Retirement living rent vs. Home ownership

adminonJanuary 24, 2023February 19, 2023Leave a Comment

Retirement Life: Rent Vs. Home Ownership

Things to consider
Expectations after taxes
Risks to Consider
An investment opportunity?
Maintenance risk
Payouts and liquidity
The conclusion

Where to live is one of the biggest decisions retirees face. For many people approaching retirement, the decision to keep the family at home, downsize to a smaller house or condo, or relieve themselves of the stress and expenses that can come along with homeownership is a difficult one. (See: The Hidden Costs of Homeownership .) Here, we give you the points you should weigh to make this decision for yourself.

Things to consider

Keeping a few simple ideas in mind can simplify the decision between renting and homeownership. While this is an important choice for any retiree, it is best to avoid the details of specific ownership and rental options and examine this issue from a big picture perspective. Keep the following points in mind when considering this decision:

What is your budget for renting or owning, excluding taxes?
Look at a house or condo as a potential investment opportunity or simply as another living expense?
Have you thought about the risks associated with ownership of unexpected costs, and can your budget tolerate them?

After-tax expectations

To begin, the first step in analyzing ownership versus renting is to determine how much money you want to spend after taxes. Since mortgage interest and property taxes on a primary residence are tax deductible, it is important to know the after-tax costs. (For more, read: tax deductions on mortgage interest .) Fortunately, the math is very simple and is explained in Figure 1, which arbitrarily assumes an after-tax budget of $2,000 for mortgage interest, taxes, and homeowners insurance or for rental costs.

Since rental costs are not tax deductible, no calculations are required. However, taxes complicate the situation for property in which you can spend well over $2, 000 each month but end up paying only $2.000 when you receive your tax refund. Essentially, all you have to do is determine your marginal tax bracket, subtract that percentage from Figure 1, and divide your budget by that amount (see below).

Figure 1 shows that if your budget has a net after-tax expense of 2.000 $ and your marginal tax rate is 20%, you 2.Have $500 per year to spend on mortgage interest and real estate. Taxes. Remember that you need to feed the input tax until tax refund season. Therefore, your cash flow situation must also be considered.

Risks to consider

Obviously, home ownership has a distinct advantage in that you can theoretically get more for your money. However, there is no free lunch, as homeownership also comes with significant financial risks. Such issues as market value fluctuations, expected/unexpected maintenance expenses and insurance deductibles can add huge costs beyond rent.Nonetheless, once you've done the math above, just go for homes, mortgages and rental properties that fit your budget. And don't forget to plan for inflation. Rents, taxes and insurance costs increase over time.

An investment opportunity?

Although residential real estate and condominiums can be good investment opportunities, these assets should not be examined solely from this standpoint. The fact is, housing is an unavoidable cost of living. From a conservative perspective, your home should be considered a living expense as opposed to an investment asset. This is because fixed assets should not be about finding another place to live to provide liquidity. Therefore, from a retiree's perspective, it would be best to ignore the investment edge in your thought process. It will distract you from the real goal of planning appropriately for your housing costs in retirement.

"One of the biggest myths about homeownership is that it is an investment. It's not.", Says Kirk Chisholm, wealth manager at Innovative Advisory Group in Lexington, Mass." Owning a home you live in is an expense, not an investment. An investment is one that generates cash flow. Sure, there are some benefits to owning a home, but when you factor in the cost, large amounts of capital, the illiquidity of the home, and the fact that home prices don't always go up, ties it up for a much less attractive 'investment. "

Nonetheless, a general rule is very simple when considering your home as an investment: Buy low and sell high. This means buying and selling real estate opportunistically.

Keep in mind, however, that in some ways, renting can be viewed as the economic equivalent of shortening a stock. For example, if you believe housing prices are lower, you would rent a home, wait for prices to drop, and later buy a home. This strategy benefits from saving money at lower housing costs. If you are wrong about the direction of housing prices and end up paying a higher cost for homeownership when you buy, it is similar to paying a higher price for a stock to cover your short position.

This is the main thing a retiree should be concerned about when using a primary residence as an investment. By selling your home, you take the chance of being priced out of the market when prices rise rather than fall. This should be a big issue if you have a fixed budget and enjoy owning your own home or apartment rather than doing so with a landlord.

Maintenance risk

Another important issue is the maintenance risk associated with ownership. This is important because renting is the same as buying an insurance policy against maintenance. This means that renters are not liable for regular maintenance costs, equipment failures, or catastrophic events such as a tree falling at home or being hit by a storm. The beauty of renting is that the landlord has to worry about the unexpected financial costs of ownership.(Read: Becoming a landlord: More trouble than it's worth? )

"I prefer to rent for many reasons. High [home] prices with weak investment potential are the first reason. The second reason is the underestimated monthly cost of ownership. Taxes, interest payments, insurance, water, electricity, sprinkler systems, planned and unplanned maintenance and all the rest add up to substantial monthly payments that don't go toward building equity. Renting is often just more cost effective", Max Osbon, a partner with Osbon Capital Management in Boston, Mass.

Payoffs and liquidity

Other financial benefits of being a tenant are that you don't have to worry about. On market conditions if you move and there is no possibility of an investment loss. In addition, as a tenant, you do not have to worry about liquidity. Selling a home can take a long time. It also involves a lot of paperwork. In addition, most real estate agencies charge a commission. It can definitely pay to weather this mess when it's time to move on.

Additionally, retirees often live solely on annuities such as Social Security or a corporate plan. However, they do not always have large sums of net assets. If you don't have sufficient assets on the sidelines to pay for unexpected expenses, the normal cost of owning a home could be ruinous. On the other hand, if you have enough assets on the sidelines to tolerate the unexpected costs of ownership, then maintenance risks really shouldn't be a big issue in your considerations.

The conclusion

In summary, you can decide whether or not to own a home in retirement by examining several key points:

Decide if you want to make an investment or just budget for expenses. of life.
Figure out what you want to spend after taxes, and do the math to set your budget for leasing and ownership.
Seriously consider how much risk you want to take on. Do you want to worry about market prices? Can you afford the financial risks of maintenance?
Remember that there is a direct relationship between the size of your liquid assets and your ability to tolerate the financial risks associated with ownership.

Unfortunately, these decisions have little to do with hard facts and more to do with soul searching. Retirement should be carefree and enjoyable; Review your situation and assume only the costs and risks that will allow you to sleep well at night.

At the turn of the century, according to the United Nations, there were about 300 million people living on the planet, and at the beginning of the modern era, there were about 500 million people. With the use of coal, the world population grew steadily due to technological progress, so that the first billion people were counted around the year 1815. At the beginning of the 20th century there were already two billion people and there are currently 7.4 billion living on earth.

By 1800, 35 million people (three percent of the world's population) populated cities; by 1900, 165 million (ten percent); and by 1950, 740 million (29 percent). Currently, about 54 percent (3.6 billion people) of the world's population live in cities.

According to forecasts, 9.6 billion people will live in 2050, 6.4 billion of them in cities. Two out of three people will then live in urban areas – megacities. By 2030, according to the United Nations, 64 percent in Asia and 56 percent in Africa will live in cities. In 2050, if the trend continues, two-thirds of all people will live in cities and megacities.

The term megacity refers to densely populated urban centers with more than ten million inhabitants. These are far more than simply enormously large cities, they are above all tremendously dynamic and very complex. The ecological, the economic, the social, and the political processes overlap, simultaneously conditioning and reinforcing each other in the process.

The process of disproportionate growth of megacities around the world had begun in the majority of industrialized countries in Europe and North America by the middle of the 20th century. completed by the end of the twentieth century. Today we note the reduction of population in their megacities, except Tokyo. Today, the growth of megacities is taking place in emerging and developing countries. However, there are significant differences between megacities in the developed world and in the developing world – China, India, Indonesia and Nigeria.

In 2015, there were 28 megacities and only two of them were in Europe: Paris and London. By 2030, a total of 41 megacities are expected to exist. The following figures highlight the trend of urbanization: Tokyo including the metropolitan area with 38 million inhabitants, Mumbai with 28 million, Lagos with 24.5 million, Shanghai with 23.5 million, Jakarta with 21.2 million, Sao Paulo with 20.8 million, Beijing with 20 million, Dhaka with 19 million and Mexico City with 19 million.

Urbanization is the key global challenge of the 21st century. The challenges of the twenty-first century. While the growth dynamics of medium-sized cities are already high in many regions of the world, megacities in developing countries harbor a wealth of environmental and health problems as well as enormous conflict potential due to their size. Contemporary megacities are becoming hotspots of social, infrastructural and economic problems of unprecedented proportions.

The United Nations therefore stresses the importance of megacity development keeping pace with population growth. Urgent action is needed in housing, infrastructure, transportation, energy supply, water supply and sanitation, health care and education.

In emerging and developing countries, the urban population is growing exceedingly fast, while the rural population is shrinking. If 3.4 billion people live in villages and small settlements today, this number will decrease to about 3.1 billion in 2050. This urban turn is driven by profound social, economic and psychological factors.

The example of Africa illustrates this: the share of people living in cities in the total population will grow from 37 percent to 53 percent in 2030 – most of them in slums.

People feel rural poverty, severe environmental problems, poor nutrition, land grabbing and lack of water supply – flight to the cities becomes a mantra. However, the rural exodus is leading to the weakening of the centuries-old social structures that have evolved in rural areas, to the fading of traditional environmental knowledge and to insecure land ownership. The inhabitants of the rural areas who are left behind are the ones who suffer from the rural exodus.

The special characteristics of the megacities of the 21. The main challenges of the 21st century are uncontrolled growth and sprawling slums. There is a lack of capital and progressive substance. They lack freedom, political emancipation, economic uplift and social justice. The quality of life for residents in both affluent areas and slums is appallingly low.

Millions of people live in the suburbs, which are "overloaded" with refuse and social conflicts, without adequate access to drinking water, sanitary facilities, education and food. The rich of these countries live in gated, well-policed communities, while the poor masses live in slums with rampant crime. It cannot be emphasized enough in the context of development cooperation that the absence of elementary economic and political foundations for orderly growth continues to fuel the flight to the rich countries of the North.

Another problem that megacities are struggling with is how to dispose of the amount of waste generated. In most cases, neither secure landfills nor adequate incinerators are available, leaving waste in the slums, or in the cities. The wastewater from urban areas enters rivers and the sea through sewers. High population density and uncontrolled land expansion also cause increased erosion.

Major challenges with global implications

Megacities contribute to global climate change, with high levels of air, water and soil pollution due to population concentrations, overburdened infrastructure and inadequate basic services. The high population density in megacities causes the uncontrolled octopus-like land expansion, more and more they "eat" into the surrounding countryside. If food production does not grow in parallel in the surrounding area, distribution conflicts are bound to arise and, most importantly, overuse of water will prove to be the sword of Damocles.

For the urban planners, sociologists, geographers, architects and engineers, there are enormous problems for which a multidimensional solution must be sought. How then should future cities and especially megacities be designed and built to ensure a sufficient quality of life for their residents. On what energies should the supply be based and how should the water and sewage disposal function? Where will all the jobs come from and how will the millions of people be transported?

However, the high internal densification and external interconnectedness of cities also create opportunities for innovation strategies and the promotion of sustainable economies and lifestyles that not only improve living conditions but also develop a spillover effect on surrounding regions. Megacities are therefore the key elements of global sustainable development, both in emerging and developing countries, as well as in developed countries.

Making megacity development more sustainable, therefore, means seeking long-term peacekeeping. The current urbanization and the socio-economic changes that accompany it should not become a mortgage but an opportunity for future generations.

The commitment of all people on the planet is called for here, and Immanuel Kant's statement, "If justice perishes, there is no longer any value in human beings living on earth." I can only agree.

Madrid (Reuters) – Rescue in dire straits: major Spanish bank Santander takes over domestic rival Banco Popular, saving it from collapse.

A man uses a cash dispenser at a branch of Spain's biggest bank Santander next to a Banco Popular branch on the same day Santander announced that it would buy struggling rival Banco Popular for a nominal one euro after European authorities determined the lender was on the verge of insolvency, in Madrid, Spain June 7, 2017. REUTERS/Juan Medina TPX IMAGES OF THE DAY – RTX39FTA

The deal was sealed for a symbolic euro and announced on Wednesday. However, it is not a bargain for Santander, as the bank has to launch a capital increase worth billions of euros to shoulder the risks. Economy Minister Luis de Guindos expressed relief that taxpayers were spared: "This is a good result". The situation at Banco Popular had deteriorated dramatically in recent days as many savers had emptied their accounts. In the end, the European bank resolution authority SRB had to act overnight. The European Central Bank had the sixth largest financial institution in Spain with its 1800 branches and almost 12.000 employees, the bank was not considered viable.

This is the first time that the new bank resolution rules, which have been in force in Europe since the beginning of 2016 as a lesson from the financial crisis and provide for a contribution from investors ("bail-in"), have been used.[nL8N1J42HY] At Banco Popular, shareholders now lose their entire stake, subordinated bondholders lose two billion euros. The EU Commission stressed that the taxpayer would not have to pay a cent for the bailout. "All savers will continue to have access to all their deposits."In 2016, Popular managed customer deposits of nearly 100 billion euros. SRB CEO Elke Konig also expressed satisfaction: "The decision taken today protects savers and safeguards crucial functions of Banco Popular," she said.

SANTANDER NEEDS SEVEN BILLION EUROS

Banco Popular was caught in the maelstrom of the domestic housing crisis. The bank is saddled with 37 billion euros in bad mortgages and real estate that fell to it in the wake of over-indebtedness. Santander now has to take on these legacy liabilities and is increasing its own provisioning for problem loans by 7.9 billion euros. It can't shoulder it on its own – and is pushing for a capital increase. Seven billion euros the institution wants to raise from shareholders. They took it calmly: Santander securities were quoted almost unchanged.

Santander CEO Ana Botin stressed that her company had not received any guarantees from the Spanish state or the EU, nor had it been pressured into taking over the crisis bank. Botin focused on the opportunities: the acquisition comes at the right time and is a unique opportunity to expand the business in Spain and Portugal. Banco Popular says it is a leader in lending to small and medium-sized businesses in its home market. Santander would have a 25 percent market share here in the future, Botin calculated. The credit risks are well secured, she added. Major bank expects to save 500 million euros from 2020 onwards. Banco Popular would contribute to profits as early as 2019, he said.

BLUEPRINT FOR OTHERS?

The solution could make school. In Italy, however, where many banks have piled up a mountain of bad loans in the wake of years of economic stagnation, a different path has been taken. Only a few days ago, the EU Commission approved state aid for the crisis institution Monte dei Paschi di Siena. Previously, an attempt to tap the financial market to plug an 8.8 billion euro hole in the balance sheet had failed.

The difference with Banco Popular: The bank was still deemed solvent and therefore allowed to receive a "precautionary recapitalization" by the state under EU rules, without having to ask private investors to pay too much. This is a hot potato for politicians in Italy right now, because Monte Paschi had sold bonds for two billion euros to private investors. Economy and Finance Minister Pier Carlo Padoan had given assurances that the government would not raise the roughly 40.000 small investors want to protect. However, the deal is not yet in the bag: the institution, founded in 1472, still has to sell its bad loans and is negotiating with a domestic fund and a group of investors.

Other Italian financial institutions must continue to tremble. Government circles on Wednesday dismissed a report in the Corriere della Sera newspaper that the state is also considering an "orderly liquidation" of the two crisis institutions Popolare di Vicenza and Veneto Banca. The two financial institutions have been desperately seeking fresh money for months. They need to raise 1.2 billion euros in private funding to get the green light from the EU Commission for state aid. But according to insiders, financial investors have turned down the offer. The rescue fund Atlante, which is backed by banks and insurers, does not want to inject any more money. He had already raised 3.4 billion euros for the two banks last year.