Help Me Retire: I’m a 74-year-old widower in a five-bedroom house just making monthly payments and no retirement nest egg — should I sell or rent out my home?

Fortunately we had solid health insurance that helped see my wife through her final years of surgeries, chemo and endless procedures. However our retirement funds were tapped and more or less decimated. She passed in 2010. 

The outcome for me as the surviving spouse is this: I still own our home with a $1,650 monthly payment. I have three income sources: a beneficiary pension from my wife of $2,350 monthly, my own pension of $850 monthly and Social Security of $1,550 monthly. With cuts in my living expenses, I am able to balance income and outflow pretty well, but without any sort of retirement nest egg to lean on. 

The picture is not completely bleak. I continue to be fortunate to have lifetime certified retiree health care for myself. My home has recovered from the housing crash and there’s perhaps $200,000 in equity above the mortgage balance. I cannot refinance in order to access that equity without doubling (or more) my current mortgage payment. To summarize, I’m “flush” month to month with my health care covered in perpetuity. 

Should I move out and lease the home, living in a rental house or apartment? In the current rental market, I’ve been assured by Realtors that I could lease my home to others for $3,500 to $4,000 monthly. With apartment rates locally in the $1,500-1,700 range, I could create a new income stream from leasing out my home, which would allow me to build a solid emergency fund. Possibly even enough to start a small investment fund for future years. 

Or should I simply sell the home? That idea would have me banking the $200,000 of equity. Then I could use some of the funds for a down payment on a smaller residence in a less expensive community.

Thank you for your consideration. 

K.T.

See: I’m 64, single, considering retirement after fighting cancer — I have $1.6 million. Should I retire? 

Dear K.T., 

Thanks so much for writing. You seem to have many options, but you’ll have to ask yourself some important questions first, financial advisers said. 

So often, housing expenses are one of the largest expenses for retirees, and choosing to stay in the same home you’ve lived in for decades versus downsizing to somewhere else could make or break a budget. But, as with most things related to money, the answer will be especially personal for you. 

Even beyond the finances — we’ll get to that in a moment — ask yourself what you really want out of the next 5, 10, 15 years. You might already have the answer. After 26 years in that home, there might be an emotional attachment to it, but do you actually want to live in it or keep it to make extra income in rent? Would the back-and-forth of working with tenants while still managing the home be worth more than selling it and moving elsewhere? Is there a reason you don’t want to give it up, maybe because of the history in that home? 

Choosing to rent it out could bring you extra income, as you said, but it might also bring headaches.  

“I do not like the thought of a 74-year-old being a landlord for a five-bedroom home,” said Victoria Fillet-Konrad, a financial adviser at Roosevelt Wealth Management. “He will be responsible for repairs and upkeep and if he is not lucky, he could get very bad tenants. Then there is the possibility of the house being empty for a period of time.” Vacancy could affect your cash flow, and thus, your own comfort. 

You also have to think about the unexpected events. Take COVID-19 for example. Many tenants couldn’t afford the monthly payments during the crisis, which means landlords who were still required to pay the mortgage suffered as well. Again, think about your own expenses — would your finances be able to handle that kind of an abrupt hit, and for how long? 

“Renting a home can be a hassle with him on the hook for repairs and maintenance,” said Charles Sachs, director of planning at Kaufman Rossin Wealth. Still, if you’re attached to the home and want to rent it out, you could consider offering just one or two rooms through Airbnb or after finding someone through family or friends. This arrangement is not for everyone, as the living situation is often short-term and with a turnaround of roommates, but it’s another avenue, Sachs said.  

The other option is to sell the home, as you mentioned. If you did that, you might want to consider a smaller, more manageable home or a condo closer to family and friends. There are also retirement communities. Depending on where you purchased your new home, you could have a small mortgage — or none at all — as well as low or no maintenance expenses. Then again, it may be an adjustment you’re not interested in. 

There was one more option you didn’t mention: a reverse mortgage, which you would have to carefully consider. Not all retirees would benefit from a reverse mortgage, but some financial advisers said it might work for your particular situation. 

Borrowers must be at least 62 years old to acquire a reverse mortgage, but the amount they can borrow against the home will also depend on their equity in the home and its value. Homeowners do not have to repay the reverse mortgage but there are additional fees and accrued interest on the borrowings. Still, this type of tool provides guaranteed income (in the form of a series of payments or lump sum) that older Americans might find useful if they want to stay at home. 

There’s a lot to think about with a reverse mortgage, so don’t take this option lightly. Here’s more information on how reverse mortgages work from the U.S. Department of Housing and Urban Development. 

Also see: How homeowners can use reverse mortgages for retirement income

“Where someone lives is a very personal decision,” said Marla Mason, a financial adviser at A&I Financial Services. “While financials are important factors in the decision-making process, key nonfinancial considerations should be included in the decision.” Ask yourself a few more critical questions, she said, including: 

• What do you want or need for housing? 
• How convenient is your current location to the services and daily-living requirements you have? 
• What is the condition of the home? Are you able to handle most of your repairs, or do you need some help? 
• Have you thought about your own caregiving needs in the future? Does your current home serve these needs or would another place be better? 
• What are your social interactions like these days? And would you find more value elsewhere? 

“When adding the value of increased social contact, convenience and comfort along with the reduction in personal maintenance demands to the financial equity provided by the sale, selling and downsizing may substantially outweigh the opportunity cost of keeping the home,” Mason said. “The importance of both the tangible and intangible aspects of this decision cannot be understated.” 

Have a question about your own retirement savings or where to live in retirement? Email us at HelpMeRetire@marketwatch.com