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Renting has become increasingly common among older Americans, with homeownership among those over 65 falling from 80% to 74% over the past two decades. While renting in retirement may be a sensible option for many, financial expert Suze Orman is urging retirees to consider an often overlooked risk: inflation.
According to Orman, renting offers flexibility and can be a smart financial move, but retirees should consider the likelihood of rising rental costs. “I want to make sure you’re not blind to one risk,” she warned in a recent blog post. “Landlords will increase your rent from time to time. I know that sounds obvious, but it is not in human nature to think carefully about what things might cost in five, ten or twenty years.”
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A recent report from the Washington Post supports her concerns. Data shows that average rents have risen roughly 4% annually, although recent increases have been even higher in many places. That means a monthly rent of $1,000 today could rise to $1,220 in five years, and rise to $2,670 in 25 years.
It’s worth noting that renting in retirement isn’t necessarily a bad decision, but requires careful long-term financial planning. Orman emphasized that retirees should factor future rent increases into their budgeting. “If you plan to rent, make sure the rent fits your budget, not just today, but years from now,” she said. “Living below your means, but within your needs, has always been my advice.”
Experts across the board endorse her advice. According to Bankrate, inflationary pressures are expected to persist, causing the cost of necessities, including housing, to rise. This is especially critical for retirees on fixed incomes, who may not have the financial leeway to absorb higher costs over time.
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Orman points out that social security is crucial for managing future financial needs, especially for covering rising housing costs. “The longer you can delay claiming your Social Security benefits, the higher your payout,” she explained.
Experts recommend that retirees delay Social Security benefits until at least their full retirement age – between 66 and 67, depending on their year of birth – or ideally until age 70, when the benefit amount has reached the maximum. According to the Social Security Administration, the Annual Cost of Living Adjustment (COLA) is intended to help retirees keep up with inflation.
In addition, having part of pension investments in retirees’ shares could eventually provide a return that exceeds inflation. “Remember that stocks provide the best long-term returns to beat inflation,” Orman said, suggesting that retirees even in their 60s and 70s should keep some of their portfolio in the stock market to help with future costs like rent cover.
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This article Suze Orman Reveals the Hidden Danger of Renting in Retirement – ’Make Sure You’re Not Blind to One Risk’ originally appeared on Benzinga.com
