The 'Couv'

The 'Couv'

Tuesday, May 24, 2022

Washington is #1 in America Yet Again

Every year US News and World Report ranks all 50 states and DC to choose the best state in America to live. For the third straight year Washington State is once again ranked number one as of an issue published a few months back. Although retirement rankings can be rated differently than general rankings being the very best state to live in is beneficial whether you are young or old, retired or working. They used a wide variety of metrics to come up with a score but driving Washington's success was schools #4 in the US, economy #4 in the US, healthcare #8 in the US, infrastructure #3 in the US, as well as most metrics aside from housing expenses where Washington performs terribly at #4 most expensive. Of course housing tends to cost more in the best state in America, seems legit.

Healthcare is a big deal for retirees and that bodes well for our state with some of the best in the nation. One thing that is very important to some retirees is being close to grand children. Washington state is attracting families from other areas with its roaring economy and high paying jobs. Retirees still benefit from Washington's lack of an income tax and provisions for lower income seniors on property taxes and healthcare. 

Maybe it's time to take another look at the Evergreen State before you move to the sunny south :)

Source US News and World Report

Friday, April 29, 2022

Inflation is a real risk

The inflation problem is certainly not temporary as politicians and 'yes-men' economists suggested last year. For those retiring on fixed income benefits from savings or IRAs, this eats quickly into principal capital and can shorten the length at which funds will last. For pension earners the inflation is rising faster than COLA increases and that can feel even worse on the wallet.

Real estate remains a solid investment with double digit gains that will continue so long as the inflation does. But alas, the FED is trying to reign it in with rate increases. As this monetary squeeze developed over the next several months housing may finally slow down as buyers will struggle to qualify for loans.

Retirees selling a larger family home and downsizing still hold an advantage as often they are paying all cash or have an enormous downpayment which always makes sellers smile. 

Those nearing retirement should absolutely reach out to your CPA or Financial Planner to see if working and extra year or two can offset this horrendous inflation. It is wise to consider these things as once you retire it can be very difficult to un-retire.

Washington State has no income tax and that allows you to keep more of your money so bear that in mind before moving to some tax heavy state just because they have a little more sunshine ;)

Tuesday, March 22, 2022

Income Tax Monster, Bad for Retirement

Originally posted April 23, 2019

Let's look at why an income tax is more of a killer than a sales tax especially for retirees. Retirees often do not have many tax deductions or exemptions. So a retired couple earning a taxable household income of 35,000 will pay about $3150 in Oregon State income tax. Contrast that with the a typical annual sales tax paid in Washington at $1200.

Sales tax is something you only pay when you buy a taxable item. In Washington food for example is not subject to sales tax. An income tax is levied before you receive your net check. You are going to pay it whether you buy things or not. Sales tax is almost always a lower expense than income tax with the notable exception of being poor. Those in Oregon who have a taxable income of $0 will not pay any income tax, obviously. But in Washington a person with a taxable income of $0 will still need to buy things and some of those things will be subject to sales tax.

Please take note I am using taxable income, because retirees are not subject to income taxes on a sizable portion of their Social Security, ROTH IRA's are tax free, and standard exemptions and deductions reduce taxable income. So someone earning $20,000 could in fact have a taxable income of $0.

So the rule of thumb is, if you are poor live, in Oregon, if you are middle or upper income, move to Washington. Well it isn't always quite that simple, but that simple solution is not to far from reality in actuality.

Tuesday, January 25, 2022

Can Expensive Real Estate be a GOOD Thing?

Washington State is now famous for its expensive housing. Sure, states like California and Hawaii have significantly higher housing costs, but Washington is currently the 4th most expensive in the US. This can be a problem for retirees looking for a place to hang their hat. What if I told you, that higher housing prices can be beneficial?

Now this is an angle that only works in certain situations. But buying a house with 20% of you own money in an expensive market can lead to far greater wealth as the home values increase. Later in life that expensive house can provide a lump sum of cash or a lifetime of handsome cash flows whereas a cheaper house appreciating at the same rate cannot produce an equal equity gain over time. 

Say I buy a $500,000 house here in Vancouver USA with $100k down. Lets say over 20 years the house doubles in value which based on the last twenty including a HUGE correction in 2009-2012 is still conservative, I now have an asset valued at $1,000,000 with a debt load of $202,450. That is nearly $800,000 in equity and roughly $750k net if I sell the house. God forbid I need specialized elder care at this point, I can afford $5,500 (State Average) a month for more than 11 years!

Let's take a look at a cheaper state like say Mississippi. Now a nice house down near Gulfport can be had for $250,000. Run the same scenario out twenty years and you have a house worth $375,000. Why? Because Vancouver USA has more than double the rate of appreciation over the last 20 yeas than has Gulfport, MS. Now all fairness, the past doesn't alway mean the future will be the same. So we owe $101,225 and have an equity position of nearly $275k offer roughly $250k net after sale. Comparable elder care is about 25% less expensive in Mississippi. I will still run out of money in less than 6 years at the star average of $3,500 a month. Not only is there less money to pay for care, you are getting arguably less quality care since Washington is among the highest rated states for health care.

Many retirees plan on using the equity in their home to stabilize cash flows as retirement funds become diluted by inflation. A reverse mortgage is an option for some and so long as there is ample equity, the reverse mortgage can provide actual income. The more expensive house will generate a larger cash flow all else being equal.

Paying all cash for a property is not always the best idea. A reverse mortgage can sometimes be a better option providing cash based on a current value could protect the owner from downside market trends that occasionally occur. The reverse mortgage is designed as a long term investment for the bank with the short term protection of a large equity position. I am not pushing reverse mortgages here, but for some they can be a good tool especially in a high value area.

Last bit on the reverse mortgage, they are very rate sensitive. Higher interest rates reduce the amount of potential cashflow due to the higher loan service needed to cover the interest. Interest rates could rise in the next few years to levels that make the reverse mortgage unsustainable and thus unavailable.

So for buyers using a traditional mortgage to buy their retirement home, expensive states tend to be a barrier and Washington is among them obviously at #4 on the median housing cost list. But again if housing costs are rising equally the equity gained in a state like Washington is going to be far greater than that gain in a less expensive state. Some states with low housing prices have these low prices because the market doesn't appreciate as well as other states. In that scenario the cheaper house not only produces a lower gross equity gain it does so at a slower rate of gain. If you are going to stay in the house till the bitter end, this is not a problem. But what if you need to sell it to provide cash for elder care like the scenario above? You could end up on federal assistance rather than choosing your own care options.

Retirees should take time to work with a professional planner to see how their own situation lines up and where the best options are. Here in Washington we are plagued with high housing costs in most parts of the state, but we have no income tax, and reasonable property tax rates. We have excellent weather to suit nearly any preference. I said nearly, if you want that tropical island feel Florida is that way (pointing vigorously to the Southeast). 

When you decide Washington is the place for you, call me and I'll help you find the ideal house.

Tuesday, November 23, 2021

Clark County Median Home Price now closer to a Million than Zero

Clark County Washington's median home price has now crossed over the half million dollar mark making that headline, technically true. For retirees expensive housing markets can be challenging especially for those on a fixed income. Fortunately retirees have a completely different set of location needs that sometimes allow them to get a deal on homes in areas unfavorable to families but setup close to services for the elderly.

Also families will have a hard time working with a two bed one bath home, but retirees can make that work. Condominiums may provide an easy maintenance and lower price particularly suburban condos. The urban mid-rise and high-rise units Downtown are rather expensive with a few notable exceptions such as Parkview at Vancouvercenter.

For retirees in Clark County it has become slim pickings for homes under $400k even two bedroom homes are now breaching that threshold. With inflation on the rise and interest rates that have yet to respond, we can expect even higher prices over the short term. Long effects of inflation could lead to higher interest rates and a possible slowdown in housing resales by the elimination of qualified borrowers. 

The good news is that buyers securing low interest loans on a fixed rate will be set up nice when rates climb and even if home values take a dip, the low interest rate may very well pay for the difference in price later.

Tuesday, October 26, 2021

Uncle Sam is Coming for your Wallet

The politicians in Washington DC are licking their chops over the cash in your savings, home, and income. Government proposals aimed at striking everyone from the middle class up including unrealized gains in Real Estate and the Stock Market are already proposed! Now more than ever, retirees need to look at favorable state and local taxes when deciding where to live. To heck with good weather, watch out for your wallet. Washington State has no state income tax, this becomes much more important as the feds begin tightening their grip with overbearing taxes that are on the horizon. Inflation is ramping up at a pace not seen since the 1970s and the only cure is getting the deficit under control. The federal government hasn't had the stomach for balanced budgets since the late 1990s when Democrats and Republicans worked together to pass a budget with a flat balance sheet. To curb inflation without cuts to spending means more taxes, and that is exactly what the Congress and the White House are pushing for. Everything is rising in cost but one thing the western third of the Evergreen State has is no income tax. We also have super low electric rates, and mild weather in both the summer and winter to help keep heating and cooling costs low. Gasoline is a little more expensive here than places like the deep south or the mid-west, but driving an electric car in Washington is just about cheaper than anywhere else on the planet. If you are thinking about retiring to another state, take a close look at Southwest Washington. If you are already in Washington, say for example, in the Puget Sound region, take a look at SW Washington before deciding to move out of state! Sunshine is overated.