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Retirement budgeting for property taxes
08-26-2021, 02:53 PM
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#1
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Dryer sheet wannabe
Join Date: Feb 2018
Posts: 11
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Retirement budgeting for property taxes
Hi.
For budgeting for property taxes in retirement do you do some calculation to try to anticipate the yearly property tax increase over the term of your retirement or do you count on this increase being covered by a formula like this:
Portfolio Gain Rate - Safe Withdrawal Rate = Inflation rate
For example:
7% Gain - 4% SWR = 3% Inflation
where the inflation amount covers the property tax increases?
In my neighborhood I calculate the annual increase over the last three years at 2.85% which is close to Firecalc's default of 3% inflation if I don't use PPI or CPI.
Thank you.
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08-26-2021, 03:08 PM
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#2
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Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: May 2005
Posts: 17,241
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It matters if the taxes can go up a lot or not..
Housing prices are going up big time now... unless they adjust the rate down you will get a big bill...
Me, I do not budget anything.... I just pay it when the bills come..
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08-26-2021, 03:44 PM
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#3
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Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Jun 2007
Posts: 13,227
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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.
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08-26-2021, 04:05 PM
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#4
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Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Jan 2018
Location: Tampa
Posts: 11,298
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We are limited to max 3% yearly increases, so thankfully not an issue here.
__________________
TGIM
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08-26-2021, 04:21 PM
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#5
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Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: May 2013
Location: ATL --> Flyover Country
Posts: 6,649
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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.
__________________
FIRE'd in 2014 @ 40 Years Old
Professional Retiree
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08-26-2021, 04:31 PM
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#6
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Thinks s/he gets paid by the post
Join Date: Jan 2008
Posts: 1,671
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Quote:
Originally Posted by ExFlyBoy5
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.
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Yes; my county has a tax cap so the total revenue can only rise by an inflation factor (not sure what they use). So, if the tax base increases enough the tax on our property can actually go down.
The downside is that they constantly cut out services like sheriff, road maintenance etc. to fit into the budget.
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08-26-2021, 04:47 PM
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#7
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Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Sep 2005
Location: Northern IL
Posts: 26,891
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edit/delete - I misread one line from OP... this can stay:
I prefer using the default historical analysis, to me that is the power of FIRECalc.
first hit on google:
Quote:
In January 1980, inflation was 13.91% and Unemployment was 6.3%. Inflation peaked in April 1980 at 14.76% and fell to “only” 6.51% the following April.
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3% doesn't tell the whole story, not even close. That's why I don't use the non-historical options.
-ERD50
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08-26-2021, 08:35 PM
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#8
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Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Jan 2007
Location: New Orleans
Posts: 47,500
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We have a freeze on property taxes if you are over a certain age and have an income under a certain amount. So, I had that for a while, but my income is too high now and my property taxes are no longer frozen. Mine went up $104 from 2019 to 2020; $1,822 to $1,926.
That's OK! Several other regular expenses have been going up also, due to inflation. I treat all of these increases the same.
Luckily so far, my investment income has been going up nicely like everyone else's. So, even if I spend a little more to cover some higher costs here and there, it hasn't affected my withdrawal rate. Come to think of it, I'm not sure it has been enough to make much if any difference so far; for example last year I might have spent $104 less on video games or something.
__________________
Already we are boldly launched upon the deep; but soon we shall be lost in its unshored, harbourless immensities. - - H. Melville, 1851.
Happily retired since 2009, at age 61. Best years of my life by far!
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08-26-2021, 09:23 PM
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#9
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Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Apr 2012
Posts: 6,180
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Our state does property tax assessments every 3 years, and ours was last done the year I retired, so I knew going into retirement what it would be for the next 3 years. After that, it is anybody's guess. I do not break it out, I just include it as part of our overall expense growth. Since we are spending much less overall than we estimated, and it is still less than 4% of our expenses, it is not an issue.
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FIREd date: June 26, 2018 - "This Happy Feeling, Going Round and Round!" (GQ)
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08-26-2021, 11:46 PM
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#10
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Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Jun 2014
Posts: 7,050
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If a property is owner occupied it can’t go up more than 3%. Since my tax is 400/ year it’s not a concern.
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08-27-2021, 06:06 AM
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#11
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Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Dec 2014
Location: Huntsville, AL/Helen, GA
Posts: 6,002
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Out state constitution states that property tax increases requires voter referendum, and our citizens are into less taxation. They'd never vote for large property tax increases.
And since my wife is disabled, we have no property taxes on our main residence. That allows us to have a $400K lake house, and property taxes there are only $1,100 per year.
It's a benefit of living in a ultra LCOL place.
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08-27-2021, 06:16 AM
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#12
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Thinks s/he gets paid by the post
Join Date: Jul 2013
Posts: 1,884
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Unless you live somewhere where prop tax increases can be easily predicted (ie. caps in place, or many years of increases above inflation), I would just treat this like any other expense and expect it to increase with inflation.
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08-27-2021, 06:44 AM
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#13
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Thinks s/he gets paid by the post
Join Date: Aug 2012
Posts: 1,829
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This is one of those "in the weeds" non worries for me. In NH I pay approx $4500/year for property taxes.
I still don't worry about a 3% increase. That's only $135 dollars per year.
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08-27-2021, 07:21 AM
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#14
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Thinks s/he gets paid by the post
Join Date: Oct 2017
Location: Tellico Village
Posts: 2,622
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In Illinois the property taxes are suppressive to real estate and young families. The calculation for taxes in Illinois comes from which state you would like to relocate in. It is Tennessee for me...... and there is not any extra benefits in my area from paying excessive property taxes.
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Retired May 13th(Friday) 2016 at age 61.
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08-27-2021, 07:31 AM
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#15
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Thinks s/he gets paid by the post
Join Date: Nov 2008
Posts: 3,408
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Quote:
Originally Posted by Dtail
We are limited to max 3% yearly increases, so thankfully not an issue here.
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+1 Lived in our house for 35+ years and it has appreciated significantly (22x it's original purchase price). Taxes this year should be about $2.7k.
Cheers!
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08-27-2021, 09:45 PM
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#16
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Dryer sheet aficionado
Join Date: Jan 2017
Posts: 41
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From 1995 (the first full year I owned my house) through 2020 (the most recent year for which I have paid property tax), my property tax has gone up a total of 111%. That works out to a 3% increase per year for 25 years.
(Of course, things didn't actually go that smoothly. The worst year it went up over 19%; several years it went down.)
Overall it's increased faster than inflation which was an average of 2.1% per year over that same period. But that's not a big enough difference for me to worry about so I have taken no special steps to budget for property tax increases. It helps that property taxes do not make up a significant percentage of my annual spending, even in retirement.
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08-27-2021, 10:23 PM
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#17
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Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Jul 2008
Location: Leeward Oahu
Posts: 17,914
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Honolulu home/condo prices have not accelerated as much as many US areas. Additionally we have one of the lowest RE tax rates in the nation. I don't worry too much about property taxes in the great scheme of things. YMMV
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Ko'olau's Law -
Anything which can be used can be misused. Anything which can be misused will be.
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08-28-2021, 05:44 AM
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#18
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Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Jan 2008
Location: NC
Posts: 21,303
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Quote:
Originally Posted by mrfeh
Unless you live somewhere where prop tax increases can be easily predicted (ie. caps in place, or many years of increases above inflation), I would just treat this like any other expense and expect it to increase with inflation.
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+1. I can’t imagine worrying about it, projecting spending over 20-30 years is an axe not a scalpel.
Use whatever general inflation rate you’re comfortable with, and if you must increase pro rata for those items you’re convinced will go up faster, and that’s the best you can do.
If predicting the rate of your property tax increases is a significant determinant of your plans success, you’re cutting it way too close.
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No one agrees with other people's opinions; they merely agree with their own opinions -- expressed by somebody else. Sydney Tremayne
Retired Jun 2011 at age 57
Target AA: 50% equity funds / 45% bonds / 5% cash
Target WR: Approx 1.5% Approx 20% SI (secure income, SS only)
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08-28-2021, 06:27 AM
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#19
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Thinks s/he gets paid by the post
Join Date: Mar 2011
Location: North TX
Posts: 1,833
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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!
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08-28-2021, 06:48 AM
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#20
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Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Jun 2002
Location: Texas: No Country for Old Men
Posts: 50,021
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Quote:
Originally Posted by Surewhitey
TX is oppressive to retired folk...
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I've been trying to spread this message for almost 20 years - sadly, without success.
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Numbers is hard
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