Being able to afford to retire in California may be a reality for those who are willing to explore all their options.
California seems to have it all when you search for an ideal spot for retirement in the United States.
For example, when you retire in San Diego County in Southern California:
- you enjoy an almost perfect Mediterranean-like climate
- meet nice and friendly people
- participate in lots of activities with diverse interests and groups
- marvel at amazing natural sceneries year round
- be near the beautiful Pacific Ocean.
Read Article: Why retire in San Diego
Also check out the latest housing report & median prices for San Diego County here
California retirement however is financially out of reach for many seniors due to high costs of living. This is because housing costs make up a large part of one’s retirement living costs in the state.
Understandably, retirees go for cheaper and newer homes in areas that may have hotter, humid, or cooler climates. But for those who have lived here, visited at some time, or have family that already live here, retiring in California is a dream worth it to achieve.
Read Article: Biggest Retirement Mistakes to Avoid
So, what are the choices available to be able to afford to live in California?
Let us discuss a few ideas on how you can afford to retire in California
- Buy an affordable home in a 55 and over community
- Keep your California home and convert or add an accessory dwelling unit (ADU)
- Rent a place and avoid home ownership costs
- Live with family members (multi-generational living)
- Get rid of mortgage payments if you are 62 and older
- Co-living or co-housing with like-minded individuals
If you are willing to make a few compromises, have some financial resources to work with, family and support group that already live in the state, we believe it is possible for you to realize your dream to retire in California.
Buy an affordable home in a 55 and over community
A 55 and over community is a natural fit for many seniors who are looking to retire in California.
Some of the 55 and over communities homes choices include:
- single story condominiums
- one story attached town homes
- manufactured homes and mobile homes that are single story
- and detached single family homes.
Many of these 55 and over communities also have social clubs and activities to help keep you active and socially connected during retirement.
Read Article: The pros and cons of living in 55 Plus Communities
Keep your California home and convert or add an accessory dwelling unit (ADU)
An ADU may also be known as:
- granny flat
- mother-in-law suite
- caretaker unit, etc
If your home has the space to accommodate a conversion i.e. a garage or basement, then consider converting this space into an independent living quarters or ADU.
What is an accessory dwelling unit?
An accessory dwelling unit has:
- its own separate entrance
- and living room area.
How to pay for it
If your home in California is already paid for, then you may need to tap some cash from:
- existing funds or savings
- retirement account
- home equity loan
- home equity line of credit
- a new small mortgage
- funds from family members
Once you have an accessory dwelling unit (ADU) or granny flat in your home, here are some scenarios to consider:
- you can choose to live in the main house, rent the ADU, and let the renter pay for the mortgage payments if any.
- If the project is paid for in cash, the ADU rent can be a good source of rental income to supplement your other income(s).
- You may also decide to live in the ADU and rent the main house for a larger rental income.
- The ADU can also be a place to stay for a caregiver, family, or children who want to stay close to you, and/ or will care for you when needed. Sometimes this is a much cheaper option if you expect to need assistance during your retirement years.
By having an affordable granny flat in your home, you may get to live in the neighborhood that you love, be close to friends and family, and still own the house as it hopefully appreciates in value as time goes on.
On average, did you know that an assisted living may cost around $3,500 per month on the low range in California.
Would you be better off having family live close by? If so, you may want to consider multi-generational living.
Rent a place and avoid home ownership costs
Yes, renting a home can potentially be an expensive proposition in many parts of California including San Diego County. But you may save or keep more of your cash by avoiding many of the costs associated with homeownership such as:
- closing costs when initially purchasing a home
- mortgage payments if any
- property taxes
- hazard insurance premiums
- homeowner association fees if applicable
- home repairs
- and maintenance costs
Affordable rental options for retirement
Depending on your budget, you can find rental options such as renting:
- a room
- a casita or granny flat
- a part of a duplex
- an apartment unit
- home in a 55 plus community
If you realize later that renting is not for you, you can always start shopping for a home to buy. This is after you get familiar with the area that you want to live in.
Live with family members: Multi-generational living as a way to afford to retire in California
In many cultures around the world, it is customary for families to live together. There are many inherent benefits to having children, parents, and grandkids who live together in a multi-generational living set-up.
The benefits of multi-generational living are:
- available emotional support, connectedness and a sense of belonging
- costs sharing
- sharing of tasks (child care, cooking, cleaning, etc)
- physical well-being
- overall positive well-being of each and every member of the family (young and old).
The mainstay culture in the United States is independence. Many individuals want their own place, space, and privacy; their own car, their own TV, own vacuum cleaner, etc. And this works out just fine until we start needing family towards the later phase of retirement whether for emotional support, physical presence, or a little to get around.
Also, we may not want to think about it, but it is a reality that a spouse may lose his/ her partner during retirement.
In this scenario, here are the housing options for a surviving spouse/ parent:
- continue to live in the large home on their own with the memories, home upkeep, and children worrying for their surviving parent
- buy or rent a small apartment, condo, or home
- go into a facility
- or move in with their kids.
Consider that one of the serious risks of aging is the feeling of loneliness which can lead to adverse health conditions.
Read Article: Living in Multi-Generational Homes
Moving in with family in a multi-generational living situation can be a great way to afford to retire in California surrounded by people that love and care for you.
The powerful emotional benefit of living close with a loving family
We all move into different phases of life from being dependent as babies and children, independent mature adults, and back again to a dependent state as we get older retirement.
Emotional vulnerability sets in around the time of retirement. So we subconsciously seek a connection – whether with family or making new friends.
Moreover, as approach the realities of aging and mortality, we realize that family is all that matters. This because at the end of the day, we just want to feel loved and secure.
It is no surprise that we want to be close to our kids and grandchildren.
There is no price tag on lasting memories that you will make by living close to family. If you have grandkids, you already know the immeasurable joy of being around them as they grow up. It is nice bonus that they motivate you to feel young, healthy, and vibrant.
A few real estate ideas for multi-generational living
The obvious real estate choice for multi-generational living is to buy a home that already has an existing casita, granny flat, accessory dwelling unit (ADU), or detached or attached guest quarter or two homes one one lot.
See below how you can afford homes that are ideal for multi-generational living during retirement.
Other home options for multi-generational living include buying:
- a brand new home that have at least two master suites or en-suite guest rooms.
- a brand new condo that have at least two master suites or en-suite guest rooms with bedroom/bath on each level especially on the first floor
- an existing one story home ideally with a two car garage that can be converted to an accessory dwelling unit if need be
- a home with a large enough yard or lot wherein you can add an accessory dwelling unit
- a two story home with a ground floor bedroom
Ideally you will want to have a home with universal design features for safe living and optimum mobility around the house. Examples are wide entrance – doors, no stairs, walk-in shower or roll-in shower area, etc.
Here are some examples of out-of-the-box options to consider for multi-generational living:
- Residential apartment building 2 to 4 units
- Commercial apartment dwelling units 4+ units
- Adjacent parcels to build new homes
Typically, only real estate investors are interested in buying 2 to 4 units residential apartments or commercial units with the intent to rent them to multiple families. This could change as Californians find a way to be able to afford to live or retire in the state.
Why not make it affordable to live together with your own space and privacy by buying an apartment building? The most affordable option is to buy a duplex for two families. However, if a triplex or 4+ unit complex is available it could potential add extra income or space for extra family members.
Family members who share the costs of housing will minimize source of stress that stem from financial pressures.
The fear of not having enough income or running out of money weighs heavily on retirees. This could be alleviated by family members helping each other.
How to afford to retire in California by getting rid of mortgage payments if you are 62 and older
The gold standard for retirement is to own your home free and clear.
In reality, more retirees now carry a small to moderate amount of mortgage. By the time they sell the family home and payoff existing mortgages, they might have a couple hundred thousand dollars of home equity now liquid.
Having two hundred thousand or say three hundred thousand is a lot of money. Unfortunately, it does not go far in buying you dream retirement home close to the beach in California or even a brand new home.
You might want to consider making a compromise as far as having a mortgage free retirement by getting a reverse mortgage.
You are likely a good candidate for a reverse mortgage if you:
- do not want to be saddled with a monthly mortgage payment
- want a nice and comfortable home in a pleasant neighborhood BUT
- you have insufficient cash to pay for the home (i.e. you might have $300,000 cash but the prices of the homes that you want might be i.e. in the upper $300,000s to $600,000)
- or you are fortunate to have enough cash to buy your retirement home outright but want to keep a substantial amount in a liquid account in case you need it for living expenses, medical needs, etc.
Features of a reverse mortgage
When you purchase a house with a reverse mortgage:
- you do not have to worry about a mortgage payment in your lifetime.
- The mortgage is paid off at the borrowers’ death when the home is sold as the home is used as collateral. Your surviving spouse may live in the home as a primary residence during his/her lifetime without also worrying about a mortgage payment.
- your heirs will never owe the bank and if your home has appreciated in value or has substantial equity to begin with, they will receive the remaining equity if the home is sold at a profit after paying off the mortgage.
- a reverse mortgage is easier to qualify for compared to other forward mortgages that require substantial monthly income requirement
A lot has changed in reverse mortgages recently including rules and guidelines to protect the homeowner. Even the name has changed to Home Equity Conversion Mortgage (HECM).
HECM is backed by the federal government through Federal Housing Association (FHA).
Here are some numbers to consider to see how you can afford to retire in California without being limited by cash available to you.
- $300,000 cash available: buy a condo, house or multi-generational home up to $600,000 and you could get a $300,000 reverse mortgage
- $275,000 cash available: buy a $400,000 house or condo and you could get a loan for $125,000
- $350,000 cash available: buy a house or condo worth $500,000 and you could get a reverse mortgage loan for $150,000
- $200,000 cash available: buy a house or condo worth $300,000 and you could get a reverse mortgage loan for $100,000
- so on and so forth.
A reverse mortgage sounds too good to be true. But remember that not all will qualify. As a general rule, you must have around 50% down payment to buy a house, condo, or 2-4 units (if you reside in one of the units) with a Home Equity Conversion Mortgage (HECM) or still popularly called a reverse mortgage.
The borrower must be a 62 years and older AND live in the home as primary residence. Also, you must have qualifying credit and income. In addition, you need to be able to pay for property taxes, home insurance premiums, home upkeep and repairs, and homeowners association fees (if applicable) .
Most people have heard of the bad reputation of reverse mortgages in years past. A counseling is required prior to getting an HECM loan so the borrower understands all possible benefits and risks of a reverse mortgage way before you even sign up for the loan. This is a good way to fully explore this financing option designed for seniors to afford to buy a retirement home or age-in place in their home in California.
Co-living or co-housing with like-minded individuals as a way to afford to retire in California
Having a roommate as a co-living option may help with the costs of retiring in California. Most people are familiar with this co-living option to be able to afford the cost of owning a home.
For example, we know someone who has moved to San Diego from out of state. He is now retired, single, and rents a room on his affordable 2 bedroom Oceanside condo to help offset a small mortgage payment. This makes living in the area affordable and sustainable for this retired individual.
In recent times, there is an increasing interest in making new development with the goal of co-housing for seniors or all-ages in some type of a co-housing community with shared goals.
Please be sure to watch the videos below to get an introduction on co-housing.
There are many many creative co-housing solutions that could work for you.
If you have interest in connecting with like-minded individuals in San Diego to build a co-housing or share homes, please contact us so we can add you to our interest list in San Diego and perhaps we might know someone to introduce to you who might be looking into this option as well.
We can also help you purchase a home with another person. For example, two people that each have $300,000 in cash can magnify their purchasing power for a nice retirement home.
In conclusion, there are more options to consider to be able to afford to retire in California. The choices are personal to you, your family, your financial situation, lifestyle needs and wants.
We hope you found some of these ideas helpful to share with family and friends. Please do not hesitate to contact us if we can be of assistance.