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In Retirement for University of California employees - who are considering a move from homeownership to renting - it may be a way to preserve capital and reduce housing-related financial stress that (Advisor Name) of The Retirement Group, a division of Wealth Enhancement Group, suggests (Advisor Name) evaluate carefully in the face of rising market uncertainty.
As rising home prices squeeze retiree budgets, (Advisor Name) is a representative of the Retirement Group, a division of Wealth Enhancement Group, which helps University of California retirees weigh the pros and cons of renting to determine if it fits their long-term financial plan and the current housing market complexities.
In this article, we will discuss:
1. Trends in housing and housing affordability for retirees today.
2. Rising interest rates affect potential buyers.
3. How to decide between renting versus owning a home in retirement.
So you're a retired executive from University of California navigating rising costs, longer lifespans, high medical costs, and volatile markets. We naturally ask ourselves here whether it makes sense to cash in on our largest investment: our homes. With average U.S. house prices soaring to nearly USD 360,000 - a third higher than a few years ago - it may be time to sell and invest the proceeds instead in a rental property. The details of that decision are below.
Current Housing Market Trends
Analyzing the current housing market, Realtor.com says in 45 of 50 major U.S. metropolitan areas renting is cheaper than buying a starter home. In addition, the Atlanta Federal Reserve Bank reports national housing affordability is soaring like it was during the housing bubble of 2006-2007. These statistics are especially relevant for seniors: data show the average U.S. house price almost 17 times the average annual Social Security benefit - a ratio never before the 2008 Lehman Brothers collapse.
Historical Comparison of Home Prices & Rents.
As proof of concept, look at a 1987 comparison of average U.S. home prices versus rents. This graph illustrates how current house prices are far above rents - comparable to what existed before the housing bubble burst in 2006-2007. Realize that the economic advantage of homeownership is the elimination of rental costs. But renting may be financially feasible for retirees now.
Steady Interest Rates Affect Potential Buyers.
Even though many University of California retirees own their homes outright or have older mortgages at lower rates, rising interest rates could affect potential buyers. Increasing borrowing costs may drop real estate values, so you could delay selling your home and lose gains that could not be recouped. It would take a decade before prices fully recovered after the last housing peak in 2006. Retirees selling their homes during this period could invest in lifetime annuities or watch stocks and bonds rise by about 80%.
Exploring Alternative Investment Options
In light of these observations, look into other investment vehicles such as real estate investment trusts (REITs). So you can sell your home and invest in publicly traded landlords with a mouse click. The Armada residential REIT ETF also invests in residential REITs - single-family homes, apartment-complex operators, and companies that operate manufactured-home parks and senior-living communities.
The Individual Decision to Sell & Rent.
Yet the decision to sell and rent is an individual one and involves several important considerations. Your dream location, potential sale price, tax implications, rental costs, plans to leave a property to heirs, and costs of moving. While traditional wisdom holds that owning a home in retirement from University of California companies is better - ask a financial planner about your specific situation.
Renting in Retirement: Pros and Cons.
It helps financial planner Malcolm Ethridge recommend against renting during retirement because he wants fixed costs that go with a fixed retirement income. The landlord is liable for setting the annual rent increase, so you can hardly put money aside for other monthly costs. And according to Adam Wojtkowski, an adviser with Copper Beech Wealth Management, entering retirement with no mortgage is ideal because housing is typically the largest monthly expense. By owning your home outright you avoid the volatility of rents.
The Risks of Renting and Selling Now.
But renting involves some risk. As Brian Schmehil of the Mather Group points out, renting subjects retirees to the landlord's decisions and makes them vulnerable to financial pressures in high inflationary environments as they age. These arguments for homeownership are complex.
With housing costs so high now, Wojtkowski suggests renting for now at least. Putting off selling until the housing-market crash happens may result in an extended and uncertain waiting period. Schmehil also says selling when home values are historically high is advantageous. Capture the equity in your home and retire early without reverse mortgages or potential problems selling later in life.
Flexibility & Lower Responsibility of Renting.
Renting also allows for greater mobility in terms of location - closer to your children or grandchildren. A second benefit is less responsibility for home maintenance and repairs. Renters are relieved of the maintenance burden, financial planner Ann Covington Alsina says. Any problems such as broken appliances or a leaky roof pass to the landlord.
The Downsizing Option
Alternatively, downsizing frees up capital without driving up rents. You can sell a larger home and move to a smaller one and profit from high home prices while controlling your housing situation.
Renting in Retirement - Real Life Experiences.
The experiences of many baby boomers support selling and renting. For example, my late friend Vincent Nobile, who lived a great life as a homeowner, rented in his 80s. He liked not having to worry about home maintenance, property taxes, or investing his earnings - without the responsibility of property ownership. Asking him if he preferred owning a home he laughed and shook his head.
Making the Right Decision
The decision to sell or rent is ultimately a personal one. Seek professional advice from financial planners and consider current housing market trends. Examining financial advantages and disadvantages, weighing impact on retirement income planning and personal preference, University of California retirees can make an educated decision that reflects their long-term goals and financial security.
In a study in the Wall Street Journal on May 15, 2023, more baby boomers are renting than owning homes because house prices are skyrocketing. The study says among those age 60 and older, renters have increased by 15% in the last five years. Those changes in housing preference reflect a financial prudential boomer trend to save for retirement and avoid homeownership amid skyrocketing real estate prices.
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Think of the housing market as a turbulent sea with rising tides. Your home is your ship as a retiree navigating the financial storms. However, rising house prices mean your ship is in rough seas and may capsize. Some retirees from University of California are taking a new tactic to weather the storm. They're trading their ships for a rental lighthouse. Renters get stability and shelter from the volatile housing market so you can retire without the hassle of property maintenance and high homeownership costs. It's like a safe harbor from which to sail toward financial freedom and flexibility.
Sources:
1. Banaszak, Michelle. 'Should You Sell Your House And Rent When You Retire?' Rocket Mortgage , 15 Feb. 2024.
2. Why Renting for Some Retirees May Be a Better Option.' MassMutual , Sept. 2022.
3.'With House Prices This High, Should Retirees Sell Their Homes and Rent?' MarketWatch , Aug. 2023.
4. 'Should Seniors Sell Their Home and Rent?' The Jenn Smira Team , Jan. 2025.
5. 'The Downsizers Choosing to Rent Their Way Through Retirement.' The Times , Nov. 2023.
How does the University of California Retirement Plan (UCRP) define service credit for members, and how does it impact retirement benefits? In what ways can University of California employees potentially enhance their service credit, thereby influencing their retirement income upon leaving the University of California?
Service Credit in UCRP: Service credit is essential in determining retirement eligibility and the amount of retirement benefits for University of California employees. It is based on the period of employment in an eligible position and covered compensation during that time. Employees earn service credit proportionate to their work time, and unused sick leave can convert to additional service credit upon retirement. Employees can enhance their service credit through methods like purchasing service credit for unpaid leaves or sabbatical periods(University of Californi…).
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Contribution Limits for UC Defined Contribution Plans in 2024: Contribution limits for defined contribution plans, such as the University of California's DC Plan, often adjust yearly due to IRS regulations. Increases in these limits allow employees to maximize their retirement savings. For 2024, employees can compare the current limits with previous years to understand how much they can contribute tax-deferred, potentially increasing their long-term savings and tax advantages(University of Californi…).
What are the eligibility criteria for the various death benefits associated with the University of California Retirement Plan? Specifically, how does being married or in a domestic partnership influence the eligibility of beneficiaries for University of California employees' retirement and survivor benefits?
Eligibility for UCRP Death Benefits: Death benefits under UCRP depend on factors like length of service, eligibility to retire, and marital or domestic partnership status. Being married or in a registered domestic partnership allows a spouse or partner to receive survivor benefits, which might include lifetime income. In some cases, other beneficiaries like children or dependent parents may be eligible(University of Californi…).
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Tax Implications of Rolling Over UCRP Benefits: Rolling over benefits from UCRP to an IRA can offer tax advantages. A direct rollover avoids immediate taxes, while receiving a distribution first and rolling it into an IRA later may result in withholding and potential penalties. UC employees should consult tax professionals to ensure they follow the IRS rules that suit their financial goals(University of Californi…).
What are the different payment options available to University of California retirees when selecting their retirement income, and how does choosing a contingent annuitant affect their monthly benefit amount? What factors should University of California employees consider when deciding on the best payment option for their individual financial situations?
Retirement Payment Options: UC retirees can choose from various payment options, including a single life annuity or joint life annuity with a contingent annuitant. Selecting a contingent annuitant reduces the retiree's monthly income but provides benefits for another person after their death. Factors like age, life expectancy, and financial needs should guide this decision(University of Californi…).
What steps must University of California employees take to prepare for retirement regarding their defined contribution accounts, and how can they efficiently consolidate their benefits? In what ways does the process of managing multiple accounts influence the overall financial health of employees during their retirement?
Preparation for Retirement: UC employees nearing retirement must evaluate their defined contribution accounts and consider consolidating their benefits for easier management. Properly managing multiple accounts ensures they can maximize their income and minimize fees, thus contributing to their financial health during retirement(University of Californi…).
How do the rules around capital accumulation payments (CAP) impact University of California employees, and what choices do they have regarding their payment structures upon retirement? What considerations might encourage a University of California employee to opt for a lump-sum cashout versus a traditional monthly pension distribution?
Capital Accumulation Payments (CAP): CAP is a supplemental benefit that certain UCRP members receive upon leaving the University. UC employees can choose between a lump sum cashout or a traditional monthly pension. Those considering a lump sum might prefer immediate access to funds, but the traditional option offers ongoing, stable income(University of Californi…)(University of Californi…).
As a University of California employee planning for retirement, what resources are available for understanding and navigating the complexities of the retirement benefits offered? How can University of California employees make use of online platforms or contact university representatives for personalized assistance regarding their retirement plans?
Resources for UC Employees' Retirement Planning: UC offers extensive online resources, such as UCnet and UCRAYS, where employees can manage their retirement plans. Personalized assistance is also available through local benefits offices and the UC Retirement Administration Service Center(University of Californi…).
What unique challenges do University of California employees face with regard to healthcare and retirement planning, particularly in terms of post-retirement health benefits? How do these benefits compare to other state retirement systems, and what should employees of the University of California be aware of when planning for their medical expenses after retirement?
Healthcare and Retirement Planning Challenges: Post-retirement healthcare benefits are crucial for UC employees, especially as healthcare costs rise. UC’s retirement health benefits offer significant support, often more comprehensive than other state systems. However, employees should still prepare for potential gaps and rising costs in their post-retirement planning(University of Californi…).
How can University of California employees initiate contact to learn more about their retirement benefits, and what specific information should they request when reaching out? What methods of communication are recommended for efficient resolution of inquiries related to their retirement plans within the University of California system?
Contacting UC for Retirement Information: UC employees can contact the UC Retirement Administration Service Center for assistance with retirement benefits. It is recommended to request information on service credits, pension benefits, and health benefits. Communication via the UCRAYS platform ensures secure and efficient resolution of inquiries(University of Californi…).
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