Plan now and minimize Illinois real estate risks
A few months ago, I was meeting with a client at my office. We were discussing her move to Florida and she said, “Illinois is a great state to be from!” As a former Illinois resident myself, I couldn’t agree more!
For the third consecutive year, the Land of Lincoln (aka Illinois) has lost more residents than any other state to the Sun Belt states. In 2015, over 22,000 Illinois residents left, my family of four included! In 2016, that number rose to 37,000. By most measures, Illinois will continue to see its’ population decline in the coming years. The alarming part of this exodus is that the people leaving the state are higher income earners who pay higher state income property taxes.
Why are people leaving illinois in droves?
A combination of factors comes in to play when we look at why so many Illinoisans are choosing to pack up and move to sunnier locales:
- Enormous debt – Illinois has become the go-to example for anyone wanting to show a perfect case study of how bad politics, corruption, and unrestrained spending have stymied a state. In June of last year, Moody’s Investors Service downgraded Illinois’ credit rating to two steps above junk status followed by Standard & Poor’s issuing a similar downgrade in September.
- Lack of good jobs – The Bureau of Labor and Statistics shows Illinois’ current unemployment rate at 5.7%; the 7th highest in the nation.1 The state also lacks job creation. Without jobs, young people move away to find them (mainly south and west), and it’s harder for the unemployed to regain employment.
- High state taxes – While Illinois has a flat income tax rate of 3.75% (possibly moving to 5%), taxes on everything else are very high. The combination of state and local sales taxes are one of the highest in the nation, and the property tax is 2nd highest after New Jersey. Illinois earned a spot in the top 10 “Least Tax-Friendly” according to Kiplinger due to a combination of state taxes.2
- Declining property values – The National Association of Realtors predicts that this year, the Chicago area will have the weakest housing market out of the 100 largest metropolitan areas in the country. They expect that both housing prices and sales will increase, but at a much lower rate than the rest of the country.3
- Unfunded pensions –The state Commission on Government Forecasting and Accountability reported in 2016 that the combined funded ratio of Illinois’ five state pension systems stands at just 37.6%. That’s down from 41% in 2015.4
- Cold winter weather – Years of living in the cold and snow, and the accompanying backaches from shoveling that snow, can be a factor in the movement of people from north to south. There’s also a bit of peer pressure involved. As people continue to move south, they send their peers back north all those lovely beachside pictures during the southern “winter”. I’ll admit I’m guilty of this bit of social media bragging!
- A terrible NFL team – This point should go without saying. If all the above bullets weren’t enough to push people over the edge, having the Bears as your home team could be the final straw. I am a proud member of the Southwest Florida Green Bay Packers Fan Club!
NOT JUST AN ILLINOIS PROBLEM
While I’ve focused on Illinois’ issue with exodus, there are other northern states experiencing similar problems of high taxes, declining property values, and lack of jobs leading to a decline of their residents. In 2016, United Van Lines released their 40th Annual National Movers Study showing the top 10 states people move to and from. This year’s data has followed a similar trend over the past few decades of movement of people from the north, to the south or west.
Planning your exodus from illinois
If you are a few years away from potentially moving out of Illinois and you are reading this article, you might be concerned about being able to sell your home, especially if you experience property value declines and property tax increases. Here’s a strategy that anyone over the age of 62 who owns a primary residence in Illinois (or any other northern high tax state) should consider: a Home Equity Conversion Mortgage. This is a standby expanding line of credit on a primary residence that can be accessed anytime with no tax consequence.
Jon and Maggie are 62 years old and recently paid off their mortgage on their $550,000 primary residence in the western suburbs of Chicago. They plan to work another 8 years before transitioning to Southwest Florida.
Based upon their ages and current interest rate environment, they would qualify for a $223,850 initial line of credit on their primary residence. Their plan is to open the line of credit, but not access it, so they will not accrue interest or insurance premiums. The credit line will grow at approximately 7%, so by the time they hit 70, they will have available credit of $371,277. Why is this significant?
Let’s review two possible scenarios for Jon and Maggie:
- Once in a lifetime opportunity. They are vacationing in Florida a few months before they retire, and they identify their dream condo for $350,000. The condo is priced to sell and they need to act ASAP or potentially lose this opportunity. They can access their credit line immediately to purchase the condo with no tax consequence. Then, they can go back to Illinois to sell their home.
- Housing Market Collapse. Unfortunately, housing prices in the western suburbs suffer a severe depression and their home value falls to $300,000. Jon and Maggie retire and are ready to move to Florida. They can access the credit line, which is greater than the residence value. If their home sells for less than the amount they took from the credit line, there is no lender recourse!
Get ready for warm, sunny winters
If you are thinking about retiring to sunnier climes, don’t let the winter blues and negative news of Illinois and other northern state high taxes get you bogged down. For more information about how a Home Equity Conversion Mortgage may benefit you as you plan for retirement, contact Rob about Coyle’s TransformingWealth Preview Meeting. This complimentary consultation will help you determine if we should be your partner so you can live the Good Life Managed Well™.
At Coyle Financial Counsel, a fee-only firm, we utilize a team of experienced advisors to develop a comprehensive financial plan. Our proprietary approach, TransformingWealth™, is designed to get your arms around the big picture so you can make informed financial decisions with conviction.
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1 “Local Area Unemployment Statistics,” Bureau of Labor and Statistics, January 24th, 2017, accessed February 21, 2017, https://www.bls.gov/web/laus/lauhsthl.htm.
2 “State by State Guide to Taxes,” Kiplinger, October 2016, accessed February 21, 2017. http://www.kiplinger.com/tool/taxes/T055-S001-kiplinger-tax-map/index.php?map=&state_id=14&state=Illinois.
3 “Chicago’s 2017 housing market will be weakest in nation, group says,” Gail MarksJarvis, Chicago Tribune, December 1, 2016, accessed February 21, 2017, http://www.chicagotribune.com/business/ct-chicago-home-prices-worst-1202-20161201-story.html.
4 “Illinois’ unfunded pension liabilities reach$130 billion: study,” Dave McKinney, Reuters, November 16, 2016, accessed February 21, 2017, http://www.reuters.com/article/us-illinois-pensions-idUSKBN13B29N.