Should I “Buy a House in LA” or “Save for Retirement”?

September 29th, 2021 by Administrator

As you reach your early or late 30s, there comes a time when you are faced with a dilemma. Should I start saving to buy a house? Or, should I save money for my retirement? Both goals are big and require a huge amount of savings and a significant monthly amount to pay your mortgage and build your funds. Let’s find out what you should prioritize.

What to do? Buy a Home or Save for Retirement?

Though everybody should prioritize their retirement, you must not forget that not having a home can mean paying monthly rent even after your retirement – the time when, most probably, you will be not earning.  

So, while you create a plan for a comfortable retirement, also include the stability of having your own home. It will be less stressful and give you the unique happiness that comes only when you live in a home that you own. A home where you are free to make modifications as your needs evolve with the increasing age!

The good news is that these are not the only benefits of owning your own home during retirement.

There are more tangible benefits to buying a home in Los Angeles and its neighborhood, such as Encino, Reseda, Sherman Oaks, and Tarzana in San Fernando Valley where you can enjoy a serene environment and a lively & safe community – perfect locations to live a beautiful life with your kids and retire comfortably.   

What are the benefits of owning a home during your retirement?           

Most people are late starters to homeownership and retirement planning. So, if you are one of them, you need to maximize every asset you have to make your retirement comfortable and stress-free. Here, you need to understand that when you own a home, it will be an asset to your retirement planning.

Here are the few of many benefits of owning a home that make a comfortable retirement a reality:

Can Use Your Home as Leverage during Retirement Planning

In general, your financial planner doesn’t consider the equity in your home when creating a retirement plan. After retirement, you need a place to live with stability. Though you might have wanderlust and you like to visit new places, you would want a fixed place to return to once you cross your 60s.

So, you need to think differently. If you own a home, you can use it as leverage to enhance your retirement plan. Your home makes a big part of your net worth!

Enjoy Tax-free Home Equity – a Gain up to Half a Million Dollar!!!

Did you know that IRS considers your home as a special asset? According to IRS Tax Topic 701 as of February 2018, you can exclude up to:

  • $500,000 in gains from income taxes on the sale of your home if you are married and filing jointly
  • $250,000 in gains from income taxes on the sale of your home if you are an individual                            

That’s incredible! It means you can buy a house, live in that house for as long as you want, sell it as per your wish, and pay no taxes on up to half a million dollars.

The only condition is that you have to take and pass an “ownership test” and a “use test” to prove that you own a house and have lived there for at least two years out of the past five years.

So, if you are buying a house for yourself and your family, you are going to easily pass this test.

Want to visualize the scenario?? Let’s assume you bought a house for $600,000 in LA, lived in it for at least two years during the past 5-year period, and sold it for $1,100,000. The entire gain of $500,000 will be all yours as it will be fully free from income tax.

Have the option to downsize and invest the money

If you buy an affordable home now, at the retirement age, you will have the option to move to a smaller home that is less expensive.

As you slowly reach your retirement age, children will have their own place to live. So, you won’t need that big home as you need now. You can sell it and buy a smaller, less expensive home that you can afford well.

A small place is also less costly to maintain. Heating and cooling a smaller home can be cheaper as well. Besides, property taxes may also be low for a small house because they are based on a percentage of your home’s value.

Are Able to Generate Rental Income

If you don’t want to downsize or sell your home, you can rent a part of your home to a graduate student, medical resident, or anyone you like. You can also rent your space to a retiree because many retirees sell their homes and look for a decent rental space to live in. This way, it will be much easier to manage your expenses with the steady flow of rental income.

We hope you have got an idea why you should not skip homeownership when planning for retirement. Now, the choice is all yours. When looking for affordable homes in LA, get in touch with Gitta Lhanie – a trusted local real estate agent in LA who will guide you, help you find an affordable home, close the deal, and continue to provide support as a real estate agent and a neighbor.