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Getting ready to retire? Prepare your property and investments to make a smooth transition to your sunset years
By Alexandra Gallucci
CTW Features
If you feel unprepared for retirement, chances are you’re not alone.
According to a 2013 survey by the Employee Benefit Research Institute, more than one third of workers lack confidence in their financial preparations for retirement.
For many people, real estate is their biggest asset, and planning ahead in property matters can help eliminate your worries – and your debt – before you sail away from the workforce.
We talked with certified financial planners across the country for tips on managing real estate for retirement years.
Investment Property
“With good tenants, a low [tax] basis in the property and a satisfactory location, a property owner can do well to keep the property,” says David Diesslin, chairman and CEO of Diesslin and Associates Inc. in Forth Worth, Texas.
But maintaining properties as you age can be difficult and is a real concern for owners. Deferred maintenance can lower your return on investment, as can failure to raise rent prices, says Lauren Klein, a certified financial planner in Newport Beach, Calif.
To avoid this, Klein says rents should be raised every single year.
Property Taxes
“If a client is struggling to financially pay their taxes, chances are they have too big of a home,” says Rob O’Dell of Wheaton Wealth Partners, Wheaton, Ill. In this case, downsizing your home may be advisable.
Also, homeowners in Florida may now qualify for a homestead exemption by making a home their permanent residence. Owners can deduct up to $50,000 from their property taxes under this new rule.
In California, Proposition 13 limits property tax increases each year. Homeowners over the age of 55 may transfer – once in a lifetime – the old property tax basis to a new home of equal or lesser value.
In addition, there are exemptions for veterans, those with disabilities and people over 65 in many states that can help to reduce housing taxes.
Educating yourself on your state’s tax laws will allow you to capitalize on all your qualified exemptions. Look to your local tax office for help in learning your state’s requirements to get correct valuations and exemptions, Diesslin says.
Paying Your Mortgage
When it comes to financing your home, cash flow should be the goal, Klein says. For many people, that means not paying off the entire mortgage.
Don Grant, senior investment management specialist at Morgan Stanley Wealth Management says 85 percent of his clients in Wichita, Kan., prefer to be mortgage-free because they fail to see the bottom line: They may be better off financially if they don’t pay off the loan.
Klein often recommends that clients downsize their residence if paying off their home is a major concern.
Homeowners can benefit from refinancing at historically low rates instead of using assets to pay off their home. Plus, this often frees up cash flow that can be applied to other areas, such as retirement savings, O’Dell says.
Getting a Head Start
It’s tougher to finance property once you’ve retired, Grant says. If loan rates have improved, consider refinancing your house before you retire. Someone who is still in the workforce will show income that has the potential to increase, which will encourage lenders to give you the loan you need, Grant says.
Experts agree that it’s best to begin planning your real estate management before you buy. “With income real estate, rentals, et cetera, a disposition and debt plan should be established well before the closing on the property,” Grant says. “Go into the purchase with a good idea of what conditions need to be met to sell the property.”
