Retirement budgeting for property taxes

[Member]

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.

 

[Texas Proud]

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..

 

[RunningBum]

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.

 

[Dtail]

We are limited to max 3% yearly increases, so thankfully not an issue here.

 

[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.

 

[jebmke]

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.

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.

 

[ERD50]

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:

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.

3% doesn't tell the whole story, not even close. That's why I don't use the non-historical options.

-ERD50

 

[W2R]

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.

 

[jollystomper]

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.

 

[Teacher Terry]

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.

 

[Bamaman]

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.

 

[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.

 

[finnski1]

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.

 

[VanWinkle]

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.

 

[Badger]

We are limited to max 3% yearly increases, so thankfully not an issue here.

+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!

 

[Gryphon]

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.

 

[Koolau]

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

 

[Midpack]

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.

+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.

 

[Surewhitey]

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!

 

[REWahoo]

TX is oppressive to retired folk...

I've been trying to spread this message for almost 20 years - sadly, without success.

 

[Member]

Hi Everyone,

Thank you so much for all of your replies. After reading all of them I have decided not to try and anticipate property tax increases over retirement but to let that be taken care of by my allowance for inflation.

I live in Wisconsin and after a town-wide revaluation this year I expect my property taxes to be right around $10,000 next year. For those of you with property taxes that are 1/10th of that, I believe the government gets it one way or another so I expect the fees for various things in Wisconsin are less than other places. However, we don't have any sort of cap on property tax increases, either for seniors or anyone else, so the sky's the limit.

The person who posted their total and averaged increase since 1995 is exactly the sort of thing I was looking for. As I mentioned, I did that for all of my neighbors and found an average increase of 2.85% from 1999 to current so all of this reinforces that I shouldn't worry about property tax increases specifically.

Thanks again,

--
Dan

 

[Member]

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.

Thank you!

 

[Koolau]

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!

The patchwork of state and local taxes can be mind-boggling - especially to those considering moving to a new area. I recall looking up Hawaii taxes and having my heart sink. There were state income taxes, property taxes, fees on everything, excise tax (charged as if it were a sales tax - and included several taxes upon taxes.) No one talking about Hawaii taxes ever mentioned all the relief for seniors and especially for retirees. It turns out we pay much less tax now than when we lived in an "also ran" midwestern state. Who knew? Of course, everything else is expensive, so like REWahoo, I advise against moving to Paradise! Even our governor is (again) advising tourists to "stay away." YMMV

 

[jazz4cash]

Last year I studied the assessment process here very intently due to a ginormous assessment increase. I am convinced they start with the budget needed and calculate backwards to determine the assessment increase required. The counties get most of the tax money and they individually set caps to limit the actual increase. Also the increase is phased in over 3 years. I studied the assessments of all my neighbors and nearby comparable sales. I won my appeal which will save a substantial amount every year. I was shocked to see many, many neighbors do not receive a homestead tax credit. Everyone qualifies for this credit on their principal residence which requires one time submission of a one page application. I think realtors should do a better job informing their clients how to apply.

 

[rodi]

It's a benefit of living in a ultra LCOL place.

In CA we have prop 13 - which significantly limits increases to property tax once you buy.

It's a benefit of living in an ultra HCOL place.

***
In other words - property taxes are set by state and local laws. And there can be low property taxes in HCOL and in LCOL states.