a blanket statement that renting is the lowest cost option.

I guess we agree to disagree. It's all good.

 

[Cobra9777]

Renting an apartment is the lowest cost living situation.

A modest single family dwelling with no mortgage still requires maintenance and property taxes paid. Home ownership is a far over promoted idea. There are too many people who benefit other than the homeowner, therefore the over-promotion.

Apples for apples comparing all alternatives in the same city/metro, renting an apartment is the lowest cost living situation.

It's foolish to unequivocally state that renting is more affordable than buying. It varies a lot from city to city and is very situational. I like the NYT rent or own tool.. it is very comprehensive.

+1

+2

The NYT rent/buy tool is by-far the best tool I've seen for analyzing and truly understanding this decision. ...at least from a financial standpoint, which is what the OP was asking about. Yes, there are non-financial considerations that are just as important to many people and situations.

BTW, with it's default settings, the NYT tool says that for a $250K house, you would have to rent a similar home for $884/mo or less, to be better off than buying. When's the last time you saw a $250K house renting for less than $884?

Yes... you can, and should, change the default settings based on your own area, expectations, and experience. But the average rent in my area for a $250K house is $2300-2700/mo. To get the breakeven rent that high, you have to make some very unrealistic assumptions about maintenance costs, etc. That's based on my 37 years of homeownership experience. YMMV.

 

[chassis]

Let's not forget the needs and ability of a person to perform maintenance, or pay to have it done, compared with needs of employment and/or caring for family members.

Not needing to be concerned with maintenance is a benefit that would accrue to someone in the situation so described. It sounds a bit similar to the OP's situation. Renting a small apartment, no larger than is needed, is the lowest cost option and gives the renter the ability to spend time, money and effort where h/she needs to.

 

[bobandsherry]

Let's not forget the needs and ability of a person to perform maintenance, or pay to have it done, compared with needs of employment and/or caring for family members.

Not needing to be concerned with maintenance is a benefit that would accrue to someone in the situation so described. It sounds a bit similar to the OP's situation. Renting a small apartment, no larger than is needed, is the lowest cost option and gives the renter the ability to spend time, money and effort where h/she needs to.

You seem to forget there's condo's and townhomes, both typically include maintenance exterior maintenance and/or repairs. There are also some communities with single family homes that also include all exterior maintenance.

So would you consider that a small condo, equivalent in size to a small apartment could also be a good option? Remember, a landlord collects an amount to cover their expense PLUS their expected return. Great for short term but I just can't see how it makes sense long term, especially the 15 year window that OP has mentioned.

 

[Focus]

I live in a fully paid condo. Between HOA fees, property taxes and insurance, it costs me about $300 a month. The identical unit above mine rents for $1,000 a month.

ETA: I rented for a while during the early part of my retirement and it had its perks.

Yet another example of how much it varies by location. In my city, HOAs are hovering around $700 for smallish condos.

 

[captain3d]

$1 mill town house rents near San Francisco for approx $3500. $1 mill worth of rental units in Columbus OH rent for approx $10,000. Rent or buy is very location dependent. Plus your opportunity cost if you are a good or bad investor etc

 

[almosttime]

Hello,



Due to having a child with autism who may likely live with us for the rest of our lives, and due to us wanting to live close to our other child as we age (not an easy choice or decision), we may always have housing costs. Unfortunately, my preliminary research indicates that the best services for the disabled tends to be in areas which are also HCOL or VHCOL, where we may never be able to afford a decent home.



Do you have any advice for people with a modest nest egg, who may have housing costs in retirement as well? We expect health insurance and the state to pick up most of our son's medical and therapeutic needs & costs, and we are in the process of setting up a special needs trust for him, but the idea of having to pay rent in retirement really worries / concerns me, especially as that means leaving less money for our son after we're gone?



How can we minimize housing costs in our situation? Is that even possible?

Please, please, hear the advice of the persons who are discussing timing, quality, quality of life, and finances of group homes. Please do your own research;including visits and, a post Covid short-term try out. I sense your fear. You may be pleasantly surprised. There are some wonderful DD programs in moderate COL states. Research this too. Best of luck!

 

[idledancer]

My house has been paid off for 12 years, renting an equivalent place would cost me over 3X what I currently pay in property taxes, insurance and yearly maintenance.

It's market specific thing, in some places owning is a better deal, in other renting. For example, we pay $3k/mo to rent a place currently valued at $1M.

The opportunity cost of having money in a home vs stocks might be material. Plus, in markets with high appreciation, it's easy to exceed the primary residence capital gains exemption upon sale. That would incur a hefty one time tax bill that you might not otherwise see liquidating portions of a stock portfolio over a longer period. Also remember to adjust for real estate risk, liquidity concerns and agent commissions. All that in addition to taxes, insurance, and maintenance, can sometimes make renting attractive.

 

[tmm99]

My house has been paid off for 12 years, renting an equivalent place would cost me over 3X what I currently pay in property taxes, insurance and yearly maintenance.

That's what I was thinking too, but I think that all depends on the area. My area is just like your area (I'm so glad that we bought the house when we did; we would be paying more for buying the same size/quality house or for compatible house rental), but I was looking at the housing cost of Tucson, AZ (I lived there over 30 years ago and I remember how much my monthly rent was); the rent hasn't gone up much there at all (not even keeping up with inflation).

Having said that, I'd probably buy something to at least partially protect myself from inflation...

 

[Sunset]

I'm sorry, and absolutely no offense intended to anyone who runs a group home or is in charge of one, but I would prefer my son to live with his family over the long haul. Yes, you're absolutely right, my daughter, niece and nephews may simply not want that responsibility or "burden", but I believe he will flourish best among family and I want that to happen for him.

I'm working on his self-help and home care skills. I have the same "rules" wrt discipline I have for his sister, and I want him to be able to do simple things for himself, given his limitations and challenges. He's not allowed to sit around on his iPad all day long, and he spends considerable time outdoors. I'm with you on that.

However, if, after my time, he ends up in a group home that works for him and where he fits in well, that should be ok, too. I just want the best for him as any parent wants the best for their own children - neurotypical or special needs.

No offense taken.

It is good you are working on his self-help and home care skills, life skills are important.

Incredible as it sounds, I have worked with normal individuals in my 2nd career that were unable to cook supper for themselves, as they never learned.

From your description it's unclear about his age and severity, but with that in mind, you may want to also look at various day programs, where he would attend on a regular basis to normalize and provide structure to his life.

 

[ivinsfan]

You don't mention if you own a home now...if you'll have equity to invest in a new living area.



It sounds as though after ordinary living and funding retirements there is not a lot extra in your budget. This will make harder if you need to upgrade to a HCOL area. For right now, I think you need to just continue as you are and make these decisions as they become necessary.



You might be worrying unnecessarily about moving to a HCOL area. As your daughter ages and finishes school maybe finds an SO, you should get some more clarity.


But in reality, there is no way to live in a HCOL area on a strict budget with a housing issue. Especially in your case where you are concerned about leaving a nest egg.

Sounds as if all your retirement income will be taxable as well which is another wrinkle.

 

[GTFan]

It's foolish to unequivocally state that renting is more affordable than buying. It varies a lot from city to city and is very situational. I like the NYT rent or own tool.. it is very comprehensive.

Not to mention that this is a lifestyle decision much more than a financial one.

 

[Safire]

No offense taken.

It is good you are working on his self-help and home care skills, life skills are important.

Incredible as it sounds, I have worked with normal individuals in my 2nd career that were unable to cook supper for themselves, as they never learned.

From your description it's unclear about his age and severity, but with that in mind, you may want to also look at various day programs, where he would attend on a regular basis to normalize and provide structure to his life.

My son is still young, a pre-teen, and is quite severely autistic (non-verbal with significant fine motor delays that make self-help a real challenge for him). He's also getting a little oppositional as he gets older and nears teenage, but we keep pushing him as much as we can. It's absolutely imperative that he has some ability to do things for himself, esp. things like bathing / dressing / grooming etc, so that whoever assumes care for him after our time is not frustrated with having to do everything for him. I just pray, cry and try... rinse, wash, repeat... hoping some day he'll be as independent as he can and function with minimal oversight / supervision. Hope springs eternal, after all!

You don't mention if you own a home now...if you'll have equity to invest in a new living area.

It sounds as though after ordinary living and funding retirements there is not a lot extra in your budget. This will make harder if you need to upgrade to a HCOL area. For right now, I think you need to just continue as you are and make these decisions as they become necessary.

You might be worrying unnecessarily about moving to a HCOL area. As your daughter ages and finishes school maybe finds an SO, you should get some more clarity.


But in reality, there is no way to live in a HCOL area on a strict budget with a housing issue. Especially in your case where you are concerned about leaving a nest egg.

Sounds as if all your retirement income will be taxable as well which is another wrinkle.

No home yet. We're ok with renting now, but I don't know how I'd feel with renting at retirement. We may eventually just have to make a hard decision to live further away from our other child, if we cannot afford to buy where she eventually decides to settle down.

Most of our assets is in ROTH, thankfully. We have an old 401K that is pre-tax that we're converting to a ROTH a little at a time. Current employer matches to our 401K will also be taxable. I'm assuming we'll eventually have 30% of our retirement assets as pre-tax and 70% in ROTH.

We do have to find a way to convert the 30% pre-tax into a ROTH because it will all be inherited by our son's special needs trust, eventually, and the IRS allows special needs trust to use inherited ROTHs as a "stretch IRA", since the beneficiary is disabled and the money may need to last him or her for a lifetime. Taxes on the conversion might be big.

I actually got a migraine thinking about how to afford housing in retirement that I'm just going to keep saving, make a final decision about where to settle down in retirement and then figure out how to own or if we should simply continue to rent.

 

[brucethebroker]

Not sure how you came to this conclusion. A landlord experiences those same costs plus has an expected rate of return. In turn passes along to you in the form of rent. Perhaps more of a known or expected costs vs your own home. You also miss out on increase in the appreciation value of the home.

I'm sure cases to be made on why renting vs ownership but I don't see it from a overall lower cost perspective.

+1. Also, some states double the property tax rates if the home is not owner occ. (if used as a rental). Guess who pays the addl. taxes?

 

[brucethebroker]

In some areas, it may be possible to find a 2 unit rental (double) to purchase that would fit your needs, at a reasonable cost. I am thinking of the side by side, ranch style units. Doubles are cost efficient, compared to single fam. homes. Sure, not everyone is cut out to be a landlord, but it would offer help with the payment, easier mortgage qualification, some tax benefits, etc. And you would only be dealing with one renter.

In our area, a double sells for about 1-1/2 times the cost of two single homes. Just a thought....

 

[pb4uski]

A duplex Is a key party of the retirement plan of a friend who has very little retirement savings and plans to retire soon. Between rent of one unit and living in the other unit of his paid off duplex plus SS plus LBYM he should be ok but it won't be a luxurious retirement.

 

[bobandsherry]

Example of why renting may not be the lowest cost long term option. This is from discussion in a local Facebook group page.

 

[chassis]

If a person were today considering a rent vs buy decision, the factors as I see them as they apply to all potential buyers are:

- market price: today's single family dwelling market across the country is a seller's market. Prices are elevated and inventory is low. Unfavorable factor for owning.

- opportunity cost: principle dwelling real estate appreciates over the long term at about half the rate of the equity market. This means capital grows more quickly in equities than it does in your principle dwelling. Unfavorable factor for owning.

- financing: mortgage interest, if needed, further erodes price appreciation and widens the gap between the appreciation rates of equities compared with principle dwelling real estate. Unfavorable factor for owning.

Then come individually-specific factors, which only the individual can discern. These are subjective, emotional and generally non-financial. And they are valid decision-making factors.

Painting with a broad brush, owning a principle dwelling is a lower capital growth strategy compared with deploying capital in the equity market, for someone considering a buy vs rent decision today.