$1M in California Won't Last Long (KTVU SF)

[winger]

Headline is a little worrisome because not many people even have $1M at retirement age.

$1M retirement savings won't last long in California: study | KTVU FOX 2

A new statewide study found a million dollars in retirement savings won't last very long in California.

www.ktvu.com

 

[DrQ]

I've seen that study for all 50 states plus Washington DC, but it doesn't take into account:

• Most retirees live in paid off homes
• Social Security Income
• Income off investing that $1,000,000

How Long $1 Million in Retirement Will Last in Every State

You may be surprised how fast $1 million goes in some states.

www.gobankingrates.com

 

[ScoopKona]

I've seen that study for all 50 states plus Washington DC, but it doesn't take into account:

• Most retirees live in paid off homes

Which are falling apart from deferred maintenance. And many can't afford their property taxes.

• Social Security Income

Which is a five-ish years away from a major across-the-board cut.

• Income off investing that $1,000,000

Which is hard to do for people who are constantly having to dip into capital for the first two issues.

Last month, the HOA forced my mother in law to have her house painted. They were going to hand out daily fines unless she brought her place up to community standards. She damned near lost it when she found out it wasn't "just a few hundred dollars" to have a house painted in 2024.

These articles aren't for the benefit of those who have already retired. That die is cast. Either they have enough or they don't. It's for the people who are going to be stuck picking up the check for the retirees who plugged 1974's numbers into 2024's economy.

I'm seeing this all over the Internet of late. This tells me that "Houston, we have a problem."

 

[TUGBrian]

are hoa fines not capped there?

100/day with a max of $1000 in florida....and thats cheaper than painting a house!

also surprised more states dont have property tax exemptions for seniors?

 

[DrQ]

Last month, the HOA forced my mother in law to have her house painted.

Well there you go. Don't live in an HOA.

 

[WaikikiFirst]

for CA specifically: housing cost seems overstated, utilities cost seems understated (maybe WAY understated?), healthcare cost is a complete wildcard.
People who keep themselves healthy should pay less. People who don't, won't. But still a big random variable either way.

 

[ScoopKona]

Well there you go. Don't live in an HOA.

There's a dandy example directly adjacent to my mother in law's HOA community. Her community is 20 years old, and basically looks the same today as when she moved in.

The next community on the same street was built by the same developer using the same floor plans. The only difference between the two is no HOA. That community looks like a bomb went off at a Toys 'R' Us and they dropped all the debris onto this neighborhood with a Sikorsky Sky Crane. The difference in price between identical houses in the two neighborhoods approaches six figures.

I'm glad she lives in an HOA. It is MUCH nicer. She shouldn't be in that house at all -- she only uses 10% of it. And she doesn't like Hawaii so our offer to simply build her a place was refused. This is typical for her cohort -- living in a place way too big with big annual bills and refusing to move because "it's mine."

Carlin was right all along.

 

[WaikikiFirst]

there was a vote (either in a few counties, but statewide I think) 5 or so yrs ago to let seniors sell their houses w/o paying cap gain tax. Went down in flames as far as I know. You would be amazed how many big homes in upper-end hoods in CA have only 1 or 2 ppl living in them. I know many who won't move because after paying taxes they'd end up just living in a much smaller place in a worse area and pocket almost nothing.
Then again, the ones with the big gains owned the homes the longest, so have been under the limited prop tax growth rules for a long time.
Proponents: let Srs sell out and it'll raise the housing supply in the state
Opponents: screw em. They made money, now give it the state govt, which can never get enough money no way no how.

living in a place way too big with big annual bills and refusing to move because the govt wants to take all their gains. You want less of something: tax it. You want more of something: do not tax it.

 

[CalGalTraveler]

There is a rule in the state (or certain counties) that allow seniors to move to another home in the state and maintain their existing property tax rate to incentivize them to downsize. If they purchased in the 70s or 80s with low property taxes that is a good deal.

 

[DrQ]

There's a dandy example directly adjacent to my mother in law's HOA community. Her community is 20 years old, and basically looks the same today as when she moved in.

....

You make your choices, don't complain about the cost.

 

[WaikikiFirst]

maintain their existing property tax rate

means they buy another house. I have had 4 people go thru the #s for me. They WON'T sell due to Cap Gains, not prop taxes.
After paying taxes they'd end up just living in a much smaller place in a worse area and pocket almost nothing. Such a deal.

 

[ScoopKona]

You make your choices, don't complain about the cost.

It wasn't my choice. (I don't even like that area. I wouldn't willingly move there.) I also wouldn't have let the paint go that long -- because I know how much it costs to re-stucco a house. And when told by the HOA to do something "or else," I wouldn't have hired the cheapest fly-by-night company which won't even clean up after themselves before the leave, never to be seen again.

Her cohort is experiencing the rude awakening of what things cost since the last time they needed appliances, major maintenance on their palatial houses, new cars and similar.

 

[jp10558]

This is a problem I've seen - we had a crazy uncle basically hole himself up in a house for 15 years before he was finally sent to a home. Now my mom owns it and would love to keep it - it was her mothers house - but the amount of repairs needed right now - not renovations, not improvements, just maintenance needed - is probably so much money that it'd cost the same to raze and build new, if perhaps a slightly smaller house. She's quite unhappy about this, but she has no business building a new house at 65, and none of us kids (so far anyway) want to build a new house there either. Even starting on something like re-doing the roof would probably be $25,000 or more, and the well's top cap rusted through and it sounds like it'll cost $5,000 or so to find out if it can be repaired or it'll cost like $20,000 or something to do a whole new well. Then there's the fuel oil boiler heating that costs an arm and a leg when it's cold.

IDK I guess you'd have to take out a new mortgage even for repairs, and so... yeah. No one wants to dump IDK $1,500 a month into that in addition to everything else.

 

[CalGalTraveler]

means they buy another house. I have had 4 people go thru the #s for me. They WON'T sell due to Cap Gains, not prop taxes.
After paying taxes they'd end up just living in a much smaller place in a worse area and pocket almost nothing. Such a deal.

I've never had to made this calculation. Very interesting.

The reason capital gains is so high is because CA housing prices have risen to exceed the $500 primary home exclusion. They can pay the difference out of the home's appreciation when they sell. It is not cash out of pocket. It is not clear if the new neighborhood will be better. We explored moving to Nevada to pay lower income taxes. When we looked at homes they did not have the lot size and extra features of our home, the climate wasn't as good and yet new homes cost the same as our home in Calif!

I have an elderly relative who's large house in Socal has appreciated significantly. Rather than move and pay capital gains, she wants her children to inherit the home because the basis will be stepped up upon death = no capital gains. So perhaps this is why capital gains prevents them from moving?

FWIW...our accountant advised us that if we had cash and wanted to make renovations, it is better to spend the money now on reno and enjoy the reno to bring the basis for capital gains up to the $500 exclusion. Otherwise you are just writing a check for $100 - $500k to Uncle Sam when you sell which you will never enjoy. Updates also helps to maximize value of the home when you sell. I recognize that we are fortunate and we are young enough that we are not considering end of life options. There are many seniors who can barely make ends meet so a home reno is not possible.

 

[WaikikiFirst]

I've never had to made this calculation. Very interesting. ... Rather than move and pay capital gains, she wants her children to inherit the home because the basis will be stepped up upon death = no capital gains. So perhaps this is why capital gains prevents them from moving?

I had never had either. I mentioned the lg # of 3000+ sqft homes with only 1 or 2 people in them to a couple people and I got an earful and then the calculation of why "WE AINT MOVING!"
The inheritance step-up makes sense, but that was not the main topic for any of these people. It was always the "end up just living in a much smaller place in a worse area and pocket almost nothing. Such a deal." It is not just Fed tax. There is CA tax, and it is taxed by CA at the marginal INCOME tax rate, which are VERY high, and if someone has a 7-figure gain on a home sale, they end up in a nasty tax bracket.
very round #s: sell the very nice home you have lived in for decades for $2,000,000. Buy another home in CA or OR for half that. From the $2,000,000 sale, they may net $1,300,000 and then $1,000,000 of that goes into the new house, which ends up being just a house to them, whereas the prev one was a HOME. So, pocket $300,000 for all the hassle & life-style diminishment.
It also seemed like the $300,000 in the pocket was a rough est even if the $2,000,000 is low. As long as the new home cost half what the current home sold for, the $300,000 rose very slowly with the $2,000,000 rising. I think this is how it goes if the home has appreciated by 8x, +/-.

and, of course, for all this wonderful stuff, they get to spend a year putting up with the depressing downsizing of their lives and their memories and putting up with realtors, etc ... putting up with realtors telling them their house "isn't modern enough (current fashion) for anyone to want to buy so spend $100,000 renovating before I'll take it on for you" etc.

 

[CalGalTraveler]

Covid was also a wake up call as to why downsizing doesn't make sense. When you live and work 24/7 in your home because of Covid restrictions, you want plenty of space. We both have his and her offices to work remotely. We could put in a gym in one of our kids bedrooms if needed. (our gym set up outdoor elipticals and bikes in the parking lot so not needed) Plus there is the occasional guest or boomerang kid from college.

If we didn't have a large home we could not do this.

 

[WaikikiFirst]

It is not clear if the new neighborhood will be better

Well, they don't tend to build small houses in great neighborhoods, other than urban townhomes. I once tried to buy a great piece of land on the Central Coast. They told me I had to build a house > 3000 or 3500 sqft, I forget which. That wasn't my goal. So, no deal.
One guy here did sell because his wife had health issues and their home was full of stairs and she said "ENOUGH WITH THE STAIRS". They moved to downtown Napa to a small ranch home. He was a successful RE broker specializing in residential land, so he had contacts with all the home-builders in NorCal. He contacted the people who had built the house a long time ago. They had lunch so he could get all the scuttlebutt on the houses. His comment to me
"We love Napa but I can't believe I'll be living in downtown Napa. And I really can't believe I'm moving to tract-housing."
If not for the health and the stairs, they'd still be here.

 

[klpca]

means they buy another house. I have had 4 people go thru the #s for me. They WON'T sell due to Cap Gains, not prop taxes.
After paying taxes they'd end up just living in a much smaller place in a worse area and pocket almost nothing. Such a deal.

That's us. We have lived in our home for 37 years. The tax if we sell is staggering. As much as we'd like to downsize, it doesn't make financial sense to move because the new house will also cost a lot. Sure we have maintenance on our house, but we could spend quite a bit every year and not come close to the tax we would pay if we sold.

 

[klpca]

Well, they don't tend to build small houses in great neighborhoods, other than urban townhomes. I once tried to buy a great piece of land on the Central Coast. They told me I had to build a house > 3000 or 3500 sqft, I forget which. That wasn't my goal. So, no deal.
One guy here did sell because his wife had health issues and their home was full of stairs and she said "ENOUGH WITH THE STAIRS". They moved to downtown Napa to a small ranch home. He was a successful RE broker specializing in residential land, so he had contacts with all the home-builders in NorCal. He contacted the people who had built the house a long time ago. They had lunch so he could get all the scuttlebutt on the houses. His comment to me
"We love Napa but I can't believe I'll be living in downtown Napa. And I really can't believe I'm moving to tract-housing."
If not for the health and the stairs, they'd still be here.

A stair chair is our current plan if it comes to that

 

[PamMo]

Oh, I remember the good old days (in my 20's) when I thought I'd be SO rich if I had $1M. I was sure that would be more than enough money to retire early and live lavishly for the rest of my life.

 

[ScoopKona]

Oh, I remember the good old days (in my 20's) when I thought I'd be SO rich if I had $1M. I was sure that would be more than enough money to retire early and live lavishly for the rest of my life.

At the time, it probably was. Buy a house, pay cash; and then park the remaining $900K in an index fund. Picking a random year in the past, $1 million invested in 1970 would be worth more than $200 million today. That's how "old money" stays that way.

A million bucks just isn't a lot of money anymore.

 

[winger]

There is a rule in the state (or certain counties) that allow seniors to move to another home in the state and maintain their existing property tax rate to incentivize them to downsize. If they purchased in the 70s or 80s with low property taxes that is a good deal.

This is just from a Google lookup on Proposition 19:

Proposition 19 - Property Tax Reassessment Exemption - Mylene Merlo - North County San Diego Real Estate Advisor

Proposition 19 - Property Tax Reassessment Exemption UPDATE: This article now includes SB 539 information. SB 539, signed into law on September 29, 2021, helps to clarify the implementation of Proposition 19. Proposition 19 changes tax basis portability for certain California homeowners. These...

mylenemerlo.com

I have not dived into the details (yet), but there could be some instance where you would need to pay a little more than your current property tax when moving.

 

[winger]

means they buy another house. I have had 4 people go thru the #s for me. They WON'T sell due to Cap Gains, not prop taxes.
After paying taxes they'd end up just living in a much smaller place in a worse area and pocket almost nothing. Such a deal.

But both Cap Gains and Property Taxes need to be taken into consideration of the BIG picture.

 

[klpca]

This is just from a Google lookup on Proposition 19:

Proposition 19 - Property Tax Reassessment Exemption - Mylene Merlo - North County San Diego Real Estate Advisor

Proposition 19 - Property Tax Reassessment Exemption UPDATE: This article now includes SB 539 information. SB 539, signed into law on September 29, 2021, helps to clarify the implementation of Proposition 19. Proposition 19 changes tax basis portability for certain California homeowners. These...

mylenemerlo.com

I have not dived into the details (yet), but there could be some instance where you would need to pay a little more than your current property tax when moving.

The changes apply to family transfers which allowed the basis transfer to children upon death of the parent, but the rules have changed now. But for a normal +55 person who sells and buys another home (lower cost than the sales price of the old home) the basis transfer still applies.

This is very much a simplification, but the takeaway is to consult with an attorney or CPA before you make any big financial decisions. You don't know what you don't know.

 

[PamMo]

At the time, it probably was. Buy a house, pay cash; and then park the remaining $900K in an index fund. Picking a random year in the past, $1 million invested in 1970 would be worth more than $200 million today. That's how "old money" stays that way.

A million bucks just isn't a lot of money anymore.

lol. If only Bogle had started the Vanguard 500 index fund by then, and I had the wisdom to invest in it! I was greedy and rode the tech bubble all the way up, and then all the way down. The lesson learned was very painful!