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By the time many of us retire weve become so accustomed to owning a home, that the idea of renting one might never occur to us.

 

But if youre pondering a change of address in retirement, its worth considering all the angles of buying vs. renting, even if you havent been a renter since shag carpets were in style.

 

Home Prices Are Soaring

 

If you need to make this housing decision soon, youll want to take into account the recent run-up in home prices in many parts of the country since that could affect whether you can afford to buy.

The newest Case-Shiller composite index of 20 U.S. cities showed prices up 10.9 percent over the past year, the biggest gain since April 2006.

 

When youre figuring out whether to buy or rent a place in retirement, a lot depends on your personal financial situation, of course. Youll be factoring in such things as how much youd get for selling your current home, your total savings and when and where youll retire .

 

A Strong Argument for Buying

 

That said, if youre raring to relocate now, todays near-record low mortgage rates make this an unusually opportune time to buy.

 

A study by the real estate website Trulia recently concluded that buying a home would be cheaper than renting in all of the top 100 U.S. metropolitan markets if you take out a fixed, 30-year, 3.5 percent mortgage and stay in the home for at least seven years. (The average mortgage rate has risen slightly since the study came out, to 3.75 percent.)

 

Trulia has a rent vs. buy calculator that will let you plug in your own numbers to see which way the balance would tip in your case.

 

If your retirement is years away, however, the picture could change. Higher mortgage rates, fast-rising housing prices or a combination of the two might make renting look like a bargain.

 

The Mortgage Issues

 

Of course, mortgages typically require a down payment, which can involve coming up with a serious chunk of cash up front.

 

If youve sold another home at a profit, the down payment might not be a problem for you. But if youll have to tap your IRAs or other retirement accounts. that move could seriously cut into the amount of money youll have left for daily living expenses.

 

Withdrawing money from a retirement plan for the down payment also means youll lose the valuable future tax deferral on it and might owe taxes (maybe even a tax penalty) when you take out the cash.

 

Then theres the question of whether you even want to carry a mortgage in retirement.

 

You can argue that one both ways from a financial perspective.

Paul Solman, PBS NewsHour business and economic correspondent, has an article on Next Avenue explaining when it makes sense to get a 30-year mortgage in retirement and when it doesnt.

 

But the mortgage decision is about more than finances. Many retirees report a psychological boost from not having a big debt hanging over them at this stage of life. And thats worth something, too.

 

The Tax Angle

 

As you most likely know, if you buy a home, your property taxes will generally be tax-deductible, as will your mortgage interest payments if you finance the purchase.

 

If you rent, youll be out of luck, tax-wise, although you may be able to write off a portion of the rental as a home office if you run, say, a consulting business from there.

 

Keep in mind, though, that tax deductions wont be as valuable to you if your income and tax rate drop after you retire, which is pretty likely.

 

A $10,000 deduction for your mortgage and property taxes combined would be worth $2,800 if youre in the 28 percent federal tax bracket this year (the bracket for joint filers with roughly $146,000 to $223,000 in taxable income), but only $1,500 if youre in the 15 percent bracket (roughly $18,000 to $72,000 of taxable income).

 

So if you could save more than the amount of your tax savings by renting, then that might be the way to go, purely from a tax perspective.

 

Marge Schiller, a certified financial planner in Sarasota, Fla. says theres another tax wrinkle to consider.

 

She points out that, by law, youll face required minimum distributions from your retirement accounts (other than Roth accounts) every year once you reach age 70. Currently, you must take out about 3.65 percent of the total in your retirement plans in Year 1; the required distribution rate rises steadily from there.

 

So, if you have a lot of money in retirement accounts, your required minimum distributions could push you into a higher tax bracket. That would then make your mortgage and property tax deduction worth more to you and could tip your rent vs. buy decision toward buy.

 

The Investment Angle

 

Youll also want to factor investing into your rent vs. buy equation.

 

Lets say you sell your home of many years and walk away with a big profit as you enter retirement.

 

Unless you already own a second home or plan to spend the rest of your life backpacking, youll basically have two choices: buy another place, possibly a less expensive one, that will let you invest some of that equity or rent a home and invest all the money you made.

 

If youre a capable investor, you might come out ahead by renting and investing your home-sale profits.

 

A portfolio made up of 50 percent stocks and 50 percent bonds delivered an average annual return of 8.3 percent from 1926 to 2012, according to Vanguard. That may be an overly optimistic number in todays investment world, but its worth noting that the Yale economist Robert Shiller has found that housing has historically delivered an almost negligible return. once inflation is taken into account.

 

3 More Angles to Consider

 

Some of the most important questions youll want to ask yourself about buying vs. renting have little or nothing to do with money. For example:

 

If you buy a home, how long will you stay? The Trulia study based its calculations on owning for seven years. But the site noted that youll see less of an advantage from buying if you dont stay that long, due in part to the upfront costs of purchasing a home, like closing fees.

 

Schiller, the financial planner, says retirees generally shouldnt buy homes unless they intend to live in them for at least five to 10 years.

 

If youll be moving to a new area, she recommends renting for at least a year to rule out any unhappy surprises. Some people find it hard to assimilate into the new community, she says. They miss their family back home or just dont connect.

 

Do you mind being tied down? Some retirees want the freedom to experience new places from time to time. Thats a good argument for renting, even if the cost is more expensive, since youll have an easier time pulling up stakes.

 

Other retirees, by contrast, like the feeling of rootedness that comes with being a homeowner.

 

Do you have pets? In some places, it can be difficult to find rentals that allow pets, Schiller notes. That can be true of condos as well. So if you cant imagine your golden years without your golden retriever and are leaning toward renting or buying a condo, be sure to inquire about the rules where youre looking.

 

This Housing Decision May Not Be Your Last

 

One final word on the subject: Keep in mind that where you move next may not be where youll stay throughout retirement. Given how long retirement can last these days, you could find yourself changing addresses several times and switching between renting and buying along the way.

 

Who knows? You might even be retired long enough to see shag carpets come back in style although I wouldnt bet the house on it.

 

Greg Daugherty is a personal finance writer for Next Avenue and other media outlets, specializing in retirement. He was formerly editor-in-chief at Readers Digest New Choices and senior editor at Money.