Attorney Julie Garfield, 62, plans to tap the earning poten-
tial of her four-bedroom, two-and-a-half-bath San Rafael
ranch home as she transitions from part-time work to full
retirement over the next seven years.
“My retirement plan calls for me to move as often as every
three to five months bet ween three home bases I have already
established, in Nice, France; San Miguel de Allende, Mexico;
and Marin. That revolving change of scene, personalities,
activities, languages and regional travel options promises
to keep things interesting for me for so long as I am able to
move about freely,” Garfield says. When she’s not in Mexico,
her condo there can generate income via Airbnb competitor
VRBO. Not wanting to give up her foothold in Marin, Garfield
prefers to rent bedrooms to roommates instead of converting
her whole home into a rental property, giving her the flexibility to move back full time when she wants to.
Hedging your bets like this gets Nemetz’s approval.
“If you’re making a long-term commitment to living
abroad, try renting first before you buy that property in
Tuscany,” Nemetz suggests. You may have loved Tuscany
on vacation, but will you love living there year round? What
will you do for medical care while you live there? Do you
understand the local real estate laws? These are all questions
would-be expats can address during a trial stay, Nemetz says.
Is It Too Late to Buy Real Estate?
Planners say they are also having conversations with clients
about another issue: buying property. Soaring home prices
are great for those thinking of cashing in, but a towering barrier for those who want to become homeowners or landlords.
That’s not to say that no one should consider buying a home at
current prices, says Evan Oliver, of Sausalito’s Verity Wealth
Advisors. Buying property in Marin just shouldn’t be considered an investment at this point.
“You’ve just got to forget about any potential appreciation.
Not that it won’t be there, but you can’t let that be the driver
behind buying a house,” Oliver says. People should buy a home
if the pleasure they’ll derive from living in their own home
outweighs the pleasure they might derive if they invested
elsewhere the considerable funds they’ll pay, he says.
One thing Oliver advises against for most people: taking
the down payment from your 401(k).
“When you start to see people tap into retirement plans, 90
percent of the time or maybe more they’re doing it because they
have no other way to buy it, which means that the purchase is a bit
of a stretch any way, and it may not be the thing to do,” Oliver says.
The unavailability of local real estate as a viable invest-
ment is tough, as it coincides with continuing low interest
rates, uninspiring bond performance and a long run-up in
stock prices. Where to put investment funds?
For Dino Wilson, an agent with Paragon Real Estate Group
in Greenbrae, the answer is Sonoma. He’s helped more than
half a dozen clients acquire rental properties at “still very
affordable” rates in Santa Rosa, Rohnert Park and Boyes Hot
Springs, and he’s a landlord there himself. While you would
be hard-pressed to recoup the purchase price for a Mill Valley
condo in rents, that’s still feasible in Sonoma, he says.
“I still do a great deal of my work in Marin, but I’m seeing the
next 10 years of growth in Sonoma. And with the (Larkspur to
Cloverdale) SMART train up and running, that’s going to open
the door for commuters to feel they can live in Sonoma County
and not have to sit on the freeway,” Wilson says.
The Tax Conundrum
Marin residents’ income has been growing, with median
household income approaching $91,000 as of 2013, up 15 percent from 2011, and forecast to keep growing, according to
the Marin Economic Forum. When folks are earning more,
the perpetual desire to minimize the tax burden intensifies.
We are often told to put as much of our earnings as possible
into tax-deferred retirement accounts, and advisers say many
clients ask about opportunities beyond the 401(k) or IRA to
defer taxes, such as setting up defined benefit plans, for those
that are self-employed.
But Oliver warns that putting all your investments into
plans that will be taxed later could be a mistake, because it’s
quite possible that you will face higher tax rates after you retire.
“If you think taxes are bad now, there are scenarios where
they could get much worse. If you’re focusing all your tax
planning on today, you could make mistakes that could cost
you down the road,” Oliver says. Besides the taxes you’ll pay
on your retirement benefits, you also need to think about
Medicare, which might hit you with surcharges if your income
from deferred-tax accounts is great enough to push you into
the affluent category.
“What we try to do is talk about tax diversification,” Oliver
says. That means that in addition to contributing to a 401(k)
or IRA, he advises clients who qualify to put money into a
Roth IRA, plus maintain a taxable investment account. That
way you are paying some taxes at today’s rate and some at the
unknown future rate. Another advantage of a Roth is that
unlike with a regular IRA or 401(k), withdrawals don’t count
toward Medicare’s income limits.
Bob Goldman of Bob Goldman Financial Planning, also in
Sausalito, offers another good reason for parking some earn-
ings in a taxable investment account: liquidity.
“If you need money for cash flow, you won’t have to turn
to your retirement accounts, where every dollar will be taxed
at ordinary income-tax rates — plus, a 10 percent penalty if
you’re under 59. 5 years of age,” Goldman says. “If you have that
If you think taxes are bad now, there are scenarios
where they could get much worse. If you’re focusing
all your tax planning on today, you could make
mistakes that could cost you down the road.