Homeownership Helps You Save For Retirement
November 2, 2018 by Marty Orefice | Real Estate
There's a big debate on whether homeownership is cheaper than renting.
Many people cannot afford to purchase a property until they've established a career and a strong salary. According to The New York Times, the median age for first time home buyers is 32 (median income is $72,000).
Given that the most common mortgage type is a 30-year mortgage, most people do not pay off their homes until they're in their 60s. Therefore, homeownership doesn't necessarily become cheaper until that point because you're still making a monthly payment.
However, a very important factor to consider is retirement.
Homeownership and Retirement
The average age of retirement is 62 – exactly 30 years after the median age for first time home buyers.
That's not a coincidence.
Once you've paid off your mortgage, there's a much smaller monthly cost associated with your home, which is highly important when you're considering no longer earning a salary.
When you retire, you're left with any savings you've racked up throughout the years, social security and a pension – if your job gives you one.
Pensions and social security payments give you a lot less money to work with than your working paycheck did and your savings will only get you so far if you're not replenishing it each month.
It is very beneficial to have a decreased housing cost during this time as housing typically accounts for 30 percent of your monthly expenses. Granted, you will need to continue to pay taxes, insurance, maintenance costs and homeowner's association fees (if applicable), but the cost of those should be significantly less than the cost of a mortgage or rent payment.
Other Ways Purchasing a Home Can Aid Retirement
Also important, if you can qualify for a 15-year mortgage, you should go for it as interest rates are typically lower and you pay much less interest as it doesn't have as much time to build.
Bach tells an anecdote of a couple that paid off their home early and then went on to purchase a similar sized home across the street. The couple then rented their original home out to a tenant.
Then, they used the income from that property as an additional payment toward their new home in order to pay their new mortgage off sooner.
At last, when the couple reached retirement, they no longer had a mortgage or rent payment. Additionally, they had a constant stream of passive income from the tenants in addition to the typical pensions/social security income that most people earn.
Homeownership Makes Retirement Easier
When you own a home, it's a lot easier to retire because you have a secure place to live.
Additionally, you can use homeownership as an investment opportunity. You work to pay off one home at a time and, then, you buy another. That way, you're earning a steady stream of rental income by renting out other homes you have purchased.
Once you reach retirement and you stop working, you won't need to worry about having enough money.