Want to retire and move out of Illinois? – Pick up your “Get Out of Illinois” Card

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

Map available at http://www.kiplinger.com/tool/taxes/T055-S001-kiplinger-tax-map/index.php

  • 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!


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.

Map available at https://www.unitedvanlines.com/contact-united/news/movers-study-2016?utm_source=dynamic&utm_medium=press&utm_content=moversStudy2016&utm_campaign=National-Movers-Study

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.

Case Study

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:

  1. 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.
  2. 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.

800-480-7913 | coyle@coylefinancial.com

 We value your comments and opinions, but due to regulatory restrictions, we cannot accept comments directly onto our blog.  We welcome your comments via e-mail and look forward to hearing from you.

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.


The decline in golf’s popularity could affect your Florida retirement

A new strategy to secure liquidity in your golf community home 

If you’re like many people who have transitioned to Florida, you may have purchased a home with a view of a beautifully manicured golf course. Why not? You love to golf and plan to hit the links as much as possible while enjoying the Sunshine State.

However as the younger Baby Boomer and Generation X begin to migrate south, they do not appreciate the game of golf as much as older generations. Many members of these generations are opting to purchase homes in communities that do not have a golf course. In addition, many luxury housing developments with a focus on golf home values have plateaued and even have begun to lose value.

Recently, I had a conversation with a client who was contemplating purchasing a home in a high-end golf community in Naples. In our discussion, I asked him

Ignoring home equity in retirement could leave your loved ones with less

A better reverse mortgage can lesson investment risk

The Employee Benefits Research Institute (ERBI) reports that Social Security benefits provide about two-thirds of retirees with over half of their income during retirement. Defined contribution benefit plans typically make up the remainder of retirement income. According to ERBI projections, many Americans have not saved enough to last through retirement, suggesting that  44%, or more, of baby boomers and generation Xers will find themselves short of money at some point after age 62.

Financial advisors and their clients may be able to eliminate, or at least greatly mitigate, a retirement savings deficit by taking advantage of one of the most valuable assets many retirees have: home equity. US Census Bureau data suggests that, for many American home owners, home equity is about 60 to 70 percent of their net worth. Even so, few home owners and their wealth advisors consider monetizing their homes as a valid strategy to supplement retirement income.

Housing wealth as a component of retirement planning

Housing wealth in the form of a reverse mortgage can act as an important tool for increasing portfolio longevity during retirement. Reverse mortgages have undergone a makeover in recent years, eliminating the abuses that occurred in the past. Now called the Home Equity Conversion Mortgage (HECM), this new version of reverse mortgage is catching the attention of leading edge planners across the financial planning industry.

Robert C. Merton, Distinguished Professor of Finance, MIT Sloan School, has begun counseling financial professionals to include reverse mortgages when developing comprehensive retirement plans for clients. One of the most attractive characteristics of a HECM is that it’s a non-recourse loan. In short, it acts as both an income stream and an asset. “As long as you’re in the house, you pay nothing, even if you live to be 120,” says Merton.

When used as a sort of standby line of credit, it allows clients to avoid liquidating a portion of their retirement portfolios when an unexpected and urgent need for cash arises. This increases portfolio longevity and can expand personal satisfaction during retirement by allaying fears about having an income shortfall.

Further, should clients end up needing to access their HECM line of credit, they are not required to remit monthly principal and interest payments on the portion accessed.

Tweaking conventional wisdom on housing wealth

Traditionally, both financial planners and retirees sought to preserve housing wealth and access it only as a last resort. The idea being that if retirees could avoid using their home equity to supplement an income shortfall, they could leave it as part of a legacy for their heirs.

However, leading reverse mortgage expert, Wade Pfau, CFA (a Professor of Retirement Income with a PhD in Financial and Retirement Planning from the The American College of Financial Services) has written numerous papers and presented compelling research showing that strategic use of a reverse mortgage early on in retirement can actually increase total legacy wealth for an assumed spending goal. Alternatively, a reverse mortgage could allow for higher spending amounts for longer periods in retirement without withdrawing from a portfolio during a market downturn.

Pfau says, “We can think of legacy value at death as the combined value of any remaining financial assets plus the remaining home equity once the reverse mortgage loan balance has been repaid.” In other words:

Legacy Wealth = Remaining Financial Assets + [Home Equity – minimum (Loan Balance, 95% of Appraised Home Value)][1]

Brothers Stephen and Barry Sacks investigated the effect sustainable withdrawal rates from a portfolio coupled with home equity has on legacy wealth.[2] Their research compared three different strategies for using home equity as part of a retirement income plan.

  1. Conventional wisdom. This strategy stays true to conventional wisdom where retirees only obtain a reverse mortgage as a last resort after depleting the investment portfolio.
  2. Spend reverse mortgage funds first. This strategy involves obtaining a reverse mortgage line of credit from the start of retirement and spending it down first. Then begin using portfolio withdrawals for the rest of retirement. This allows the portfolio to grow, untouched, while spending down the reverse mortgage funds.
  3. Spend reverse mortgage funds only after down years. In this scenario, the retiree(s) take out a reverse mortgage line of credit, but only spend from it in years following a negative return for the investment portfolio.

Their research investigated how strategies two and three show a higher probability for success and were viable longer than the first strategy. Additionally, they found that remaining net worth (value of remaining investment portfolio plus value of any remaining equity) was twice as likely to be larger in the 30th year and/or beyond retirement than with the traditional thinking that advises only using home equity as a last resort.

In fact, the Sacks brothers found that for spending goals ranging from 4.5% to 7% of the initial retirement portfolio balance afforded a 67% to 75% chance that the remaining portfolio balance would be higher with strategy two or three than with the last resort strategy of conventional wisdom.

This occurs because strategies two and three act as a hedge against the deadly sequence return risks, which make it so difficult to develop a retirement plan that sustains enough net worth to last thirty years or more.

Options two and three both allow for portfolio protection and growth during market downturns with option three providing a more sophisticated method of dealing with sequence of returns risk by only accessing reverse mortgage funds when investments are vulnerable. Typically retirees who employ this option only spend from the line of credit after the decline of the investment portfolio’s net worth.

A case study conducted by Barry Sacks and Mary Jo Lafaye (Sacks and Lafaye, 2016) conducted and published a case study illustrating how a reverse mortgage can be used to prolong portfolio life.

The case study assumes the client has a $500,000 50/50 equity-bond portfolio beginning in 1973. It runs for 30 years with an initial withdrawal of 5.5% that increases using a 3.5% inflation rate.[1]


In the scenario using conventional wisdom, reserving home equity as a last resort option, the retiree ran out of money in 1996 with six years to go. But take a look at the coordinated strategy employing a reverse mortgage in early retirement. This strategy funds spending throughout the entire 30 years.

In fact, using this strategy can have dramatic results, according to the Sacks and Lafaye research. The retiree has spending fully funded for the 30 years and estate size increases by over $900,000.

Plan for retirement before you retire 

This case study demonstrates how simply and effectively the coordinated reverse mortgage strategy works. It directly addresses investment risk, is available to any individual homeowner entering retirement, but it is not right for everyone. A HECM might be appropriate for a variety of different planning needs and not just managing investment risk. Anyone approaching age 62 needs objective financial counsel.

Investigate better way to manage your finances

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. Ask Rob about Coyle’s TransformingWealth Preview Meeting, and schedule a complimentary consultation so you can start living the Good Life Managed Well™.

Rob O’Dell, CFP®, serves clients in our Naples, FL office. With more than 20 years of personal financial planning experience, Rob knows that successful financial planning involves a distinct process, not a one-time event.

Rob has been featured in the Wall Street Journal, Financial Planning Magazine, The Daily Herald and Money Magazine. He was a contributing author on the Third Edition of the Florida Domicile Handbook. Learn more about Rob O’Dell.


800-480-7913 | coyle@coylefinancial.com

We value your comments and opinions, but due to regulatory restrictions, we cannot accept comments directly onto our blog.  We welcome your comments via e-mail and look forward to hearing from you.

[1] Wade Pfau, “Improving Retirement Income Efficiency Using Reverse Mortgages,” Forbes (Forbes), March 29, 2016, http://www.forbes.com/sites/wadepfau/2016/03/29/improving-retirement-income-efficiency-using-reverse-mortgages/#49a76db748ae.

2 “Improving Retirement Income Efficiency Using Reverse Mortgages,” Goals, March 29, 2016, accessed December 12, 2016, https://retirementresearcher.com/improving-retirement-income-efficiency-using-reverse-mortgages/.

3 “Increase Retirement Spending by Coordinating Investment Portfolios and Reverse Mortgages: Case Study by Barry Sacks and Mary Jo Lafaye,” Tools for Retirement Planning, August 20, 2016, accessed December 15, 2016, https://toolsforretirementplanning.com/2016/08/20/sacks-and-lafaye-case-study/.

3 creative ways to stretch your retirement savings

rob-blog-post-11-28-16A HECM can help you “have enough” to retire

About 4 million Americans will enter retirement in the next year. While most look forward to this new phase of life, retirees also struggle with fear. According to survey results released by CNNMoney in August 2016, retiring Americans’ single greatest fear is running out of money to fund their needs in retirement.

The survey lists the various fears arising from financial uncertainty and the percentage of respondents stating which one they worried about the most:

Having an unplanned emergency – 38%

Having unplanned medical expenses due to illness or injury – 34%

Having insufficient savings to retire – 32%

Outliving retirement savings – 21%

Becoming a burden to adult children or other family members – 20%

Each of these represents a valid concern for those entering retirement. But retirees today face a number of other risks, as well, which can impact the success of their retirement plans: