We get a lot of retirement questions particularly around real estate, but none is more common than the “can I afford to live in… ” insert your favorite location. The most common locations for retirement (at least in terms of questions asked of us) is retirement in Florida and California.
Ultimately, there isn’t enough information to determine whether or not your can afford something. We’d need to know your income and if you’re retiring how much of that is social security (lucky for you in California that’s not taxed). Then we’d need to know housing expenses of the place you’d choose to live.
Can you afford Orang County California?
California is one of the worst states to retire to because of how expensive it is but let’s take some hypotheticals. Say you’re married, pulling $20K/year from 401(k) as taxable income and drawing a combined $20K from Social Security. You don’t pay tax on the Social Security in California so you’re in the 2% tax bracket. Sales tax is similar between Florida and California and not to dissimilar to other states overall.
Another scenario might be somebody with a $5M taxable portfolio, invested 100% in the S&P 500. Assuming zero turnover and zero annual redemptions, there’s still a 1.7% dividend rate, for a taxable unearned annual income of $85K. What would be the aggregate tax rate… something like 7%?
If you have other income, which gets added to that $85K/year, the numbers begin to move. Call it $170K/year. Now suddenly the CA tax buys a $12K/year mortgage… which moves into the realm of the possible.
This all comes down to housing costs. If you own your house outright, your property tax rate is mostly locked in for life in California. So really, the question isn’t if you can afford California, it’s where can you afford it?
We decided to look at median price points of housing in different parts of Orange County Real Estate to get an idea of what might be affordable to you. Orange County represents the one of the most expensive counties in the country, so if any of these prices look good to you then it only gets better as you continue to look.
Orange County Median Price Of Homes For Sale
- Corona Del Mar – $2.9 Million
- Costa Mesa – $872,000
- Dana Point – $1.2 Million
- Fountain Valley – $815,000
- Huntington Beach – $929,000
- Irvine – $1 Million
- Laguna Beach – $2.9 Million
- Long Beach – $625,000
- Newport Beach – $2.6 Million
- Newport Coast – $3.9 Million
- Rossmoor – $1.3 Million
- San Clemente – $1.1 Million
- San Juan C. – $1.2 Million
- Sunset Beach – $1.5 Million
- Tustin – $789,000
From this list, (courtesy of Team Infinity of Keller Williams in Orange County) we can see that the median price point is some of the highest in the country. That being said, many of these areas have lower priced homes, in case you really do want to retire to California. Some even have other retirement resources that you’d want when you consider it as a whole.
In our talks with Team Infinity, many of the mainstays of retirement communities in Florida are almost taken for granted in Orange County. Meaning lower overall health care expenses and services. Huntington Beach was a community that kept coming up, Huntington Beach has condos for sale that are under $500,000 but still close to every senior amenity you could hope for.
That being said, one thing to consider when retiring anywhere is the HOA or Condo Association dues. Those eat into your income and your purchase power if you are buying a home with a loan. A few hundred dollars a month can really hurt your debt-to-income ratio.
So Can You Afford To Retire To Orange County?
I’d say you likely could find a way, but it’s not one of the best states to retire to. Housing prices are certainly higher in California than the rest of the country but that’s true for all the popular states. What you lose in money you make up for in whether and when compared to Florida (for example) you’ll get the same year long temperature just minus the humidity. Often that means, less asthma prescriptions and just an overall longer life. That is of course if you can handle west coast politics.