As the landscape of retirement evolves, an increasing number of seniors in the United States are opting to rent rather than buy homes. In just the last two decades, the share of homeowners aged 65 and older has seen a decline, from 80% to 74%. While choosing to rent can offer valuable flexibility, financial expert Suze Orman emphasizes the importance of recognizing a critical risk that many retirees overlook: inflation.
Orman argues that, while renting can be a practical choice for retirees, the potential for rising rental costs is a reality that needs to be addressed in financial planning. She advises, “Don’t overlook this key issue. Landlords routinely increase rents, and while it seems obvious, many people fail to project how costs could escalate over 5, 10, or even 20 years.”
To illustrate her point, recent data from the Washington Post shows average rental prices escalating by approximately 4% each year, with rates in some areas rising even more sharply. For example, if you’re paying $1,000 a month in rent today, that could swell to around $1,220 in five years and skyrocket to nearly $2,670 in 25 years.
While renting isn’t inherently a poor choice, it necessitates thorough long-term financial strategizing. Orman stresses that retirees should ensure their rental expenses align with their budgets not just for the present but for the future as well. “It’s essential to live within your means, considering your long-term needs,” she suggests.
Financial experts broadly back Orman’s warnings. Insights from Bankrate indicate that inflation pressures are projected to continue, increasing costs across essential living areas, including housing. This situation is particularly pertinent for retirees on fixed incomes who may struggle to adapt to rising costs.
As many retirees rely on Social Security for their financial stability, Orman advises that delaying the claiming of these benefits can significantly enhance one’s payout. The best strategy is to put off claiming Social Security until at least the full retirement age, which ranges between 66 and 67, but even better until age 70 for maximum benefits.
The Social Security Administration’s annual cost-of-living adjustments (COLA) are designed to help cushions against inflation, making it even crucial for retirees to factor this into their plan. Additionally, Orman highlights that maintaining a portion of one’s retirement savings in stocks can yield long-term inflation-adjusted returns. “Investing in stocks provides the best opportunity to outpace inflation,” she emphasizes, underscoring that it’s wise for retirees to keep some investment capital in equities even in their later years.
Lastly, if you are contemplating whether your existing investments can help you amass a hefty nest egg, consulting with a financial advisor could be vital. With tools available that pair you with vetted financial advisors, navigating the complexities of retirement planning is more accessible than ever.
In summary, as the trend shifts toward renting in retirement, understanding the financial implications—primarily the impacts of inflation—becomes essential. By emphasizing strategic financial planning, including Social Security strategies and thoughtful investment decisions, retirees can better navigate their future housing costs while ensuring they remain financially secure.