Two Ways to View Your Home
Most people view their home through two different lenses. First, there’s the dollars-and-cents perspective—a purely economic calculation of what makes the most financial sense. Second, there’s the “invisible family member” perspective—the emotional connection to a place filled with memories and meaning. Both factors matter in retirement planning, though they often compete with each other.
The Financial Breakdown
To properly analyze whether a paid-off home makes sense, we need to compare three scenarios:
- Keeping your home with a mortgage: Mortgage payment + property taxes + maintenance + utilities
- Keeping your home mortgage-free: Property taxes + maintenance + utilities
- Selling your home and renting: Rental payment – investment returns from home proceeds
Based on current averages for a three-bedroom home in the U.S. (approximately $327,500), the numbers tell an interesting story. The average mortgage payment on an existing home with a 3.25% interest rate (assuming 20% down) is about $1,140 monthly or $13,680 annually.
Even with a paid-off mortgage, homeowners still face annual expenses (averages): approximately $3,600 in property taxes, $3,275 in maintenance costs (roughly 1% of home value), and $5,150 in utilities. That’s nearly $12,000 annually regardless of mortgage status.
The primary benefit of a paid-off mortgage? About $13,680 in additional annual cash flow—a significant boost to any retirement budget.
What About Selling and Renting?
Some financial experts suggest selling your home, investing the proceeds, and renting instead. Let’s examine this option.
After selling costs (typically 6-7% of the sale price), a $327,500 home would net approximately $304,500. If invested in tax-free municipal bonds yielding 4%, that would generate about $12,180 annually. Factor in the avoided homeownership costs (taxes and maintenance totaling $6,875), and you’d have about $19,050 to offset annual rental costs.
With the average three-bedroom rental costing approximately $24,200 annually, you’d come up short by about $5,150. However, if you could achieve a 6% return (more challenging to obtain tax-free), you might come out slightly ahead.
This analysis comes with important caveats: rental costs typically increase annually, while a fixed mortgage payment remains stable. Additionally, home equity continues to build value, while rental payments build no equity.
Beyond the Numbers: The Emotional Factor
For many retirees, the decision transcends pure economics. Your home holds memories of children growing up, family gatherings, and significant life events. This “invisible family member” aspect often outweighs financial considerations.
Practical Considerations for Retirement Housing
Even if you choose to keep your home, consider whether it suits your future needs:
- Will stairs become problematic with age?
- Is the layout senior-friendly?
- Does the home have the right size and number of rooms for your retirement lifestyle?
- Are maintenance requirements manageable as you age?
The Bottom Line
For most retirees, keeping a paid-off home makes the most financial sense, providing both housing security and significant cash flow advantages. However, if your home isn’t suitable for aging in place or requires substantial upkeep, selling and rightsizing to a more appropriate mortgage-free property might be the optimal solution.
Remember that this major decision involves both head and heart—finding the right balance between financial optimization and emotional well-being is the true key to retirement housing satisfaction.
