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I’M A HOUSEHOLD of one—in theory. True, one adult child lives rent-free in our family home in California. Her first full-time job’s wages are too low for her to afford an apartment in our expensive urban area.
I’m also paying college expenses for another daughter living on campus 80 miles away. She’s working part-time and will graduate this coming spring semester. With a STEM (science, technology, engineering and math) degree, I hope she’ll find gainful full-time employment soon after.
My son is in Wyoming finishing up an alternative high school program. He just landed his first paid internship at an agricultural lab, the first step toward a career in environmental science. I provided the security deposits to get him into his first apartment. I also drop a bit of money into his bank account at random intervals. I do the same for his sisters, just to take the edge off early adulthood.
Finally, wherever I reside, I share quarters with the family dog. So, I’m never entirely a household of one. Yet I wonder if my living situation will simplify as my children take flight.
Due to my frugality and some luck, I have choices when answering these four key questions:
This last financial question causes me more angst than the existential where-what-who kind because there’s less opportunity to recover from any significant money mistakes I may make in retirement. To ease my concerns, I’ve considered selling the family house in California, rather than continuing to spend energy and money tending to it.
After half a lifetime there, however, I wonder how it would feel to lose my old neighborhood. A song from the scouting bonfires of my youth comes to mind: Make new friends, but keep the old. One is silver and the other gold.
When I look around, though, my neighborhood has more youthful faces of late and fewer longtime residents like me. Shops and restaurants have also changed, to match newcomers’ preferences.
So, where do I truly want to live? There’s no contest. I’m passionate about my recently acquired immobile home in Tucson. It’s been an exciting challenge to maintain my new, fragile manse, while also enjoying local treasures like the Arizona Sonoran Desert Museum.
My brother and sister-in-law live here, and I’m also forming new friendships. Driving over the cinematic Gates Pass, I explore the sprawling metropolitan area I now call my second home, winter and summer.
Still, I’m unprepared to sell the family home in California. To begin with, I’ve filled every corner and cupboard to the rafters. Clearing it out is proving a slow chore.
I also have a sensual connection. When I’m in the old place, I savor walking its red oak floors barefoot, a sensation that’s hard to replicate on vinyl planks in my ersatz fishing cabin.
When given a choice, do both. The B-side to life could see me living in my tin shack with periodic visits to the big house. Whenever I’m at the old place, I enjoy the kids’ company. For now, I’ll age in two places until I can no longer enjoy both houses or can’t manage the travel. Thankfully, I have the health and cash flow (almost) to support this strategy.
Still, I’d like to reduce my fixed costs. The big house’s single biggest fixed expense is its property tax bill, which is manageable. I can pass along my relatively low property tax rate to my children. This oddity of California real estate law has created a strategy of families passing houses down, more in the European style.
One home on my block will eventually belong to the great-granddaughter of its original builder. It’s conceivable that a similar future awaits my home as well.
To be sure, my overall tax expense is pretty high. Happily, most of this obligation derives from adequate income rather than my property taxes. Still, state and federal income taxes, property taxes and sales taxes amount to a big bite when combined.
Arizona’s flat personal income tax is 2.5%, while California’s progressive income tax ranges from 1% to 13%. Last year, I paid 3.6% of my California adjusted gross income to the state. The lower rate in Arizona does reduce my overall income tax payments a bit. The savings are enough to cover my weekly hamburgers with my brother over at Tiny’s on Ajo Highway.
Part-year living in Arizona reduces my gasoline expenses, as well. The gas tax is 19 cents a gallon in Arizona, versus 68 cents in California. A gallon of gas costs $3.39 in Arizona, while California’s gasoline recently averaged $4.74 a gallon. Another half-dollar price increase could result from the latest change in the carbon standard for California’s special blend.
I don’t drive all that much, though, so my savings are comparatively small. Despite all my grumbling when filling my car’s gas tank in California, I calculate my gas savings at less than $500 a year.
Arizona’s state sales tax is 5.6%, though Tucson’s local additions push it to 8.7%. Meanwhile, California’s state sales tax is 7.25%, but my local rate there is 8.75%. That makes shopping in either city roughly comparable. I can achieve greater savings by simply not buying things I don’t need.
As a thought experiment, I imagine how much I’d save by leaving California behind for good. If I sold the house, I’d save $1,095 annually in property insurance, $4,611 in property taxes, $2,364 for city utilities (trash and sewer), and around $3,200 for natural gas and electricity.
As I compare fixed costs, it helps to have already chosen an affordable landing zone. In Arizona, I only pay about $500 a year in property tax and insurance, a tenth of my California expenses. My tin can casita is all-electric, which I estimate will cost around $700 a year.
All in all, I’d be saving $11,570 in fixed expenses by becoming a year-round resident of the desert. With savings like these available, it should be no surprise that some 700,000 California residents moved out of the state in 2022, according to the California Legislative Analyst’s Office.
Yet I’m choosing to maintain two homes, an admittedly costly position. To defray my expenses, I could start charging my kids rent of $1,000 a month. That would be a bargain over what they’d pay elsewhere. Still, since much of my estate will go to them later, charging rent seems like taking money out of one pocket and putting it in another.
One of the heaviest expenses I shoulder is the cost of insurance, which will reach $24,875 in 2025. This covers a lot of policies: medical and dental for me and two of my children, a small life insurance policy and long-term-care insurance for me, auto insurance for me and two young drivers and, finally, two homeowner’s policies.
I might be overinsured. But in the five years since my spouse’s unexpected death, I’ve leaned toward extra protection. To save on insurance, I plan to up my deductibles and reduce coverage.
I have other ideas about cutting my expenses, starting with dropping the Disney Channel. I also plan to sell an actively managed fund to invest in a lower-cost index fund.
Finally, I’ll be easing the kids off the family phone plan. This may not be cutting the apron strings entirely, but it’s a start.
Catherine Horiuchi is retired from the University of San Francisco’s School of Management, where she was an associate professor teaching graduate courses in public policy, public finance and government technology. Check out Catherine’s earlier articles.
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Catherine, Check-out Boldin.com and run your retirement scenarios! Start with a base case that is doing everything you are doing right now! Be abundant, i.e. don’t give up anything! The model will tell you how likely you are to succeed. Then run some different scenarios based on the points you’ve discussed above. I’ve been playing with this model for several months now (make sure you check your base case and have it set up properly – – I paid a few hundred $s to have one of their experts review my inputs and give me modeling tips). The base case had a relatively low probability of success under the “pessimistic” Monte-Carlo simulation-lol! Then I ran a full relocation scenario. 99% pessimistic success-lol! I’m in CA and could relocate to OR. But like you my kids are still adulting and I love my CA friends and house! Recently, I determined that relocation might be leaning into a scarcity mind set? What happens if I sell and relocate later, or rent my CA house, or rent my OR condo, or reduce certain expenses associated with children adulting? Hmmm? What I learned is I can get to 99% pessimistic success (lol) under a lot of different scenarios and time plays a very big role! It’s very nice to know I can choose! That is an amazing blessing. Good luck!
Hello Catherine, Real estate can work well. I would consider hiring manager for the Ca property to get some well qualified tenants. Of course that takes getting the home ready and that means elbow greased elbows. It would mean extra money to you and save it for some day for the children to take over. A good manager takes a bunch of the headaches out of being a land lord.
I’m in the process, or I’ll say my trust is selling a home in expensive Denver and moving the wealth to another less expensive location and I’m 73. If done correctly the houses will be paid for and my own sons will take over the trust when I die to have a good inheritance.
You have a chance to do the same.
Hello fellow Californian:
(Google AI says:)
Note that property taxes may increase when a child inherits a house in California. This is because the property is usually reassessed to its current market value. However, there are some exclusions that may apply.
Explanation
——-
After your children are out of college and established in their careers might be the right time for you to enjoy your Tuscon, AZ home full time!
Good luck with your future!
Catherine, this is way off topic, but…..for a free fun thing to do in Tucson, visit the Medicine Man Gallery out east on Sunrise. Everything Native American…..Don’t take $$ or your checkbook….
Thanks! That sounds like a cool day trip. I like the price!
A neighbor today recommended lunch on the inner patio of the Hotel Congress downtown, a place I’ve yet to visit.
I’m blown away by how low your property taxes are. They’re lower than mine, and our tax basis goes back to the early 90s. Good ol’ Prop 13 and its successors, though as you note, CA income tax is the “equalizer” there. I didn’t realize the property tax basis could be passed down, though, so I learned something today.
I agree with Stacey’s advice—take it in stages. Once your other daughter is out of college and your son is launched, too, you’ll have a better sense of what to do with your house in California. Young adulthood is pretty volatile, and things could change in a few years. But decluttering the old house is a good step, regardless.
I also wouldn’t be shy about asking the kids to pay rent if they’re gainfully employed and living in the area. You can either use it to ease your own cash flow or stick the rent in a savings account to gift back to them later if/when they move elsewhere. I take your point about the money eventually being theirs, anyway, but it’s probably good for them to get a more real-life sense of how far their own earnings will take them. Living rent-free doesn’t accomplish that.
Here’s one oddity of Prop 13. Since valuation starts at 1% of the original purchase price, the year purchased isn’t quite as relevant as whether the purchase occurred at a high or low point in a housing market. My first CA purchase occurred in an upswing (1989), near the top. We bought our second house in a trough (1993), near the bottom. (Some areas like San Francisco rarely swing lower, but prices fluctuate in my city.) So my taxes are relatively low, though they’ve risen much more than the 2% per year of Prop 13, what with numerous add-ons voted in for schools, libraries, what not over the decades.
In the housing bubble collapse (2008), sale prices in our town dropped almost 50%. A homeowner could short-sell one (underwater mortgage) house while buying a nearly identical house with a 50% lower tax basis. That would set them up for lower property taxes for decades, assuming they didn’t move again.
As for my rent-free youngster, I imaging that arrangement will shake out before too long. They already pay their own part-time college costs, their job comes with health insurance and other benefits that I’m still providing for their siblings. They also do yardwork, saving me that expense. But your idea makes sense, too.
Agree with you about Tucson.
Hi Catherine,
I noticed in your detail of the insurance coverage you did not mention any umbrella coverage. My reading on Humble Dollar motivated me to add a personal umbrella policy a few years ago.
https://humbledollar.com/money-guide/umbrella-liability-insurance/
A recent video featuring Dr. Jim Dahle, MD from the 2024 Bogleheads conference has reinforced my decision to add the umbrella policy.
https://www.youtube.com/watch?v=wXqEmo-Vu0w&ab_channel=Bogleheads
Best, Bill
As the entire nation knows by now, the California insurance market is in deep distress. I called the company where I get my homeowner’s coverage last year and they don’t offer umbrella policies anymore. So I’d need to find another company that would offer that type of policy as a standalone product. It’s something I’ve considered adding, yes.
Having said that, I am already gritting my teeth over what I anticipate could be a 30-50% increase in my homeowner’s premium this year, related to the current rate case before the Insurance Commissioner for my insurance company, who will also be surcharging as part of the first billion dollars going into the state’s FAIR plan kitty to pay for the claims in Los Angeles. Will it be a once-and-done surcharge? Unlikely.
Check out AAA for auto and home. I have friends making this move and they are getting some $ relief. I’m going to shop AAA, AARP and the UC Alumni Association this year. The big insurance cos are over their skis for people who have been low risk.
My late father, an insurance man, beat the umbrella policy drum early and often: “One lawsuit and you could be working for someone the rest of your life.” When my husband was in law school, his Torts professor said the same.
My college Business Law professor (1985- ish) drilled into us that paper checks were a ticking timebomb. He was ahead of his time.
Plus…you’re responsible for the torts of your pets. Chew on that!
If you decide to sell the Homestead, Catherine, my best advice is to rent a dumpster and fill it up. We sold our home of 30 years during COVID and have never looked back.
Pick out a few things to sell–I’ve done that with things I love that the kids do not want: but nothing under $20. Takes awhile to sell or give away. Kitchen/bedding/bathroom items are needed by people being rehomed so that is easy. Old towels go to animal shelter. Lots of places love old couches/chairs that are in reasonable shape and will come get them.
Thanks for pointing out this efficient strategy.
I am thinking of demolishing and rebuilding my garage (which I maybe should have done 30 years ago). Renting a dumpster now and emptying the garage into it seems a great start to the big clean out.
Most everything in the house I could push to the curb with a “Free” sign and it would vanish.
No need for a dumpster when one is not in a hurry. Using Buy Nothing and marking things “free” at your curb will get the job done. Just don’t use a table you want to keep, it will disappear too.
I noticed in Boston people do this. They put still useful things out on the street and they disappear. Sort of a neat way to efficiently move items from those who don’t want them to those who do.
Our three are a bit older than your children and thus are more settled in their careers, but I know not one will move back to Illinois, so we have no pressure to save the homestead for them.
I’ve repeatedly mentioned on HD the burden of settling my uncles’ estates. What I’ve learned is like the parable of the mustard seed…the lesson has grown enormously, especially as I have aged.
Simple is usually better.
Begin to shed excess belongings, it gets easier. Buy Nothing Groups, garage sales, & FB Marketplace are the main tools I use to make the magic happen. Your children likely will not want 95% of your belongings.
Live in the now.
Book the trip.
Your family will not appreciate the time it takes to settle one’s financial affairs.
Death is expensive.
I’d keep the house at least three more years, mainly as a comfort to your children, given the major life change they’ve already endured. Plus you’ll likely need the space for the younger two when they visit for school breaks. I’d use this time to parse belongings and develop your long-term plan. I shed items in bursts and am currently in one. My childhood dollhouse and Playskool toys are finally on the chopping block. THAT is major progress for sentimental me. But no way are the Tonka trucks going! I view selling as a three-fold win:
1. no estate sales company is taking 60% of the proceeds
2. I get to know the home and people who will now enjoy my stuff
3. My sons won’t be stuck handling it
I visited Tucson in January, it is a delightful change of scenery. I biked Saguaro NP and I loved it. I now understand the appeal to “snowbirds!” Plus the food is fabulous. Enjoy your time, especially your bro/burger fun!
These are all reminders to stay the course on simplifying my corporeal footprint. It is a terrible burden on a family to leave everything behind. Less stuff, fewer headaches.
Catherine – I like how you have analyzed your options and income/outgo. The one thing I might suggest involves your immoble home. You’ve written about it several times, and it’s clear you love the location. Consider contracting with a home inspector to evaluate the structure, mechanical, electrical, and plumbing systems of your tin can casita. Ask specifically for an evaluation of future repair costs and longevity. The inspector might find something not on your radar that really needs to be done soon.
This is a really good idea. I had it inspected once, before I bought it (sight unseen though my brother had looked at it on my behalf).
I took that initial inspection’s list of concerns and have handled the bulk of them. However there’s always more to be done in terms of fixes small and larger. (Plus I’ve heard alarming things about the problems that critters can cause to the undercarriage…) Almost daily I learn something more about living in this savage environment in a tin box. Eventually I’ll have it reinspected.
I’m fortunate that the mix of residents here includes both the more and the less handy. The former teach me how to take care of issues within my capabilities while the latter tell me who to call to get harder things done.
Great article. I go through similar calculations. On a regular basis. One thing to consider, if your CA homes appreciated, is the timeline on selling your primary residence and still be eligible for the Capital Gains exclusion. I wrote about this last year.
Thanks!
My capital gain exclusion max dropped by 50% when my spouse died. That’s another financial pain and challenge for the widowed.
Especially in high housing cost areas, where a family’s nest egg is often tied to a single house, that’s something older couples would do well to discuss as part of their financial planning, as it’s likely that in going from two to one the family also has moved $250,000 into a taxable gain. Your excellent article on your own experience illustrates the complexities and options of selling.
By contrast, continuing to hold the big family house saves my one kid the high cost of local market rent (paid for in after tax dollars while they can bank the savings in a tax-advantaged retirement account). Is the house more than she “needs” or that she and I together require? Case could be made, and there are plenty of families in California who wish they had opportunities for a bigger house (30 years ago I was one of those). But it would cost me a small fortune in capital gains taxes to sell it now, and if it passes into my estate they will get a step up in basis to its value on that date, leaving them more money, when it’s ultimately sold, to underwrite the three of them their own home purchases (assuming that’s what they need then.) So it seems to make good financial sense, on an individual level, and as long as I can afford the costs, to keep it. (There is a crossover point which I haven’t calculated yet at which time my carrying cost exceeds the capital gains taxes…)
Since I moved into a tiny park unit on a rented lot in the outer desert (Alter Valley), I didn’t need to sell that house in order to buy/rent here. Because we are on the “wrong” side of the mountain, there is reduced risk of huge rent increases in the shorter timeline for my residency as opposed to the many years of inflation and expense creep the kids face. Which sometimes have me hoping they buy (if they plan to) sooner rather than later. But the broken market for so-called starter homes in California, that’s a topic for another day.
Aren’t you able to step up the basis on the house as of the date of your husband’s death? And because California is a community property state, can’t you step up the basis on the whole property? I’m no tax expert, but Michael Perry wrote about this:
https://humbledollar.com/2023/08/a-basis-for-decisions/
You are so right, Jonathan, and this is something I have overlooked in my recent thinking about when to sell the house.
It’s an excellent point. And given that my particular housing market tends to see big swings in valuation, it seems highly plausible that I can sell it at the appropriate time with minimal capital gains downside. Thanks for reminding me.
Thanks for an interesting examination of the mundane elements that make up our lives. Your household may have two locations, but it’s built on the one foundation of a thoughtful, loving mom that’s seeking the best for everyone.
I’ve enjoyed reading your articles sharing your journey as a new single person over the last few years. It’s something I think about for myself and my wife, should the other leave life at a relatively young age. I hope we would show the resilience that you seem to have.
I like your closing paragraphs, and I agree with your thoughts. Starting small is a good way to get the ball rolling.
My life choices and values derive in no small measure from two moms I never met, as they predeceased me. Yet stories about my maternal grandmother and paternal great grandmother are part of family lore.
A person cannot have too much “resilience” and a sense that “I see my way forward” does ebb and flow.
You have options. Also it seems you understand there is more to life than to monetize everything. I found your article very interesting and thought provoking. Thanks.
Much of my understanding of life and money derives from reading articles and comments on Humble Dollar. Thanks for your comment.