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AARP Article

Maximize Your Social Security Benefits

Jane Bryant Quinn answers to your most common Social Security questions

Are you wringing all the money you can out of Social Security?

Based on my reader mail, I worry that some of you are losing out. Here are quick answers to the questions I get the most.

What can you apply for?

Retirement benefits, based on your own lifetime earnings. Spousal benefits, based on a living spouse’s lifetime earnings. Survivor’s benefits, payable after a spouse’s death.

You can effectively collect only one of these benefits at a time. Social Security automatically gives you the largest check you’re entitled to. Children might get benefits, too.

What’s the best age to claim?

This varies a lot. In general, your check is always reduced for life if you file for any benefit before what Social Security calls your “normal retirement age.” That’s 66 for people born from 1943 to 1954 and rises gradually for every birth year through 1959.

For those born in 1960 or later, normal retirement age is 67. There’s a fat bonus for collecting your benefits late: Social Security pays you an extra 8 percent for every year past “normal” that you delay your claim, up to age 70.

Can you claim a benefit as a spouse and later switch to benefits based on your own earnings record?

Yes, provided you wait to file for spousal benefits until you reach “normal” (or “full”) retirement age. You might collect a spousal benefit check from, say, age 66 to 70, then put in for your personal retirement benefit, which will have grown.

This strategy does not work, however, if you file before you reach your normal retirement age. Early filers receive a benefit amount equal to the spousal benefit or their own retirement benefit, whichever is higher. Never both.

Does it ever pay to collect benefits early?

For many married couples, yes. A wife, for example, might retire early on a reduced benefit. When her husband reaches normal retirement age, he can file for spousal benefits on her account. When he reaches 70, he can switch to his own, larger retirement account. How well this strategy works will depend on your ages and which of you is the higher earner.

What if you’re divorced?

You can claim spousal and survivor’s benefits on your ex’s earnings record if you were married for at least 10 years and are not currently married. (Exception: You can keep the survivor’s benefits if you remarry after you pass 60.) Your ex has to be eligible for Social Security, even if he or she has not yet retired.

What if your spouse dies?

If you’ve been collecting a spousal benefit, you can step up to the larger survivor’s benefit. To get the maximum amount, consider putting off your claim until you reach normal retirement age.

You might make a different choice, however, if you have a substantial Social Security earnings record of your own. You might take the survivor’s benefit early, then switch to your own, larger benefit at a later age. Play with the numbers until you get it right.

Helpful resources

(Originally published in The AARP Monthly Bulletin.)

AARP Article

Should You Exit the Stock Market?

Ask yourself these four questions before moving your money

Should the portfolios of older investors include stocks, and if so, what percentage? The issue comes up every time stock prices wobble or fall. If you’re in your 70s or 80s, how safe does your money have to be?

In part, the answer depends on your circumstances and temperament. But there’s one rock-bottom rule: You need to feel sure that, whatever happens to stock prices, you’ll be able to pay your basic bills. Assuming that you have savings to invest, there are several things you might consider.

If it does, forget about it and use some savings to buy immediate-pay annuities. You’ll get a guaranteed income for life and will never have to think about stock prices again. To see how much an annuity would pay, go to immediateannuities.com. The monthly amount will almost certainly exceed what you’d get from high-quality bond funds. Money that is not in the annuity could go into bank savings or CDs so you’d have extra cash on hand.

Do you have enough money from other reliable sources to cover your lifetime needs?

If you’ve got enough money from your pension, Social Security and other investments, owning stocks is optional. “You’ve won the game, so you don’t have to play anymore,” says Larry Swedroe, director of research for the BAM Alliance of wealth managers and author of many personal-investment books. You might want to keep a high percentage of your savings in stocks for the benefit of the next generation, or a low percentage in case your circumstances change. Either way, the investment needs to pass the “stomach-acid” test, Swedroe says. You have to feel safe enough to not feel sick in years that prices plunge.

Do you have savings but need to grow them to provide for your later age?

Well, if so, that’s what stock investments are for, says Judith Ward, a senior financial planner for the mutual fund group T. Rowe Price. At 75, you could live another 15 or 20-plus years, which historically gives the market time to rise in price. The firm recommends at least 20 percent in stocks, with the rest in bonds. Over the past 15 years, that mix of investments lost money in only one year (the loss was just 3 percent), measured by standard stock and bond indexes. For more growth, you might go to 40 percent stocks.

How do you stay “safe” when you have money in stocks?

“Put aside some money for now and other money for later,” says financial planner Judith Lau of Lau Associates in Greenville, Del. “Now” means cash — enough to pay your bills for two years. For example, say that Social Security pays you $1,300 a month and you’re spending $2,300. The difference is $1,000 a month or $12,000 a year. You buy two years of safety with $24,000 in the bank.

“Money for later” comes in two parts. The first part holds reasonably safe investments, such as short-term bond funds, that could pay your bills for three years. You’re now safe for five years, no matter what happens to stocks. The second part comprises stocks and stock funds for longer-term growth. Every year, you sell some of your stock funds to replenish your two-year cash reserve.

That’s the theory, anyway. Stress-test your choice by asking if you’d be OK if stocks fell 50 percent before rising again. That’s the stomach-acid part.

(Originally published in The AARP Monthly Bulletin.)

AARP Article

What to Do About Dementia; Debt and Divorce

Jane Bryant Quinn answers your financial questions

Q: My wife has early-onset dementia. When I call to ask about her retirement account or credit cards, the reps need her permission to speak with me, which she can’t give. What should I do?

A:This is a powerful reminder of the need for a properly executed power of attorney. Had your wife given you her POA as soon as she got the diagnosis, you’d have the right to manage her affairs. It might not be too late, says Rebekah Brooker, an attorney with Scheef & Stone in Dallas. People with dementia often have good days as well as bad ones. On a good day, your wife could legally sign a power of attorney. If your wife doesn’t have good days, your only option is the complexity of a legal guardianship.

Q: When I divorced 12 years ago, my ex agreed to pay the credit card debt but never did. I am being dunned for money I don’t owe. How do I get this off my credit report?

A:Such a short question with so many issues! First, you, too, owed this debt because you’re a joint account holder. A divorce agreement doesn’t change that. You can’t be sued for it because the statute of limitations has presumably run out. But the collection firm that owns your bad debt is still allowed to bill you, which is totally unfair. Unpaid debts should drop off your credit report after 7 1/2 years from the first missed payment. But the debt owner might not have told the credit bureau when to start the clock. Use the bureau’s website to dispute the bills, says Chi Chi Wu, staff attorney for the National Consumer Law Center — not on the ground that your ex should pay (that won’t work) but because they’re stale. The bureau will check with the debt’s owner, which should solve the problem.

(Originally published in The AARP Monthly Bulletin.)

AARP Article

Prepay Your Mortgage

Getting rid of housing debt is way harder once the paycheck ends

The pressure of debt repayment lies heavily on Americans in midlife and later. Surprisingly, it’s not consumer debt. What’s squeezing the budget as families enter retirement today is primarily mortgage debt.

Payments on home loans chewed up 7 percent of income on average in 2013 for people 55 and older, the Employee Benefit Research Institute (EBRI) reports. That’s up 35 percent since 1992, when the boomers’ grandparents retired. Back then, only 24 percent of this age group still carried mortgages, EBRI’s Craig Copeland says. Today 39 percent do, and in much higher amounts.

Having a high level of mortgage debt, relative to the size of your income, gets especially risky when your paycheck stops and you have to make monthly payments out of the money you’ve saved. That’s why so many preretirees try to pay off their mortgages in advance. How easy that is to do depends not only on the size of your income but also on the type of loan you have.

Prepaying a fixed-rate mortgage is pretty simple. All you have to do is add enough extra money to each monthly payment to wipe out the loan by the year that you want to retire. As an example, say that you took a $300,000 loan for 30 years at a fixed interest rate of 4 percent. The loan has 20 more years to run. If you want to retire mortgage free 13 years from now, you can do it by paying an extra $500 a month. To test various prepayment schedules, use AARP’s mortgage payoff calculator or ones at mtgprofessor.com or bankrate.com.

When your mortgage carries an adjustable interest rate, however, your prepayments have to be adjusted, too, says Jack Guttentag, founder of mtgprofessor.com. A fixed amount, such as $500 a month, will reduce the size of your loan. But every time the interest rate changes, the lender will stretch out your remaining payments over the loan’s original, 30-year term. Your monthly payments will go down but you’ll still be in debt when you retire. To burn the mortgage earlier, you will have to increase your prepayments after every rate adjustment. Pay the $500 you planned on plus enough to make up for the amount by which your scheduled mortgage payments dropped.

When you have an adjustable mortgage that you want to retire by a specific date, calculating your payments becomes an annual process. First, decide how soon you want to pay the mortgage off — say, in 12 years. A mortgage calculator will show you what you have to pay each month in the current year. When the interest rate changes, fire up the calculator again. Enter the remaining amount of the loan, the new interest rate and your target retirement date. You’ll get a new monthly payment, higher than the last. Do the same in each following year.

For something less exact but pretty close, set your first mortgage payment (plus the extra) as if you had a fixed loan, never reduce it and check your progress every couple of years.

Before you start a prepayment plan, however, consider what else you might do with that money. Top of my list would be paying off consumer debt and raising your contributions to a tax-deferred retirement plan. Both actions bolster your finances and will make monthly mortgage payments easier to cover.

If you can’t afford to prepay your mortgage and still want to retire with a paid-up home, consider downsizing earlier rather than later. You might buy a condo for cash or rent it and put the proceeds of the sale into an investment account. No more mowing lawns. You’ll declutter your life and relieve your retirement budget, too.

(Originally published in The AARP Monthly Bulletin.)

AARP Article

Is Marriage a Good Financial Move for Older Couples?

It’s not as clear as you might think

Thousands of same-sex couples flocked to say “I do” as soon as their right to marry became the law of the land. Thousands of others, however, considered their options, yawned and stayed home. The case for marriage isn’t as solid as it often sounds, especially for older couples of any sex. Sometimes it pays to live together in unwedded bliss.

Those who tie the knot summon traditional values and romance — flowers, rings and a whale of a party. Financially, marriage provides access to state and federal spousal and survivor benefits, including Social Security. You’ll get Medicare if you didn’t qualify on your own. Spouses have a right to inherit if their mate dies without a will (but surely, nobody reading this column lacks a will!). You can generally make medical decisions for each other even though you neglected to sign an official health care proxy. You get better tax benefits when inheriting an individual retirement account and might even save some money by filing a joint income-tax return.

Sometimes, however, marriage comes at a cost. Widows and widowers of public employees who receive a pension might lose it if they remarry. That’s also true of certain veterans benefits. Before marrying, check your plan’s rules, taking nothing for granted. If you’re collecting survivor benefits on a late spouse’s Social Security account, you’ll lose them if you remarry before you reach 60 (50 if disabled). You can keep them if you remarry at a later age, but you might become eligible for better benefits on your new spouse’s account at age 62 or older. Ask Social Security what your options are and which choice will produce the higher check.

You don’t have to walk down the aisle to get many of the protections of marriage. A “living together” agreement, legally signed and notarized, provides for the division of property if you break up. A will can provide a partner with financial support. You can designate your partner as your health care advocate, if that’s your choice. Marriage might not even improve your financial security if you both have adequate pensions and Social Security earnings. In some cases, filing jointly might drive your tax bill up.

Here’s another reason not to marry: In many states, spouses are responsible for each other’s medical bills — potentially including bills for long-term care. These laws generally trump any prenuptial agreement. So how is your beloved’s health? Does he or she have long-term care insurance? Unless one of you lost a previous spouse after a long illness, these potential expenses probably aren’t on your radar screen.

State Medicaid programs cover most or all of the nursing-home expenses for people of modest incomes and assets. The spouse who is well keeps the house, car and a certain amount of income and other assets, but might have to surrender property of higher value to help pay the bills. A live-in partner would not be liable but would lose the use of the ill partner’s income and assets, including possibly the home. Meet with an elder-care attorney to see what your options are. To find one locally, try the National Academy of Elder Law Attorneys.

In relationships, feelings ultimately rule. Marriage confers social approval and a sense of security. Living together reflects the trust built up over many companionable years. But it is best to know how that choice affects your finances.

(Originally published in The AARP Monthly Bulletin.)

AARP Article

Risky Pension Bets

You might be making one if you take a lump sum early

Would you rather have a monthly pension guaranteed for life or a lump sum of money now? Before I address that question, let me say that you’re lucky if you have the choice. Private pensions are on the way out, even among old-line companies. In older age, there’s nothing more comfortable than a check in the mail every month.

Normally, you’re not offered the choice of a pension or lump sum until you retire. Rising numbers of companies, however, are extending this offer to former employees who haven’t taken their vested pensions yet. They want to shift the burden of retirement investing over to you.

In fact, they’d like to get rid of you in the next 12 months.

That’s because the size of your pension or lump sum depends, in part, on how long the people in your age group are expected to live. Currently, pension plans are using outdated life expectancy tables. Starting in 2017, however, they’ll have to use newer tables, which show that people are living longer. That will require them to pay you more. Hence the rush.

If you take a lump sum in place of a lifetime monthly pension, you’re making at least one of three risky bets.

Bet 1: You are betting that you can provide yourself (and your spouse) with a guaranteed monthly income for life that’s at least as high as you’d get from your pension. To check this, go to a website such as immediateannuities.com, which shows you what insurance company annuities pay. Enter the lump sum you’re being offered, your age and when you want the payments to start, then choose the type of annuity you want. Compare that payment with your vested monthly pension amount. Odds are, the pension will pay you substantially more, especially if you’re a woman, says Tony Webb, senior economist at the Center for Retirement Research at Boston College.

Bet 2: That your life span will be shorter than average. The lump sum is intended to last your expected lifetime, not your actual lifetime. If you live longer, you’ll need extra money in reserve.

Bet 3: That you can invest the lump sum in stocks and bonds and earn even more than the pension will pay. To check this, look at the “interest rate” in the fine print of your lump sum offer. (If it’s not there, ask the company for it.) Your investments have to grow by at least that percentage annually, after fees, to equal a pension that covers an average lifetime and much more, if you live longer than that.

Lump sums make sense if you’re terminally ill, if you have so much in other savings that you’ll never have to worry about running out of money or if the amount is small. To avoid taxes, roll the money into an individual retirement account.

But to assure yourself of an income for life, without taking stock market risk, pensions are hard to beat.

If the lump sum offer confuses you or leaves you anxious, don’t take it, says Ari Jacobs, senior retirement solutions leader at the benefits consultant Aon Hewitt. “You’ll be in the same spot you were before.”

For more information, go to pensionrights.org. In the search box, type in “Should you take your pension as a lump sum?”

(Originally published in The AARP Monthly Bulletin.)

AARP Article

Personal Financial Planning 101

How to take those first steps in dealing with your money issues

How do you learn about personal finance? This question came from a reader tussling with money issues that were new to her. You can pay the bills and manage a checking account for years without ever having to confront planning and investment issues.

From a distance, those issues look mysterious, even impenetrable. Anyone with math anxiety shies away. But personal finance is not — not! — about math. If it were, I’d be in a different line of work. I’m terrible even at arithmetic (embarrassing but true).

Successful personal planning depends on old-fashioned common sense. That means listing your priorities in life and using super-simple financial strategies to get you there. You don’t even have to think about investing your savings until you’ve figured out the basics. And forget about the complex stuff, like variable annuities. You never, ever have to consider an investment that’s complex. Believe me, it will cost too much and won’t accomplish what the salesperson says. I have relied almost entirely on bank accounts and the low-cost mutual funds called index funds — and I’ve done just fine, thank you very much.

To get started on your financial plan, get your records together. Create separate files for bank statements; insurance policies; the latest reports from your mutual fund company or brokerage firm; statements from your pension, annuity or retirement plan; records of any other source of income you receive; and a list of your debts.

People who have been single for a long time usually have a handle on their money. The problems arise when you’re married and your spouse has always managed the money. Sit down with him (sadly, it’s almost always a him) and go through the files one by one. He can tell you what he’s been up to. If you have consumer debt, what’s the plan for paying it off? How has he been investing the retirement savings, and why? If your spouse isn’t organized himself, now is the time to find out. You especially need to know how much income you’ll have from Social Security and savings if he dies first, and what kind of lifestyle it will support. If he has life insurance, check the annual statement to learn how long the policy will last (not all insurance lasts for life).

If you’re widowed, you can leave his arrangements in place while you figure out what you want to do. While you’re learning, put any life insurance proceeds in the bank. For higher interest rates, check online banks such as Ally and Synchrony, both FDIC insured.

While you’re at it, find out where your money goes. If you don’t have a working budget already, go over your bank statements and bills to see how much money is coming in and going out. This will take time, but without this information it’s not possible to plan. If too much money is going out, well, you know what to do.

(Originally published in The AARP Monthly Bulletin.)

AARP Article

Plan Ahead for Continuing Care

Don’t wait to have the talk about living arrangements in your later years

Where will I live when I start to need help with the daily business of living? I don’t want to wait for my children to open “the conversation,” in carefully casual tones. (“Ahem, Mom, we were wondering …”) I want to start that conversation myself. Their input will influence me, but I want the decision to be mine.

As do we all. But we can blunder into decisions simply by doing nothing. Most of us want to “age in place” with occasional side trips to other nice places. That works fine as long as we can take care of ourselves. When we can’t, however, we’ll start depending on someone else. That’s the decision I’m thinking about. Who will be there to help, and what can I do, in advance, to ease the transition? I don’t want to be stubborn about aging in place if it’s going to create caregiving problems for my children (not to mention medical risks for me).

If you don’t have children, or have children you can’t depend on, the question becomes even more important. Kindly neighbors running errands isn’t a permanent solution.

People hoping to stay in their homes should look at the floor plan as if they were already using a walker. You might have to add a bedroom downstairs with a bathroom whose door can accommodate a wheelchair. A pretty front porch will become a trap if there’s nowhere to build a ramp to the sidewalk. If you don’t want to renovate, perhaps you should simplify — sell the house now and buy a condominium in the same community, to stay close to your friends and social activities.

Whether in a house or a condo, you might eventually need caregiving services, if a spouse or child isn’t constantly available. You’ll also need someone you trust to supervise home-care aides — to be sure they’re always doing right by you. Who is that likely to be? This shouldn’t be a snap decision made under duress. The whole family should plan.

Some older people expect to move in with an adult child. If you have a house to sell, consider using the proceeds to put an addition on the child’s home, to provide each of you with some privacy.

Setting an example

My own parents set an example for me. In their 70s and in reasonably good health, they decided to sell their house and move to a lovely apartment in a continuing care retirement community (CCRC). These communities may provide housekeeping, laundry, meals in a common dining room, fitness centers, new friendships, entertainment and activities. They’re also safe places to live. If you start to fail physically, there’s help with bathing, dressing, medications and so on. A skilled-nursing unit cares for the bedridden or those who develop dementia.

CCRCs relieve adult children of the minutiae of parent care, which is a special gift to kids who live far away. They’re also a serious financial commitment. You usually pay an entry fee — the median currently stands at $211,625, according to the National Investment Center for the Seniors Housing & Care Industry in Annapolis, Md. (Half the CCRCs charge more and half charge less.) Median monthly charges run $2,825.

Costs vary

The cost depends on the particular property and type of contract you choose. Some contracts cover all your health and living expenses. Others provide residential services but charge extra for health care. For checklists on how to evaluate CCRCs, go to the AARP Caregiving Resource Center and CARF.org, the website of CARF International, which accredits these communities. On the CARF site, type “financial performance” into the search box to read the organization’s “Consumer Guide to Understanding Financial Performance & Reporting in CCRCs.” There have been some bankruptcies among CCRCs, so get audited reports for your lawyer or accountant to read.

For people who stay in their homes until the last possible minute, the best option might become a residence for assisted living. There, you live as independently as possible but can get help with basic physical needs such as dressing and bathing. Like CCRCs, they usually provide activities and a social life. There might be a nursing-home wing attached. You can find a directory of local facilities at Assisted Living Federation of America.

The key is to plan ahead. What can you afford? What’s a reasonable way to live? Today I’m OK, but tomorrow? I want to be prepared.

(Originally published in The AARP Monthly Bulletin.)

AARP Article

Securing Income for Life

A bucket investment strategy may help savings last longer

We all know — or think we know — that the older we get, the more our money should be kept safe. We gradually hold less in stocks and more in bonds.

But is your caution risking your future? Yes, says Michael Kitces, director of research for the Pinnacle Advisory Group in Columbia, Md. On average, we’re living longer and not earning much on quality bonds and bank CDs, he says. If we huddle around investments that cannot grow, the risk rises that we’ll run out of money.

What if we reversed the conventional rule and gradually held more money in stocks, rather than less, after we retired?

When I first heard that idea, I said, “Nuts. High risk.” But as I read the new research, I changed my mind. It’s actually an approach that could make your retirement savings last longer and, potentially, leave more for heirs.

Lower your risk

Think of it as a “three-bucket” strategy, Kitces says.

In one bucket you hold cash to help cover expenses for the current year. That’s grocery money. Keep enough to pay bills not covered by other income, such as Social Security, a pension or part-time work.

In the second bucket, you own short- and intermediate-term bond mutual funds, with dividends reinvested. You gradually add to your bonds during your preretirement and immediate post retirement years. By age 60 or 65, these first two buckets might hold 70 percent of your retirement investments. Every year, you take money from the bond bucket to replenish your cash. If interest rates rise, you’ll be using your dividends to buy higher-rate bonds, which will partly offset your market losses. (Prices of existing bonds fall when interest rates rise.)

The remaining 30 percent of your money goes into the third bucket, invested in mutual funds that own U.S. and international stocks. You don’t expect to touch these stock funds for 10 to 15 years.

As time passes and you sell bond shares to pay your expenses, that bucket shrinks. The percentage of savings that you hold in stocks will gradually rise. You won’t have to sell when the market drops. In fact, your dividends will be buying you more stocks on the cheap. By the time your bond bucket runs low, your bucket of stocks will have grown in value, maybe by a lot. That’s money for your later years.

When withdrawing cash from your bond funds, follow the 4 percent rule for making money last for life. Start with an amount equal to 4 percent a year of all your savings (counting both stocks and bonds) and raise it by the inflation rate in each subsequent year. For example, say you have $100,000 — $70,000 in bonds, $30,000 in stocks. Your first withdrawal would be $4,000, and would rise from there. (If you take more than 4 percent, your savings might run out too soon.)

If your investments are mainly in a 401(k) or individual retirement account, it’s easy to switch between stocks and bonds. If not, you’ll have to consider taxes when you make a change or use new savings to bring the stock or bond bucket to the right size.

What makes this three-bucket strategy low-risk? First, your bonds secure your grocery money for at least 15 years. Second, if the market crashes when you first retire, you have only a modest amount in stocks and can afford to wait for a recovery. (People who sold after the 2008 crash came to regret it.)

Focus on growth

Wyatt Lee, portfolio manager for the mutual fund group T. Rowe Price, agrees that relying on “safe” investments won’t work. “You need a substantial amount of equities to maintain your income for life,” he says. Assuming a 30-year retirement, you’d spend half your money in the first 15 years and half in the second 15 years. The later money should be invested for growth.

Lee takes a more familiar approach — reduce your exposure to stocks as you age. But he starts out high. At age 65, he advises a stock fund allocation of 55 percent. Your 4 percent withdrawals would come from both stocks and bonds. At 75, you’d still have 42 percent in stocks. If a bear market hit just when you retired, you’d take a larger loss than with Kitces’ approach. You’d gain it back but might be more tempted to sell.

Follow Kitces or Lee. Either way, you can’t give up on stocks.

(Originally published by The AARP Monthly Bulletin.)

AARP Article

You’re Moving: Should You Rent or Buy?

Here’s how to figure out which option makes more sense

It’s zero hour. You’ve decided to sell your house and move to something smaller or to another town. As a homeowner, you naturally think of buying again — a house or maybe a condo. But should you? Maybe you should rent instead.

Ownership is solidly entrenched among retirees. They weren’t even shaken by the real estate collapse. From the peak of the housing bubble in 2006 to the present, the rate of homeownership for people 65 and up has held steady at about 80 percent, the Census Bureau reports. It runs to over 90 percent among married couples in which one person is 65 or older.

For those 55 to 64, however, it’s another story. The portion who own the place where they live has dropped to 76 percent, compared with 81 percent in 2006. Some in this age group switched to renting because they couldn’t manage a mortgage anymore. Others, however, rent by choice.

It’s all about income

When might it make more sense to rent instead of buy? And how do you decide?

I start with the view that, later in life, your home, as a real estate investment, grows less important. You’re no longer hoping to sell at a profit in order to trade up to a bigger place. It’s nice for your kids to inherit an appreciated property. But for you and me, it’s more important to nail down enough income to keep us comfortable for life.

That leads to the question of how to dispose of the proceeds when you sell a house. You can use part or all of it to buy another house or condo, with or without a mortgage. That pot of money is now tied up. You could tap it at some point in the future, by taking a home equity loan or reverse mortgage, but that probably isn’t your plan.

Alternatively, you can put the proceeds into a mix of bank accounts and mutual funds and tap those savings and investments for rent. This choice provides ready access to your money, without borrowing.

Here’s where the sharpest of pencils comes in. Estimate your retirement budget with and without the home purchase. Where will the money come from to pay your housing expenses? Rents will go up (about 3 percent, currently) but, for homeowners, so will insurance, taxes and upkeep costs. If you can pay cash for a house or condo and still have plenty of money to live on, you’re a good candidate for buying. But if homeowning strains your lifestyle — even if you conserve cash by taking a new mortgage — you’re a candidate for renting.

In a very general sense, renting is cheaper than buying on the two coasts, where housing is especially expensive, and buying is cheaper than renting in the middle of the country, says Nicolas Retsinas, real estate lecturer at Harvard Business School (although some markets in the country’s middle are expensive, too).

Renting’s rewards

Becoming a renter has other attractions, even if you can afford to own. It’s a way of checking out a new area if you’re thinking of moving far away. It’s a safety net, if you move to be closer to your kids — in case your kids decide to move. It also makes it easy for you to travel because no one has to take care of the house while you’re away. It might be a temporary move — say, to an apartment in a culturally rich city — before making a final decision on the type of lifestyle you want. There’s a landlord to handle chores and no sudden expenses, such as a new furnace or roof.

For a longtime homeowner, however, the negatives are often strong. You can’t modify the space to suit your style of living. The landlord might decide to sell, forcing you to move out. Pets might not be allowed. Emotionally, you might not feel as comfortable as you did in your own place.

You might also resist the change because rent is supposedly “money down a rat hole.” It’s not, if it frees up cash to keep you living well. Besides, insurance, upkeep and most of your real estate taxes go down the rat hole, too. Why own a house and build equity for your heirs if housing expenses crimp your income and limit what you can do during your freedom years? I’m not renting now, but I can imagine doing so if I ever wanted to stretch my savings or travel more. Stay tuned.

(Originally published in The AARP Monthly Bulletin.)