Retirement budgeting for property taxes

[RobbieB]

Yeah, they make it up on the flip side when you sell. The new owner gets the full impact!

Which is why I don't plan on moving anytime soon -

 

[Teacher Terry]

Dan, I am from Wisconsin and I pay a lot less for taxes here. Some things are much cheaper by you such as eating out. I wouldn’t consider moving back because of the weather but the property taxes would also be a big deterrent.

 

[ncbill]

No limits on the increase here.

E.g. the large home my mom sold (post-divorce) 30 years ago recently sold for triple that price...not much more than just keeping up with inflation.

But over the same period of time property taxes on it increased six-fold.

Property taxes are cut in half for owners 65+ with annual household income under $30k...counting all sources, including SS...must apply for that exemption each year.

 

[Timeisprecious]

A WAIVER of property taxes for some military veterans!

TX is oppressive to retired folk who do not have earned income. No income tax guarantees higher property taxes as they have to get it somewhere.

We will consider moving when it makes sense, either out of the city or to another state. Otherwise we plan for 3% increases. We're currently around the 2.25% rate on a $300k value. It has remained the same for the past 3 years (when we moved here)... But no income tax on $250k is pretty nice too, for now. We used to live in Taxifornia... Ouch!

Just a quick FYI for military veterans - if you have a 100% VA disability rating or are paid as such by the VA (i.e., if your VA status has been determined to be "unemployable"), you may be able to obtain a property tax waiver. I believe in some states you can receive a waiver of property taxes with a VA rating less than 100%. You may want to check this with your county clerk's office. Here in Michigan you need to have the 100% rating or be paid as such by the VA. It's worth looking into, right?

 

[Gulfbeach]

Besides the homestead exemption from certain amounts on your primary residence, many Texas counties also freeze increases for those over age 65. There is also a break for veterans with certain disability ratings. YMMV, but your local assessor-collector office can fill you in and tell you what documentation you will need.

 

[brett]

For us it is no different that any other expense be it food, utilities, travel, insurances, etc.

Just one more monthly expense that we incur.

 

[patela6]

Easiest line item in CA. Though not cheap, the 3% cap allows good predictions. 12k today, so 15k when in retirement (or thereabouts).
However, calculating my future Alcohol and food budget literally gives me heartburn...

 

[JohnnyBGoode]

Easiest line item in CA. Though not cheap, the 3% cap allows good predictions. 12k today, so 15k when in retirement (or thereabouts).
However, calculating my future Alcohol and food budget literally gives me heartburn...

Actually, California has a 2% annual cap, which makes it very easy to plan around. Of course, CA taxes you a bunch of other ways. I'm in agreement with others on this thread that the government will get its money one way or the other.

P.S. I was surprised about the high Hawaii tax rates though, I would have expected them to soak the tourists through hotel/condo taxes...

 

[meleana]

I don’t budget anything. I pay what the bills are. I do have a spread sheet of our current expenses but at this point it is what it is. Done things you can’t control.

 

[RetiredHappy]

For us we just assume there is inflation on every cost item on our expenses. We don't worry about what our property tax is going to cost us 10 years down the line. SS are COLA indexed so that part of the income is covered. Some people have pension here, some with COLA and some without. The rest of the retirement funding we just have to assume that our investments will grow enough to cover inflation. Since our WR is very low, we just not worry about inflation.

 

[Koolau]

For us we just assume there is inflation on every cost item on our expenses. We don't worry about what our property tax is going to cost us 10 years down the line. SS are COLA indexed so that part of the income is covered. Some people have pension here, some with COLA and some without. The rest of the retirement funding we just have to assume that our investments will grow enough to cover inflation. Since our WR is very low, we just not worry about inflation.

I have tried to think of inflation this way as well. The problem I have is that I lived through the inflation of the 70's and early 80s. Even though I had a COLA'd income, it was still a very bad time. Most decisions we made in those days had an "inflation angle" involved. We made it through okay, but it was a frightening time. I hope we don't go through that again. IMO we are MUCH less able to deal with inflation as a nation and as a world. YMMV

 

[rrs26ja]

Property Taxes in retirement

For my retirement budget I use a 2.5% inflation rate for most of my bills except medical costs and property taxes. For medical I use 6.5%. I live in the Hudson Valley area of NY. We pay school and property taxes. I live in a rural area (farm area). I use 4.5% increase in these taxes every year. I wanted my plan to be worse case. I have been retired since 2018 and so far my expenses are below plan, part of this is because of Covid and very limited travel or vacations. The other part is my expenses have gone up

 

[street]

For us we just assume there is inflation on every cost item on our expenses. We don't worry about what our property tax is going to cost us 10 years down the line. SS are COLA indexed so that part of the income is covered. Some people have pension here, some with COLA and some without. The rest of the retirement funding we just have to assume that our investments will grow enough to cover inflation. Since our WR is very low, we just not worry about inflation.

I see it the same way.

 

[Gumby]

Also agree. Historically, our property taxes (which is our largest single expense) have generally increased in line with the rate of inflation. I assume they will continue to do so.

 

[maestro]

Property taxes will (probably) go up in the future. And food. And gas. And TP. And pretty much everything else. Even dryer sheets.

The 4% "rule" allows you to increase your spending each year by inflation.

I don't use a specific formula for inflation nor do I track inflation of each and every expense, but yeah, basically that formula you stated. I hope the market over my remaining years goes up enough to not let my portfolio get overrun by inflation. I use a VPW strategy to tell me to ratchet down my relative spending a little bit each year rather than letting it become a problem that I have to take more drastic action on, if it is an issue.

+1
Especially watch TP prices, that has replaced the VIX as the new 'fear guage'.

 

[patela6]

Actually, California has a 2% annual cap, which makes it very easy to plan around. Of course, CA taxes you a bunch of other ways. I'm in agreement with others on this thread that the government will get its money one way or the other.

P.S. I was surprised about the high Hawaii tax rates though, I would have expected them to soak the tourists through hotel/condo taxes...

Thx for the correction! Even better

 

[ychuck46]

I'll echo that

Very dependent on where you live and how they tax property. In some states, it could be a significant budget consideration, for others...quite minimal.

We paid property taxes for over 30 years in a state in the Northeast where property tax increases were a yearly given. They averaged around 6-8% per year; it doesn't take long for taxes to double with those increases, particularly since some years the increase was a double figure %. Eleven years ago we moved to a low tax state where we pay a very low bottom line property tax compared to our former home, on a much larger house with a lot of land. We are on a five year assessment here and the first time we were included in that assessment our taxes went up a few $ per year. The next assessment period, which we are currently in, our taxes dropped more than the increase from the first period. So in 11 years our taxes have never gone up from the low amount they are at, certainly compared to our former state, and have actually decreased.

 

[Koolau]

P.S. I was surprised about the high Hawaii tax rates though, I would have expected them to soak the tourists through hotel/condo taxes...

Actually, for retirees and especially those over 65, Hawaii taxes tend to be quite reasonable - assuming most of your income comes from pensions and SS. Our RE taxes are the lowest in the nation (based on assessed valuation.) AND we DO "soak" the tourists. It's actually quite shameful in my opinion - though I appreciate MY relatively low state taxes. The worst thing is that prices to enjoy Hawaii are quoted WITHOUT taxes. So, when a tourist arrives, sh/e finds that hotel rooms, rental cars, and many attractions (free to Kama' aina) cost a LOT more than they would have been quoted. It adds up quickly. YMMV

 

[Retired Expat]

Most places do not adjust property taxes just because market value has risen, nor do they lower them when markets turn down. Many do however adjust the property value to the new sales value or some percentage there of. Just because your property value may have risen doesn't mean your income did and in fast rising markets people would be forced to sell their home just to pay the taxes and insurance. Kind of like Stocks, you don't pay capital gains on what it is worth today, only on the difference between what you paid and what you sold for. (unless there are wealth taxes involved but not common in the US)

Likewise your home insured for 200K but now worth 500K should still be insured for what it would cost to replace. More likely $250 than 500..... Of course that replacement cost is now all over the place too....

 

[calmloki]

Actually, California has a 2% annual cap, which makes it very easy to plan around. Of course, CA taxes you a bunch of other ways. I'm in agreement with others on this thread that the government will get its money one way or the other.

P.S. I was surprised about the high Hawaii tax rates though, I would have expected them to soak the tourists through hotel/condo taxes...

Back in 2010 we bought our place in La Quinta CA at auction and I girded my loins for a tax battle, thinking to argue that an auction gave a true value of what a place was worth. Called the county and they deflated my balloon by saying "we go by the sale price, so your next property tax assessment will be based on what you paid". And ever since our taxes have gone up and up by about 2%/year based on that very modest middle-of-the-RE crash auction sale price.
We don't buy much, so the 10%~ sales tax doesn't hurt, and our income is mostly taxed in Oregon.... Not really feeling that high tax status California is known for.
We don't budget for property taxes - just make sure we leave enough in checking to write checks.

 

[teej1985]

Actually, for retirees and especially those over 65, Hawaii taxes tend to be quite reasonable - assuming most of your income comes from pensions and SS. Our RE taxes are the lowest in the nation (based on assessed valuation.) AND we DO "soak" the tourists. It's actually quite shameful in my opinion - though I appreciate MY relatively low state taxes. The worst thing is that prices to enjoy Hawaii are quoted WITHOUT taxes. So, when a tourist arrives, sh/e finds that hotel rooms, rental cars, and many attractions (free to Kama' aina) cost a LOT more than they would have been quoted. It adds up quickly. YMMV

Don't forget the large exemptions on property taxes!

 

[jazz4cash]

Most places do not adjust property taxes just because market value has risen,

Really? That is not my experience but I have not lived most places. Which places are examples of this?

 

[jazz4cash]

Just because your property value may have risen doesn't mean your income did and in fast rising markets people would be forced to sell their home just to pay the taxes and insurance.

Many areas address this with caps on property tax increases and credits for seniors which many here have cited. My state uses 3 yr assessment cycle but any increase is phased in so a 10% increase would be 3.33% / yr before any cap or credits are applied.

 

[ERD50]

Originally Posted by Retired Expat View Post
Most places do not adjust property taxes just because market value has risen,

Really? That is not my experience but I have not lived most places. Which places are examples of this?

Every place I have owned a home (3 different counties in IL) is as Retired Expat posted. I believe it is common (though probably not universal).

It makes sense, the municipality doesn't want its budget cut during a housing crash.

It works like this (simple example) - the municipality sets an annual budget of $10,000,000. If there are 1,000 homes, say all equal value, their property tax is $10,000 a year. If ALL the homes double in value, and the budget is the same, they still divide the total by the # of homes, and come up with the same $10,000/home.

The valuation is used to distribute the taxes - so in an actual example, a home valued at 2x pays 2x the taxes (the total budget is divided by the total valuation, then you pay based on your valuation). And when the budget increases, that increase is distributed the same way (everyone pays an extra 5% or whatever).

Again, I believe this is very common. Check your statements over a few years, or ask your taxing authority.

edit/add: If your home valuation increases at the same rate as the total area, then there would be no increase due to valuation change. But your valuation may not be in lock step with the average. I think some areas stagger the valuations, like updating 1/3rd of the homes every three years. Mine were changed (or not) annually.

-ERD50

 

[mrfeh]

Every place I have owned a home (3 different counties in IL) is as Retired Expat posted. I believe it is common (though probably not universal).

It makes sense, the municipality doesn't want its budget cut during a housing crash.

It works like this (simple example) - the municipality sets an annual budget of $10,000,000. If there are 1,000 homes, say all equal value, their property tax is $10,000 a year. If ALL the homes double in value, and the budget is the same, they still divide the total by the # of homes, and come up with the same $10,000/home.

The valuation is used to distribute the taxes - so in an actual example, a home valued at 2x pays 2x the taxes (the total budget is divided by the total valuation, then you pay based on your valuation). And when the budget increases, that increase is distributed the same way (everyone pays an extra 5% or whatever).

Again, I believe this is very common. Check your statements over a few years, or ask your taxing authority.

edit/add: If your home valuation increases at the same rate as the total area, then there would be no increase due to valuation change. But your valuation may not be in lock step with the average. I think some areas stagger the valuations, like updating 1/3rd of the homes every three years. Mine were changed (or not) annually.

-ERD50

I haven't seen any mention of mill rate in this thread. My prop taxes have always been:

assessed value * mill rate

Market/assessed values are only one component of the equation. The local government (county, in my case) will decide their budget and then adjust the mill rate accordingly. Depending on how valuations are changing, the mill rate could increase or decrease.