Retirement and homeownership combine an emotional major life transition with the implications of one of most people's largest financial assets. As such, planning for homeownership in retirement deserves very careful consideration.

Each homeowner's situation is unique, of course. Factors include: your age; financial assets; mortgage balance and interest rate; home value; retirement income sources; home equity vs. market value; age and condition of your home and major systems; adult children's desire for your home; your health and mobility; changing lifestyle priorities; overall debt vs assets and your risk tolerance; and expected timing until your retirement.

As such, there is no one solution that fits everyone's needs. However, here are some homeownership options to consider for your transition to retirement, each with its own advantages and disadvantages.

DOWNSIZING

Downsizing involves selling (or renting out) your current home and buying a smaller home.

There are many advantages to downsizing during retirement. A smaller home requires less maintenance, and can have lower taxes. It can also be better suited to reduced mobility that comes with aging, such as fewer stairs. Depending on how you finance the new home, downsizing can also reduce your monthly financial burden while on a fixed income.

Downsizing does require the management of the sale of your home (or transitioning of it to a rental property). If your home has appreciated significantly in value, there could be tax implications associated with a large capital gain with your home sale. Versus renting in retirement, downsizing still includes homeowner risks for unexpected major home repairs, which can be challenging when on a fixed income in retirement.

CASHOUT AND RENTING

This retirement strategy includes selling (or renting out) your current home and electing not to purchase a new home, but instead renting a place to live.

Depending on the financial situation of your current home (equity vs market value, remaining mortgage, etc.), selling your home and not re-investing in a new property can have a number of advantages. Freedom from home maintenance and not being responsible for property taxes are attractive aspects of renting. Plus, renting versus owning can make it easier to relocate in the future, as your lifestyle and needs continue to change during retirement.

On the other hand, becoming a renter brings the uncertainty of rent increases, which can be difficult when on a fixed income. Transitioning to renting also involves having to rely on a landlord for maintenance issues.

RELOCATING

For some, retirement brings the opportunity to move to a new location that is more consistent with your new lifestyle needs and desires.

Especially if your current location was chosen for the benefits of your children (school system, neighborhood, etc.), becoming an 'empty nester' now affords you the opportunity to choose a location suited to your new priorities. This could be moving from the suburbs to be closer to the amenities of a more urban area, or relocating to the bliss of living in the countryside. A relocation can provide better weather conditions or access to important recreational settings. An important consideration for relocating can be improved proximity to family.

AGING AT HOME

For a variety of reasons, including important ones that are non-financial, your retirement strategy may involve aging in your current home.

For many, the choice of staying in your current residence during retirement may be more emotional than financial. Having a place for your family to return and gather can be important on many levels. Plus, this can be carried on to the next generation, if ownership is later transferred to children.

Of course, aging at home may require modifications such as handrails and walk-in baths or showers. Plus, there are the on-going financial burdens of homeownership and risks of major repairs, which can be challenging when on a fixed income.