This article is written by a professor at the Wharton School who has a book coming out this week. It appears we have a glut of boomers – will we stay put, or sell the family homestead (once the covid is solved) and explore the world during retirement?
Population aging is a powerful force. By 2030 the population above age 60 will have grown so much that other generations like millennials and Gen-Z will be outnumbered by them in Europe, China, Japan and the United States.
Each day, 12,000 Americans celebrate their 60th birthday; in China, 54,000; and in the world, about 210,000, according to the United Nations Population Division. The pandemic will only accelerate this trend given the predictable decline in fertility — which tends to occur whenever unemployment is high — and the shifting demographics of cases and deaths, which are trending younger as time goes by.
The 60+ crowd will become very important economically for three reasons.
First, they own more than half of the net worth around the world, a proportion that reaches 80 percent in the United States, according to a study by the Federal Reserve. Second, the same study concluded that the net worth of seniors is more evenly distributed than among younger age groups, and poverty rates are also lower. And third, their incomes tend to be more resilient because many of them depend on pensions or investment income, and they can do some work on the side to cover potential shortfalls.
Not all seniors are financially secure, but they tend to be less exposed to large-scale financial disruption during episodes of crisis. Moreover, there are 25 percent more women above the age of 60 than men, they tend to be much better at managing their money and making it last, and they account for a smaller percentage of COVID-related health problems and hospitalizations, mainly because they heed the advice of health authorities and they have more robust anti-viral immune responses to begin with.
The gray market is quickly becoming in vogue because ever larger proportions of seniors are enjoying life by using their income and wealth wisely to procure goods and services that enhance their experiences.
Moreover, a 70-year-old nowadays lives the life of a 50-year-old in the 1980s.
The pandemic has also accelerated the technological savviness of this group, and not just in the area of e-commerce. In fact, a study in the Journal of Gerontology found that use of the Internet increases cognitive functioning rather than vice versa. Myriad new applications in virtual reality, robotics, and artificial intelligence are seeking to capture a rapidly growing market.
Other areas of technology will help seniors live longer and more fulfilling lives. Virtual reality can stimulate motor functions and the overall performance of the nervous system, and it can help reduce loneliness, a key problem afflicting large numbers of people at advanced ages. Artificial intelligence and robotics will also contribute to quality of life. Over the last decade, Japanese companies have invested heavily in robotics to aid with daily tasks like lifting weights, conduct physiotherapy sessions, and provide for companionship.
It’s the one in Carlsbad where water damage caused the owners to vacate while remediation took place, and then rather reconstructing most of the house, we just sold it as-is.
I sold the house to the owners for $179,000 in December, 1996 when they retired here from Redondo Beach, and we’ve stayed in touch ever since. We knew the day would come when they wouldn’t want to live there on their own, but it’s always easier to delay the sorting of the family stuff until then.
The day has come….without notice.
As seniors age, they typically lose some of their physical and mental capacities, and going through their stuff becomes onerous. Just like with moving, don’t wait too long to sort through your family memories.
Thankfully in this case, Olga is still on top of her game and is whipping through the stuff quickly – she said it’s like having her life flash before her eyes!
Start sorting and moving today while you can still enjoy it!
Because baby boomers tend to own in the best locations (they got there first), we should have an extended frenzy, and maybe an occasional glut of older and dated 2-story homes in some areas:
Nearly a third (31%) of home sellers are “extremely anxious” about selling their home in 2020. The percentage of sellers in each age group who feel this way are:
37% of millennials
35% of Gen Xers
20% of baby boomers
Another 46% of sellers are “somewhat anxious” about a home sale this year, while 6% have no anxiety at all.
While 32% of home sellers already have their home listed for sale, more than 6 in 10 sellers (62%) haven’t put their home on the market yet. Another 6% previously listed their home, but have since taken it off the market.
More baby boomers (57%) plan on waiting to put their home on the market, due to the COVID-19 pandemic, than Gen Xers (41%) and millennials (42%).
A two-year-old, Culver City, California-based startup calledUnited Dwellingaims to tackle the affordable housing problem using data, creativity, and underutilized garages and backyards.
United Dwelling plans to eventually build thousands of Accessory Dwelling Units, which are basically 369-square-foot studio homes. The company said its units benefit homeowners who are looking for ways to supplement their income as well as tenants looking for low-cost housing options.
United Dwelling uses data to identify potential lots that would be suitable for its units. It targets mostly low-and middle-income neighborhoods, with some exceptions for workforce housing. The company at first was going to just remodel garages but discovered quickly it’s much easier to tear down old ones and start fresh. So that’s what it does. It replaces those garages with small, affordable and zero net carbon homes in low-density neighborhoods with no out-of-pocket costs to property owners.
It then sets a rental price for the newly built unit and manages the property on the homeowner’s behalf, keeping a share of the rental income. Upon completion of construction, United Dwelling gives the homeowner the option to buy the unit back from the company for just under $88,000. To keep the costs of construction down, United Dwelling aims to build at least five units within a two-mile radius in the same time frame. Its initial focus is on the Los Angeles region with plans to eventually expand to the Bay Area and other locations once its solidifies its process, according to Dietz.
Specifically, the company plans to build over 150 of its detached studio homes in Southern California in 2020 and over 1,500 in 2021 (assuming construction can continue moving forward as an essential function per Los Angeles COVID-19 policy).
“Affordable housing is one of the most daunting challenges facing California and other parts of the county that is both entirely man-made and completely solvable,” Dietz said. “Here, we can do something that’s incredibly relevant. The opportunity is truly immense. Affordable housing is pretty easy. All you need is inexpensive land and construction, and capital.”
Matthew does a statistical comparison of today vs. 2008 in this video below. Important to note how his stats show how comfortable sellers are today, and I’ll add that even if homeowners lose their job and stop making payments, it would take a year or two before you’d see foreclosures:
Could the coronnavirus get so bad that it triggers the boomer liquidations? Maybe, and if so, the boomer sales would still be spread out over time because homeowners – especially the long-timers – will resist leaving the comforts of home for as long as possible, and they will hope that waiting out the virus will lead to a better market.
There is no reason to transfer your house to your kids – use a family trust instead. If you need dough, then get a reverse mortgage. Hat tip to just some guy!
Adding an adult child to your house deed, or giving them the home outright, might seem like a smart thing to do. It usually isn’t.
Transferring your house to your kids while you’re alive may avoid probate, the court process that otherwise follows death. But gifting a home also can result in a big, unnecessary tax bill and put your house at risk if your kids get sued or file for bankruptcy. You also could be making a big mistake if you hope it will help keep the house from being consumed by nursing home bills.
There are better ways to transfer a house to your kids, as well as a little-known potential fix that may help even if the giver has since died.
WHY YOU SHOULDN’T GIFT A HOUSE
If you bequeath a house to your kids — which means they get it after your death — they also get what’s known as a “step-up in tax basis.” All the appreciation that happened while you owned the house is never taxed.
Certified financial planner Kenneth Robinson of Rocky River, Ohio, says last year he advised a client not to let his mom give him her house. The mother paid $16,000 for her home in 1976, while the current market value is close to $200,000. None of that gain would be taxable if the son inherited the house, Robinson told his client.
The mother signed a quit claim to give her son the house anyway and died shortly afterward. That potentially meant a tax bill of about $32,000 for Robinson’s client.
Families who realize the mistake in time can undo the damage by gifting the house back to the parent, says Jennifer Sawday, a partner at TLD Law in Long Beach, California.
“We do last-minute deeds to get that house back in place when we know someone is dying,” Sawday says.
OTHER REASONS NOT TO GIFT A HOUSE
Sometimes people transfer a home to try to qualify for Medicaid, the government program that pays health care and nursing home bills for the indigent. But gifts or transfers made within five years of applying for Medicaid can lead to a penalty period, when seniors are disqualified from receiving benefits.
Transferring your home to someone else also can expose you to their financial problems. Their creditors could file liens on your home and, depending on state law, get some or most of its value. In a divorce, the house could become an asset that must be divided.
A POTENTIAL ‘HAIL MARY’ FIX
Robinson consulted a certified public accountant and an estate planning attorney. Both said what Robinson feared was true: The client was stuck paying taxes on the $184,000 gain in value since his mother bought the property.
“They were as discouraged as I was,” Robinson says.
But then Robinson hired a tax research firm and learned of a workaround. Section 2036 of the Internal Revenue Code says that if the mother retained a “life interest” in the property, which includes the right to continue living there, the home would remain in her estate rather than be considered a completed gift.
“Many people do not know about this and are therefore losing out on the step-up and the lower taxes they would be entitled to,” says Michael Eisenberg, CPA financial planner with the American Institute of CPAs’ Financial Literacy Commission.
There are specific rules for what constitutes a life interest, including the power to determine what happens to the property and liability for its bills. To ensure that outcome, the son, as executor of his mother’s estate, filed a gift tax return on her behalf to show that he was given a “remainder interest,” or the right to inherit when his mother’s life interest expired at her death, Robinson says.
THERE ARE BETTER WAYS TO TRANSFER A HOUSE
There are other ways around probate. Many states and the District of Columbia allow “transfer on death” deeds that allow people to leave their beneficiaries their houses without having to go through probate. Another option is a living trust, which typically costs $1,500 to $3,000 to set up but can ensure all a person’s assets avoid probate.
And probate in many states is nothing to fear. Most states have simplified probate procedures for smaller estates. Only in a few, such as California and Florida, is probate so expensive and time-consuming that most people should try to avoid it.
“We see avoidance of probate as a big issue in people’s minds, sometimes bigger than it has to be,” Robinson says.
When it comes to the most sought-after aging-in-place projects, bathrooms dominate the top spot.
In a recent NAHB survey of remodelers, more than eight out of 10 reported that installing grab bars (89%), higher toilets (85%) and curbless showers (82%) were the most common aging-in-place projects.
Widening doorways, the next most-common project on the list, came in at a distance 59%.
Even though the underlying motivation seems similar in both cases, walk-in bathtubs have not become nearly as common as curbless showers. Only 12% of remodelers reported installing walk-in tubs.
When NAHB began asking aging-in-place remodeling questions in 2004, curbless showers were about as common as wider doorways. But over the years, the share of NAHB remodelers installing curbless showers has grown from 54% to 82%.
Who is selling? I haven’t checked in a while! This chart tracks when the home was purchased by the sellers. Today’s numbers are from those sold between Jan 22 and Feb 14 of this year:
0 – 2003
2004 – 2008
2009 – 2011
2012 – 2019
The long-time owners aren’t moving as much as they used to! Those who have purchased since 2012 have no problem selling for a decent-to-huge gain, and more of them have been taking their profits – and hopefully buying another.
There were four flippers in today’s 2012-2019 group.
Ever since the SALT cap went into effect in 2018, the hunt has been on for signs that it has prompted more wealthy residents to move from high-tax to low-tax states.
“Despite some recent claims that it has,” Lucy Dadayan of the Tax Policy Center wrote on Feb. 10, “the data available support the view that ‘We don’t have any idea.’”
News articles crop up from time to time about things like surging purchaser interest in Florida condos from residents from New York or California. But they’re anecdotal, not data-driven. It’s hard to say whether the interest doesn’t reflect the pretax bill trend or bargains left over from a lengthy Florida real estate slump.
“Migration has been a problem for a number of years,” Dadayan told me. “SALT cap or not, New York has to be concerned about losing people.” Internal Revenue Service statistics show that New York lost more than 76,000 taxpayers from 2017 to 2018, nearly 1% of its taxpayers and the largest outflow among high-population states.
But as Dadayan observes, attributing that migration to concerns about high taxes in general or the SALT cap specifically is another matter. The top destination for fleeing New Yorkers in recent years has been California, which has a higher top income tax rate. “Migration is not necessarily determined by taxes,” she says.
The SALT cap raised hackles in high-tax states. New York Gov. Andrew Cuomo pronounced it “an economic civil war that helps red states at the expense of blue states.”
Pinpointing the relationship between the SALT cap and interstate migration is difficult for several reasons. One is that it’s too early to tell. The Internal Revenue Service has released taxpayer data only through the 2017 tax year; statistics for 2018 tax payments won’t be available until December.