Happy New Year!

Yes another year has come and just about gone. With this new year will come another 3.7 million people reaching age 65 in the US. Although retirement age varies widely depending on ones circumstances, 65 is the age that Medicare kicks in. Having stable and affordable healthcare is often the last piece of the "hey we can retire now" puzzle.

Retirees often try and choose a location close to their children and grandchildren. Sometimes the grand kids are in a state unfavorable to retirees. Places with a cold climate or high taxes. But Washington State falls into an interesting category for retirees. Washington has one of the nations strongest economies attracted a wide variety of workers from skilled labor, highly educated professionals, and unskilled labor. Thousands of working age people are moving to Washington every day to capture a high paying job in our amazing economy. 

Washington unlike California and Oregon offers retirees a nice break from excessive taxation. Washington is not the low tax Mecca a la Nevada, but the lack of a state income tax is always very attractive. Washington also offers a nice variety of climate. Although there isn't really a true "warm" climate anywhere in the state, there is the 'sunny side' and the 'rainy' side for sure. On the eastern side there is abundant sunshine but the price is harder winters. On the wet side the climate is mild all year round with four seasons that are all pretty relaxed. Washington remains the best northern state to retire.

So if you are thinking about retiring to a new locale, don't forget to check out the Evergreen State.

Why are savings rates not rising too?

This is a valid question that begs for an answer. Traditionally when lending rates rise so then does savings rates. However it seems banks are still not interested in paying any significant interest rate on savings accounts. Sure some 6 month CDs are now paying about 1.75% but compared to mortgage rates in the mid to high 7s it seems savings rates are not keeping pace. 

Retirees typically have incomes fixed to a pension schedule or 401k withdrawal schedule. Increases are limited and large increases in inflation will typically outpace any COLA adjustments on a pension or start draining the values on 401k balances at an unsustainable pace. 

The economy is simply not hot enough to justify these steep inflationary conditions and the shortage of fuel is purely a political mechanism rather than an actual shortage. But oddly the savings rates are not increasing in pace with lending rates and that leaves seniors and fixed income people in a bad situation. 

Retirees should reach out to local elected officials in the house of representatives and your US senator about relaxing limits of US oil production which will absolutely reduce the cost of goods in nearly every sector. Transportation costs are a primary driver in this inflationary cycle. 

Let your elected reps know how you feel and maybe some meaningful policy action will start to balance the inequity in this economy.

Inflation Eating Away Retirement Income

With inflation now swinging for the proverbial fences, retirees are watching their budget tighten every month. This past year we have seen inflation pressure the likes of which have not occurred in more than 40 years! Now more than ever, the heavy burden of taxation becomes a bigger thorn in the side of retirement plans. Retirees that live in states with no income tax keep a larger share of their fixed income each month. Even seniors on fixed incomes low enough to avoid state and local income tax, may have to find a job to supplement their income. Suddenly the ugly head of taxation appears. 

Washington State does not levy an income tax and that means retirees keep more of their money. Inflation may still nip at the heels of your bank account but more money will be deposited every month than living in a state with income tax. The diabolical truth about income tax is that is taxes money that people save. At least a sales tax only taxes money your spend on mostly discretionary items. Food in Washington is not taxed for example.  Western Washington State has what could easily be the most mild four season climate in the US. Sure a little snow falls in the winter, but the temps rarely dip below 20º. The summer temps rarely get above 95º and on those rare occasions the humidity is typically very low.

I like a four season climate but I would prefer to avoid those sub-zero affairs where going outside might kill you. I absolutely can't stand temps above 90º and most of Western Washington only sees about a dozen days above 90º each year. For those of you that are a little more climate hearty than I, Eastern Washington is sunnier all year long, It's a bit warmer in the summer and much colder in the winter, a true four season wonderland.

It's time to ditch the income tax and move to a state like Washington where you keep more of your money each month.

Is the Sun Belt Really all that?

Retirees still tend to flock to the sunny and warm parts of the country. Most of those areas are so nice in the wintertime, but many are unbearable in the summer. Retirees with enough money to have two houses often spend winters in Arizona and return to a northern climate area in the summer. For people looking to live in one place all year round the decision to ditch winter weather can be very uncomfortable in the summer. 

The annual United Van Lines moving report shows the following states had the highest percentage of inbound moves with retirement stated as the reason for the move.

1. Florida (39%)
2. South Carolina (37%)
3. Arizona (36%)
4. Delaware (34%)
5. Idaho (29%)
6. Nevada (29%)
7. Wyoming (28%)
8. Mississippi (28%)
9. New Mexico (27%)
10. Maine (27%)

For several years Washington State was the number one state to retire to in the northern latitudes but one can see that Maine, Idaho, Delaware, and Wyoming are ahead of Washington which failed to make the top ten for the first time in quite awhile. Washington's popularity has waned a bit most likely due to the high cost of real estate. The median home price in Washington State is significantly higher than any of the state on this top ten list. It should be noted that this particular list is a percentage and Washington still gets a high volume of retirees but we are also getting a lot of young professionals moving here and that waters down the percentage a bit. 

Here in the west, Arizona is the King Kahuna of retirement spots. They have reasonable priced real estate, but it is rising a bit, they have decent low taxes, and they are undoubtedly warm. I could not live in Arizona year round. I would rather freeze in the North Dakota winter than burn in the Arizona summer. Phoenix Arizona averages 110 days per year at or above 100º and nearly as many nights that failed to drop below 90º. Vancouver, Washington on average has... wait for it... ZERO days above 100º. Now before people freak out and point out each time the century mark was pierce I wrote "on average". A typical year produces about 0.4 100 degree days on average. I have recorded a few summers that had 3 or 4 and I once went 4 years in a row without recording one. 

For retirees trying to avoid the deep chill and heavy snow shoveling, Western Washington is the place. Snowfall is fairly light in most places West of the Cascades at lower elevations between sea level and 500 feet. It does get a bit drippy but the temperatures are comfortably mild 95% of the year.

Washington State remains an excellent place to retiree with no state income tax and mild weather in most areas. What are you waiting for?

Vancouver's Urban Retirement Community Under Construction

Workers on Vancouver's wonderful waterfront have been busy the last few months excavating the site of the massive Springs Living High Rise community on Block 18. The 12 story building will cover nearly all of the 1.29 acre site and feature three levels of subterranean parking. The excavation is more than 30 feet deep at this point. 

Retirees looking for the city living opportunity with all the creature comforts of a full service retirement community should look no further than the Springs Living at the Waterfront. The project should complete sometime in 2024. According to the Springs website the facility will provide independent living as well as assisted living and memory care. Its location right on the mighty Columbia will provide residents with breathtaking views of the river as well as city skyline views of Vancouver and the Waterfront.

The location has quickly become the premier Waterfront location int he entire Metro Area. A fabulous waterfront park and pier are just a short stroll out the front door. There are scores and scores of restaurants, tap rooms, wineries and more all within walking distance.

I would expect many Portlanders interested in city retirement living to flock to this as Washington's favorable tax situation will pad their wallets for years to come. The Springs is just one of many reasons to retire to Washington State.

With Inflation eating away Retirement, Income Tax is a Killer

Once again the ugly monster of retirement is taxes and income taxes tend to chew up net income. When coupled with the worst inflation since the Carter Administration, retirees should be real careful when choosing a new destination. 

Washington State continues to have no income tax or gains taxations. For retirees pulling income from investments or pensions, the lack of an income tax takes away some of the inflation pain. Income taxes are a bit hidden as they are typically taken out of income checks as payroll deductions. The net check is noticeably smaller than the gross check. Sales taxes are visible, right up in your face every time you buy something. This is why I refer to income taxes as a hidden killer.

Our state neighbor to the south has one of the most aggressive income taxes in the nation. Although Oregon's top bracket is not as brutal as states like California, New Jersey, and New York, it starts the 8.75% bracket at income as low as $9200 a year. Yikes! Income taxes tend to negatively effect savings rates. Since less money is available at the time of receiving income it can be difficult for saving. One can always cut back on expenses to save sales tax, but when your income is being eaten before you receive it, that's impossible to overcome.

During these inflationary times, Washington State again looks attractive for potential retirees. Especially when contrasted with Northwest Oregon.

Sunny Washington?

Well, sort of. Central Washington is home to the sunniest cities in the state with Ellensburg on top at 204 sunny days per year on average. The home of Central Washington State University, my son's alma matter is the only city in Washington to yield over 200 sun shiny days per year. Yakima, Walla, and the Tri-Cities round out the top six spots averaging roughly 185-195 days per year with the flaming orb dominating skies. These cities east of the mighty Cascades charge a bit of a fee for this sunnyliciousness. Winters are a bit colder and in Ellensburg they can be downright frigid. The best compromise is the Trip-Cities and Walla Walla which are a bit hot in the summer but not as bitter cold in the winter.

On the western side of the state it is slim Pickens with just two locations in the top ten. Friday Harbor and Sequim. These two will give you almost half your days on the sunny side of life and offer mild temperatures all year long. Both of these towns are sheltered from heavy Pacific storms by the rain shadow effect created from the leeward side of the Olympic Mountains.

So who says you can't have sunny days in Washington state? If you want a great four season climate with about as much sunshine as you'll find in 90% of the country, Ellensburg is your best bet in the Evergreen State.

Market trends in Clark County suggest a soft landing.

This article was published, Friday, June 24, 2022 on Rod's Real Estate News:

Our current condition of uncertainty in the economy is seemingly making sellers a bit less confident in pricing and marketing time. Buyers have been in short supply for quite a few months but low inventory levels made the market seem more robust than it was. As more and more sellers sense the top of the market more listings are pouring into the system. It will take a fair while for inventory levels to return to a more "normal" level of 3-5 months supply, but in the mean time, buyers may feel some of that market pressure ease a bit as we move through the summer months. Hopefully the Fed will let the latest rate hikes percolate in the economy for at least 3-6 months before pulling the panic lever and raising them more.

I suspect we will have a decent summer of sales and as the autumn approaches later this year, we may see a genuine softening in prices as inventory levels likely continue to rise. I am finding more and more of my clients are calling me for listing appointments. If that admittedly anecdotal evidence is is true across the board and several of my colleagues are feeling it too, then market neutrality is nearby.

Keep in mind that historically a deathly real estate Markey is a neutral market and in our Clark County market, 700-800 monthly home sales is solid business we are well above that right now.

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

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 ;)

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.

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.