10 Tips for Homeowners Planning Your Current Retirement

Current retirement planning is the most important and presents the greatest opportunity for you to secure the financial future that you desire. We’ve taken a look at the top ten points that should be on your current retirement plan today.

Senior Couple Eating Breakfast At Home.

A successful retirement starts with your biggest financial asset, your home.

There are several ways to leverage your home in order to plan a successful retirement. In fact, a healthy real estate portfolio can help you retire early if you play your cards right. But the most common solution homeowners choose is to sell their current home and downsize in order to save for retirement. 

Right now, homeowners are faced with an exciting market opportunity because the conditions are ideal to sell for as much money as possible in order to downsize and afford a new home outright or secure a historically low mortgage rate on a smaller home. 

Before you begin your specific retirement plan, start by protecting your current assets by placing your home in a living trust. 

Protect Your Assets with a Trust

A living trust allows you to control your assets, even after death, giving you the ability to change your trust at any time. The main benefit of placing your home in a trust is that it avoids the long and costly probate process for your family if something should happen to you. 

You can place any assets you want to protect in the trust, including real estate. In California there are two simple forms are required to do so. 1) California grant deed from your county recorder’s office and 2) “Preliminary Change of Ownership Report” found on the county tax assessor’s website.

If your home is placed in a living trust, as the grantor, you may still remove the home from the trust, sell the property, refinance, and so on, without any special permission. The main reason savvy financial homeowners put their house in a living trust is to avoid the costly and lengthy probate process at death. Simply leaving real estate assets to your kids or a spouse in a will causes those assets to pass through probate can take up to a year to settle, and cost 3% – 7% of the value of the estate.

When should you talk to a financial advisor?

It’s important to surround yourself with professionals you can trust as soon as possible when it comes to planning your retirement. Don’t wait, no matter how old you are, this is the time to tackle your future goals and financial planning. 

In today’s seller’s market, it’s even more important to get started on your retirement planning as soon as possible. With homes selling at record highs and mortgage rates remaining at all-time lows, this could be the best time to start making real estate investments and moves for the short term and long term. 

Talk To A Financial and Home Advisor Together

We suggest teaming up with a First Team agent, as well as a Financial Advisor, in order to create a comprehensive plan for your retirement. At First Team our process begins by helping you, the homeowner, clearly identifying how best to leverage your real estate assets for your immediate and future financial needs. We begin by analyzing the neighborhood data to present you with a current in-depth market analysis.

If you don’t have a trusted agent on speed dial, contact us now, and will set up a call with a First Team Home Advisor and your Financial Advisor to identify the steps you need to implement in your plan. 

Save thousands in taxes with Prop 19

California’s Prop 19 was passed last year and officially went into effect on April 1, 2021. Prop 19 allows seniors, retirees, and all homeowners aged 55+ to transfer the property tax base of their house to a replacement home anywhere in California, without a tax penalty. Prop 19 could be a critical part of your retirement plan because it allows you the flexibility to move anywhere within the state and keep your low tax base several times. 

Qualified homeowners can now transfer their existing property tax base to another property, regardless of the cost of the replacement home, and you can do so up to three times. There will be an adjustment upward to your tax basis if your new home is of greater value, but you will still save big on your property taxes. 

Here’s an example of a homeowner that has been in their home for many years.  They have seen the value of their home go up substantially, but (because of Proposition 13), in this example their home price is $600,000 and their tax base is only $200,000.  They are purchasing a new home for $700,000:

Current home value = $600,000 (currently $2,200 in property taxes)

New home = $700,000 – purchasing without Prop. 19, $7,700 in first-year property taxes

Additional property tax base per Prop 19, $700,000-$600,000 = $100,000 (additional $1,100/yr).

Under Prop 19 the property taxes would be $2,200 + $1,100 = $3,300, a $4,400 savings in annual property taxes!

Moving Out of State

While Prop 19 can save you on property taxes, a move out of state could save you on income tax as well in retirement. California has the highest income tax rate in the country, 13.3% which makes moving out of state to save money during retirement a big draw. 

Our list of top places to retire includes several Southern California locations, but plenty of out-of-state locals as well including Colorado, Florida, South Carolina, and Arizona. Planning a move out of California can be stressful, but the long-term savings are substantial. For example, the typical home value in Phoenix, Arizona is $360,103 compared to the typical home value in Newport Beach, California which is $2,776,482. 

​​According to a financial expert from Forbes on retiring out of state move, the success of a client’s retirement plan was 83% if they stayed within California but increased up to a 94% success rate if they moved to Nevada.

Create Additional Income Streams as an Investor

This is a great time to think about continued wealth management and building. Even if you only own one home, consider the benefits of purchasing investment properties in order to create additional income streams during retirement. A great place to start is with the most affordable places to buy in Orange County.

Now is the opportune time to take advantage of low-interest rates in order to purchase real estate for less. The more real estate you add to your portfolio, the more passive income you can collect. As a real estate investor, you can write off nearly all of your conceivable expenses.

If you decide to sell a rental property, you will pay the lower long-term capital gains tax rate. Or, you can defer it indefinitely through a 1031 exchange, where you roll your profits into the purchase of another rental property. Each has its pros and cons that you can review as a part of your retirement plan with your First Team Home Advisor.

What should you ask a financial planner?

A real estate agent isn’t a replacement to the advisory services of a financial planner, simply a compliment. When it comes time to find a financial planner to help you map out your retirement plans and financial future, make sure to ask the following questions to ensure you’ve found a qualified professional you can trust.

  1. How much do you charge for your services? 
  2. How do you set your prices and fees? What is your fee structure?
  3. What certifications, degrees, designations, and credentials do you have?

What should you look for in a financial planner?

A registered investment advisor or RIA offers financial advice to clients, often catering to high-net-worth individuals and retirees. They can simply provide advice related to investment management, or even execute trades on your behalf, and help complete transactions.

RIAs are either paid as a percentage of your assets that they help manage, or on a fixed hourly rate. What’s most important to understand is that they’re required to act as fiduciaries on behalf of you, their client. 

Ultimately, you should be looking for a financial planner professional who has the expertise, experience, and credentials to help you navigate all of your finances. 

Gradually Shift Assets To Avoid A Big Tax Bill

According to Cerulli Associates, an estimated 45 million U.S. households will transfer $68 trillion+ over the next 25 years. The Baby Boomer generation holds the bulk of this wealth thanks to stock market and real estate growth over the last 10 years. There are several recent changes – and proposed changes – that homeowners and prospective retirees should consider in order to avoid a big tax bill when it comes time to cash in on their wealth. 

The Secure Act of 2019 curbed the so-called stretch IRA, which allowed adult children heirs to “stretch” withdrawals over their lifetime. Now, the requires non-spouse heir to empty the inherited IRAs within a 10 year period and pay taxes on them, withdrawals possibly sending them into higher tax brackets with larger bills. 

The Tax Cut and Jobs Act of 2017 made lots of changes — such as cutting the highest income-tax rate and nearly doubling the estate-tax exemption — but many of those provisions will sunset after 2025. That’s why its important to talk to a financial advisor about life insurance tactics and gifting strategies as well in order to make your retirement plan as smooth and financially beneficial as possible. 

Note: This information is not intended as tax or legal advice. Please consult legal or tax professionals for specific information regarding your individual situation. 

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