Feb 27, 2025
Faced with the rising cost of living, many American retirees are looking to control one of the most fundamental expenses: housing.
Since the pandemic, the cost of housing has remained stubbornly high. According to the Bureau of Labor Statistics, the cost of housing rose 4% in January, accounting for nearly 30% of the CPI. For retirees on a fixed income, these inflationary shelter costs may trigger a decision to move.
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Moving is not easy at the best of times, but for retirees, deciding whether to rent or own their home will have a long-term impact on their finances and their lifestyle. To help clarify whether renting or owning is your best option, retirement author and YouTube host Geoff Schmidt advises following what he calls the 5x5x5 rule.
About the 5x5x5 formula
The 5x5x5 rule is a way to gain clarity on your decision to move by breaking down the pros and cons of renting versus owning both short- and long-term. Retirees need to consider where they’ll be — not just geographically speaking — 10 years down the road. Here’s a breakdown of each of the ‘5’s.
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5 pros of ownership
The first step in deciding if you want to buy a new home as a retiree is to think about the five big perks of having your own property. It is a popular option, particularly among retirees. Currently, 65.6% of homes in the U.S. are owner-occupied and the majority of owners are in their 70s
Many of the pros of home ownership will appeal to retirees for whom their home is their castle and who appreciate being settled both financially and geographically:
- 1. Building equity in your home: Each mortgage payment you make brings you closer to owning your house free and clear with no payments. If you can buy a new home or condo outright by selling your current home, you can still build equity in your new home over time.
- 2. Predictability: If you have a fixed-rate mortgage, your mortgage payments will remain consistent for years and you don't have to worry about a landlord ever making you move.
- 3. Tax benefits: You can deduct mortgage interest and property taxes up to certain limits.
- 4. Customization: You don’t need a landlord's permission to alter and improve your home.
- 5. Home appreciation: Homes generally increase in value, so you can increase your net worth by owning a property.
5 pros of renting
Renting also has five significant upsides, particularly for retirees who want greater freedom to travel and to make bigger moves — potentially across the country or even abroad:
- 1. Extreme flexibility: You can leave your property after giving notice and go wherever you want much more easily than with an illiquid home you'd have to sell first.
- 2. Lower upfront costs: You only have to pay first and last month's rent and a security deposit to move into a rental, not make a large home down payment.
- 3. No maintenance concerns: If something breaks, your landlord is responsible for the cost of fixing it and the actual repairs. You don’t have to build up an emergency fund for maintenance.
- 4. Predictable expenses: For the duration of your lease, your monthly housing costs including utilities will remain consistent, even if the cost of energy goes up, for example.
- 5. Lack of worry: If you’re in a rental apartment, you won't have to concern yourself with shovelling snow, mowing grass or other matters of upkeep.
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5 variables to make the decision whether to rent or buy
The last step in the 5x5x5 rule is to consider specific variables that affect you. These include:
- 1. Financial stability: Considering your current and future Social Security benefits and retirement income, will renting be more affordable long term? Or owning?
- 2. Lifestyle preferences: Think about quality of life and what matters to you. Maybe your biggest priority is to be close to family. Perhaps you want easy access to amenities like health care and recreation. Do you want more predictability or more flexibility? Which option — buying or renting — comes closest to matching your desires?
- 3. Current and future health: Are you in a position to maintain your home, and does it have aging-in-place options?
- 4. Estate planning: Do you want to have a home to leave as an asset to your loved ones?
- 5. Market conditions: Is it a good time to buy a property? What do you think will be happening in the real estate market in the next decade?
By asking yourself these detailed questions about your own personal financial goals and lifestyle preferences, it will be easier to decide whether to own or rent now and in the long term.
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Christy Bieber has 15 years of experience as a personal finance and legal writer. She has written for many publications including Forbes, Kilplinger, CNN, WSJ, Credit Karma, Insurify and more.
