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Pros and cons of renting in retirement

As the certainties in financing retirement have evaporated, at least you can count on one asset: your home. Fueled by a real estate boom, you've seen the value of your home rise even with the recent slide in the market. If you're one of the fortunate 69 percent to 80 percent (depending on the source) of the over-65 population who owns your home free and clear, you're in even better shape.

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Owning your home after years of sweating to pay off the bank is sweet. But is it a good idea to stay in that home throughout your retirement? Many retirees elect to downsize, buying a smaller home or condo. Some are venturing into uncharted waters by renting and investing the money they receive from selling their home, or avoiding homeownership altogether.

"I am a 75-year-old woman who rents a two-bedroom apartment in a four-unit apartment building," says Emily Kimball, motivational speaker and owner of The Aging Adventurer in Richmond, Va. "I feel much more comfortable paying rent and having their handyman come and solve my maintenance problems. I have assets but they are for future health problems or more travel and adventure."

Renting is generally cheaper in the short run, but there is a point a certain number of years out where it gets more expensive to rent and less expensive to own.

When deciding whether to stay in your present home or move and buy or rent, you need to take two factors into consideration: finances and emotions. Renting may make economic sense, but if a great deal of your emotional security comes from the stability of owning your own home, it may make sense to own. On the other hand, if you'd rather live without the headaches of maintaining a home, renting may have more appeal.

Your home as an investment
Conventional wisdom and the real estate boom of the past few years have fostered a mentality that your home is a good investment, one that can help finance your retirement as certainties around company-financed pensions and the viability of Social Security have faded. Unfortunately, it's not true.

While a home provides a roof over your head and limited appreciation potential, a study by the Fidelity Research Institute reveals that home prices have risen, on average, by 5.9 percent on an annual basis since 1963. Home prices are certainly capable of sharp run-ups in values, but they also tend to decline as well, sometimes for long periods.

A home is not only expensive to maintain, but mortgage interest costs add hundreds of thousands of dollars to your homeownership bill, ultimately cutting whatever profit you might receive when you sell. The mortgage interest deduction does offset some of those interest costs and mortgage fees, but not as much as you'd think.

Next: " ... Make sure to factor in all the costs of renting."
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