Done by 60: Overstaying Your Welcome

rent-or-own

Please note the publish date of this blog. Financial information, market conditions, and other data mentioned in this post may no longer be accurate or relevant.

Breaking news! Home ownership, if done right and in long stretches, can result in lower housing costs than if you were to rent that same house. OK, so you already knew that. But remaining a homeowner into your 60s? Now you’re just overstaying your welcome. By planning now to be a renter later, you can shave several years off your work life.

Imagine the Following Scenario

You’re pushing 60 and itching for financial independence. You own a $1 million house debt-free and have $1 million in investments. Your total annual expenses normally total around $70,000—$20,000 for housing costs (repairs, maintenance, taxes and insurance) and $50,000 for everything else.

Let’s not worry about income taxes or any other income streams for now because those won’t have a big impact on your decision. Also, we’ll use my quick rule of thumb that you should have a nest egg worth at least 20 times your desired annual spending.

Is it better to own your house forever or sell it and rent?

The Forever Owner

To support your annual spending of $70,000, you’ll need to grow your $1 million portfolio to $1.4 million. It’s hard to predict how long that will take. Five years? Ten years? In any case, you’re many years away from financial independence.

The Wealthy Renter

Let’s instead assume that if you sold your house, you could rent an equivalent house for $50,000 per year, bringing your annual expenses up to $100,000. Using my same 20x rule, you would need a $2 million portfolio. If you can net $1 million on the house, you now have a $2 million nest egg. In other words, you’re immediately financially independent.

Save to Rent

There are reasons to keep your home, like creating an inheritance for your heirs or because you really like your garden. But if you start exploring now what your life might look like as a wealthy renter, you’ll at least know how many more years you’ll spend in your “have to” work life instead of being financially free in the decade where you’ll most appreciate it—your 60s!

Why 60, you ask? We’re living longer these days, right? Stay tuned for my next blog …

Disclosure

Abacus Wealth Partners, LLC is an SEC registered investment adviser. SEC registration does not constitute an endorsement of Abacus Wealth Partners, LLC by the SEC nor does it indicate that Abacus Wealth Partners, LLC has attained a particular level of skill or ability. This material prepared by Abacus Wealth Partners, LLC is for informational purposes only and is accurate as of the date it was prepared. It is not intended to serve as a substitute for personalized investment advice or as a recommendation or solicitation of any particular security, strategy or investment product. Advisory services are only offered to clients or prospective clients where Abacus Wealth Partners, LLC and its representatives are properly licensed or exempt from licensure. No advice may be rendered by Abacus Wealth Partners, LLC unless a client service agreement is in place. This material is not intended to serve as personalized tax, legal, and/or investment advice since the availability and effectiveness of any strategy is dependent upon your individual facts and circumstances. Abacus Wealth Partners, LLC is not an accounting or legal firm. Please consult with your tax and/or legal professional regarding your specific tax and/or legal situation when determining if any of the mentioned strategies are right for you.

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