Lisa Davis and her spouse, Nerissa Tanjuatco, have been San Francisco homeowners for more than a decade. Both in their mid-50s, they have been planning to retire at age 62 — but have suddenly grown concerned that they won’t be able to do so comfortably in California.
Their new worries aren’t related to perhaps the most common issue for retirees: rising health care costs and the risk of unforeseen medical expenses. The couple were already taking that into account in their retirement planning.
Rather, they say, two once stable costs related to their home — insurance and utilities — are unexpectedly spiking, to the point that they are considering relocating to another state.
Article continues below this ad
In California, retirees generally face two major expenses: health care and housing. While health care costs have skyrocketed in the past few decades, Californians who own their house or have stable living situations have long been able to view some home-related costs as fixed or predictable — including home insurance and utility bills.
But in recent months, many home insurers have been dropping California clients or raising their rates due in part to wildfire risk, and Pacific Gas and Electric Co. has enacted a string of major rate increases. As a result, insurance and utility bills have grown volatile, throwing retirement planning into doubt and causing uncertainty for many retirees already living on a fixed income in the pricey Bay Area.
“My spouse and I are grateful that we own our home in San Francisco,” said Davis. “However, it is very expensive to live here. PG&E costs are out of control. Gas prices are getting expensive. Even with a property tax exemption for being a disabled veteran, taxes are still expensive.”
Davis, 55, receives a Veterans Administration pension and works for Alameda County Social Services, while Tanjuatco, 54, works in the private sector and has a 401(k) for retirement income. Davis said she’ll receive medical care through the VA, and her spouse is enrolled in CHAMPVA, which covers veterans’ dependents.
Even so, they are worried about retirement. Davis said Tanjuatco plans to increase her 401(k) contributions to “have enough income to maintain our standard of living.”
Article continues below this ad
“PG&E has been consistently raising their prices, so it doesn’t feel ‘fixed’ at all,” Davis said. “Our homeowners insurance has gotten more expensive with less coverage as insurance companies are withdrawing from California.”
If they can’t make retiring in the Bay Area work financially, Davis said, they are looking into other places to retire: Washington state has no personal income tax and lower housing costs, while relocating to the Philippines “would allow us to maintain our standard of living,” she said.
Others in the Bay Area and Northern California have shared similar stories with the Chronicle about how the sudden spikes in insurance and utility bills are straining their household budgets. How serious is the volatility in these formerly stable costs, and how should people planning retirement take them into account?
Welcome to Hella Expensive, a column designed to help readers navigate the financial aspects of living in the Bay Area. I’ll be keeping an eye on current issues, trends and what’s going on with the overall economic outlook — but I also want to hear from you. Send your financial questions and concerns to me through the survey below, or email me at kellie.hwang@sfchronicle.com.
‘It feels like we’re bleeding dollar bills’
Gabriela Aranda, 63, of Oakland plans to retire in the Bay Area in December 2025. She feels like she’s on the right track for retirement: She will receive a pension and have a substantial percentage of her health care paid for after working for the federal government for 15 years.
Article continues below this ad
Still, she said, her homeowners insurance increased about $100 a month and her PG&E bills have gone up at least 50% in the past 12 months. Property tax rates also increased for her primary residence in Oakland since she converted the garage to a one-bedroom apartment, and her car insurance and food costs have also increased.
Aranda said she plans to collect passive income from her two rental properties, which include the garage-converted ADU, “to support a lot of the major debt” from her mortgages. Luckily she refinanced her mortgages before “rates went sky-high.”
“I am grateful and also a bit stuck now,” she said. “Even if I wanted to sell one of my properties, I would be wary of the tax implications as well as the cost of purchasing a new home or condo with the high interest rates.”
Laurie Burns, 61, lives in Magalia (Butte County) with her husband. During her last job, Burns said they used her income to pay off debt and their mortgage, but a work injury led her to retire in 2000.
Burns and her husband lost their home in the 2018 Camp Fire, rebuilding in 2022. That year, their annual home insurance premium jumped from $814 to $1,417. In 2023, it doubled to $2,815, and this year, it’s more than doubled again to $5,923, according to Burns. The couple’s annual property taxes increased from $1,800 in 2018 to $2,882 after they rebuilt their home.
Article continues below this ad
“Each increase is like a slug in the gut, yet I’m grateful we still have coverage,” she said, adding that their only income is her husband’s Social Security. “Every bit of this additional expense is paid from our savings. The economy is not helping. We have definitely changed our eating, shopping and other money-sucking habits.”
Before the fire, Burns said, she felt relatively financially stable: They had paid off their house, set themselves up for their expenses and had savings.
“Then the fire happened, and suddenly we had nothing,” she said. “Things we’d spent a lifetime accumulating, we now had to purchase at current prices. We had to dig into our savings to rebuild. Energy costs more, food costs more, everything costs more. It feels like we’re bleeding dollar bills.”
As a result, Burns said, she and her husband are considering leaving California for a more affordable locale. Paying nearly $9,000 per year just for home insurance and property taxes is hard to swallow, Burns said — and possibly unsustainable, with the expectation of living another 20 years.
“I love my house, I love my neighbors and I love my town,” Burns said. “When we rebuilt I thought I’d die here.”
Article continues below this ad
Financial planners hearing concerns
Such stories come as no surprise to California financial experts.
Andrew Fuller, a financial planner and partner at Creative Planning in Irvine, said his clients are seeing “dramatic increases” in home insurance costs, and they are struggling to find coverage.
“Thankfully, these increases are somewhat reduced by their ability to earn 5% or more on ‘safe’ investments such as CD’s and bond investments,” he said. “So, while families that have substantial retirement investment portfolios are absorbing the increases, they are certainly not happy about it. And I have seen a rise in the number of conversations with clients discussing the idea of leaving California as a result.”
He said many homeowners he’s spoken with have had to turn to the state FAIR plan, the state’s costly “insurer of last resort” for wildfire coverage, but they are concerned about whether the state is financially prepared for the increasing number of homeowners using it.
Rick Valenzi, founder and financial planner for Financial Zen in San Francisco, said his clients have expressed concern about how to afford rising insurance, energy and other costs such as food.
“What they’re really concerned about isn’t the actual costs, but if the recent inflation rate is the new normal,” he said. “In other words, will prices continue to rise at their most recent pace?”
He refers to inflation as a “silent killer,” which “goes unnoticed until it doesn’t.”
“What’s happened with the most recent economic cycle is that we had virtually 0% inflation for 15 years, and now we’re catching up to the historical inflation rate all at once,” Valenzi said.
Though insurance and energy bills are rising, Valenzi noted that they account for a smaller portion of retirees’ spending than other costs that are affected by inflation, such as food and entertainment.
And there’s another “bright side” for some, he said: “The most expensive California-specific expense is housing, and most people locked into the lowest mortgage rates in history before this round of inflation flared up.”
How to manage rising costs in retirement
Though unpredictable utility and insurance costs may have thrown a curveball at many Bay Area residents’ long-term retirement finances, experts say careful planning can help — to a point.
“A smart retirement income strategy should account for inflation, negating the need to save more,” Valenzi said. “Our strategy includes putting 10 years of living expenses into a laddered bond portfolio. The bond interest earned keeps pace with inflation, which we use to supplement higher costs.”
If the plan is structured properly, then a retiree shouldn’t need to cut back on other expenses, he added.
Those preparing for retirement should develop a financial plan “well in advance” and work with a financial planner “to build, implement and maintain it,” Fuller said.
“They should also realize that a retiree’s personal inflation rate is likely very different from the inflation rate of the average worker,” he said, noting that the biggest expenses are usually health insurance, home maintenance, travel and supporting their kids and grandkids.
“As they age, health care costs will likely take up a bigger and bigger portion of their budget,” he said. “Utilities, insurance, taxes and other items make up generally smaller percentages of the well-planned retiree’s budget.”
But Fuller said this can be more difficult for lower income and lower net worth retirees, as “rising costs can eat into their ability to live comfortably,” he said. “In face of rising costs there is almost always a path, but the best solutions are found by addressing the issues early. Even then they may come with unpleasant tradeoffs.”
For some, these added costs may be too much, and Valenzi said he’s not surprised that some people preparing for retirement are considering moving out of state.
“I applaud anyone’s willingness to change their situation to fit their finances,” he said.”Between energy, insurance, taxes, gas, food and entertainment, Californians pay a premium to live here. But if you can’t afford that premium, moving could very well be your best option.”
The outlook for utility costs
So what does the future hold for utility and insurance costs? Recent history shows why it may be hard to predict.
PG&E has been under intense pressure to pay for wildfire damage caused by its equipment, as it spends billions to prevent its grid from sparking new fires. Ratepayers are helping foot the bill.
PG&E incurred customer anger at the beginning of the year when it raised residential electricity rates by about 20%, following a decade of increases. From January 2016 to January 2024, the combined monthly PG&E electricity and gas bill for the typical household doubled from $154.52 to $294, according to company data. Among U.S. states, California’s electricity prices are second only to Hawaii’s.
PG&E recently announced that customers will receive utility bill reductions starting in July, as some temporary charges expire. However, bills could rise again if the California Public Utilities Commission approves proposals from PG&E to increase energy bills to cover expenses the company already incurred.
And a number of factors will likely push utility bills even higher.
In May, the PUC approved a two-part strategy to restructure utility bills by adding a $24.15 fixed charge to residential bills while lowering per-unit rates for electricity. Low-income households will pay lower fixed charges. But a Chronicle analysis found that total bills will rise for most Bay Area customers — especially small-apartment dwellers and those with rooftop solar systems.
Meanwhile, the astronomical costs associated with reducing wildfire risk — including an estimated $30 billion to bury 10,000 miles of power lines in the riskiest areas — will continue to show up in ballooning utility bills across the state. PG&E customers in Northern California are expected to pay $1,500 per person for wildfire prevention between 2020 and 2026, according to a Chronicle analysis of data from the PUC’s Public Advocates Office. And the utility anticipates that meeting its goals will take far more money.
California’s insurance crisis
Over the past two decades, California enjoyed substantially lower insurance costs than other disaster-prone states such as Florida and Texas. In the decade leading up to 2017, average annual home insurance costs in California hovered around $1,000. Florida, meanwhile, hit an average cost of $2,000 in 2012 and has continued to rise.
Experts say the difference is largely due to California’s uniquely strict regulations. It’s one of a handful of states where insurance companies must get prior approval for rate hikes from the state Department of Insurance, and it’s the only state where companies are not allowed to apply two factors to their rates: the cost of reinsurance (insurance for insurers) and catastrophe models, which are computer-generated estimations of what risk could look like in the future. But companies say the cost of reinsurance has been increasing, as has the risk of destructive storms and wildfires due to climate change.
Already, the massive wildfires and convective storms of the past seven years have caused California insurance premiums to rise. Data from the National Association of Insurance Commissioners shows that the average annual home insurance premium in California reached $1,403 in 2021. Unofficial estimates project it could be as much as $2,000 in 2024 as more companies have raised their rates.
The future will likely be even more expensive, at least in the short term. A new set of reforms known as the Sustainable Insurance Strategy would allow companies to begin using reinsurance costs and catastrophe models when setting their prices in California as soon as December. The Department of Insurance argues it will convince companies to write more policies, restoring the competitive market. But consumer advocates say it will allow companies to charge even more, especially in areas most at risk of climate change-fueled catastrophes.
Chronicle reporters Megan Fan Munce and Julie Johnson contributed to this report.
Reach Kellie Hwang: Kellie.Hwang@sfchronicle.com; Twitter: @KellieHwang
When you lease a vehicle, you never really own it — the dealer does. So you might think that you have no equity in the vehicle.
But you’d be wrong.
In fact, if you are currently leasing a car, even if you are just a year in and have several years to go, you might be able to get out of the lease and walk away with several thousand dollars.
So how is this possible?
An auto shortage means higher prices for used cars
The fallout from COVID-19 continues to cause supply chain shortages in multiple industries. With steel and computer chip shortages, the automotive industry has not been immune.
That means fewer new cars rolling off assembly lines and thus a larger demand for used cars. The problem? Dealerships cannot keep up with this demand.
Megan Stewart of Cincinnati recently purchased a new Toyota RAV4, but the dealer was so desperate for used cars, there was an unusual stipulation to the deal.
“When I went to buy a new RAV4, the dealership would only make a deal if I agreed to trade in my 2015 Honda Civic,” Stewart says. “They said they couldn’t handle the loss of a single vehicle on their lot, given the major shortages going on.”
And that’s no isolated incident. In January 2019, there were just under 3 million used cars available in the U.S. And earlier this fall? It was down to 2.3 million for a loss of nearly 33 percent.
To put it bluntly, “dealers are hurting for inventory,” says Kyle Johnson, senior editor for The News Wheel.
To make up for the massive deficit of used cars, dealerships have resorted to emailing lessees with whom they are currently under contract, offering to end the lease early and pay a pretty sum for a buyout. San Francisco’s ABC 7 told a story of a woman offered $6,000 to end her lease early.
How to make money off your leased car
The amount of money you pay for a leased vehicle over the duration of the contract is typically the difference between the car’s initial value and the estimated residual value at the end of the lease term. In that sense, you are merely renting a vehicle from a dealership, and at the end of the contract, the dealership intends to sell the vehicle as a used model.
But what’s happening right now is that leased vehicles are worth considerably more than they were originally estimated to be at the end of their terms. As a lessee, even though you don’t own the vehicle, you hold all the power because that increased equity belongs to you … if you handle the end of the lease strategically.
According to Cars Direct, the top five selling cars of 2018 are being sold used for 40 percent more than what would have been expected pre-pandemic. For example, a 2018 Nissan Altima has a nearly 50 percent market value increase, which translates to a more than $6,000 jump. Think about that if you are turning in a 2018 Altima this year.
The No. 1 advice we can give: If you are currently leasing a car, do not just turn it in at the end of a lease as originally planned.
You will be leaving money on the table if you do. Instead, explore one of these options for making money off your leased car:
1. Sell the lease to a third party
An option that lessees have long exercised during their leases has been selling their leases to a third party, like Carvana, Vroom or CarMax. For example, you could take your leased 2020 Honda Pilot and sell the vehicle — lease agreement and all — to CarMax. You’d immediately stop making payments, and you’d have a nice check if the vehicle was able to fetch enough money to cover the rest of your payments and then some.
And because of the huge demand for used cars, your lease vehicle should easily be able to command a large amount of that “and then some” cash when you sell it to a third party.
However, directly in response to the used car shortage, many lenders (branches of the automakers themselves) have begun to put a stop to this, legally prohibiting lessees from selling their contracts to third parties. Instead, they either have to return the vehicle to the dealership or buy it from the dealership at the end of the lease.
As of right now, Leasehackr is reporting that the following lenders are prohibiting third-party lease sales:
- Acura Financial Services
- BMW Financial Services
- Ford Credit
- GM Financial
- Honda Financial Services
- INFINITI Financial Services
- Lincoln Automotive Financial Services
- Mercedes-Benz Financial Services
- MINI Financial Services
- Nissan Motor Acceptance CompNY
- Southeast Toyota Finance
- Volvo Car Financial Services
- Tesla Finance
We expect this list to grow as the used car shortage continues.
2. Buy the car and sell it
Don’t let automakers have the final say. An easy enough way around the prohibited third-party lease sales is to simply buy the car from the dealership at the end of your lease and then turn around and sell it to whomever you want.
In fact, this gives you more earning potential. Once you own the car, you can see what CarMax or Carvana will pay for it, but you can also try to sell it privately for even more money.
To determine how much your vehicle is worth, try out Kelley Blue Book, which can estimate the value of your car based on model, year, features and condition. You can also check out dealer websites to see how much similar vehicles are selling for.
The beauty of buying the leased vehicle from the dealer at the end of your lease is that they can’t jack up the price. Check your lease agreement for the lease buyout wording; in it, the dealership should have spelled out exactly what you will pay to buy the car from them. This is called the guaranteed purchase option price.
A word of caution: You will need to pay sales tax and title fees when purchasing the leased vehicle, and if you can’t immediately sell the car, you need to be okay with the money you spent to buy out the lease being unavailable until the vehicle sells.
A second word of caution: This strategy applies to a lease buyout at the end of a lease contract. Early buyouts typically do not have guaranteed purchase option prices, meaning the dealer can charge you more for the vehicle. There may also be an early buyout fee.
3. Sell the lease back to the dealer
If you’re fortunate, you may not have to do much work at all. Don’t scoff when your dealer calls asking to buy you out of a lease early. Take a look at the offer, calculate what you think you could make trying to sell the vehicle on your own and determine if just simply selling the lease to the dealer is the right move.
Chances are good you may leave a little money on the table this way, but it’s certainly much less of a hassle to just sell to the dealer than buying the vehicle and selling privately.
Alternatively, you could try other nearby dealerships that sell vehicles of the same make. They may offer you more than the dealer from which you leased the vehicle. That’s the beauty of driving a leased vehicle in this shortage; you have the power to start a potential bidding war.
“Prices are way up,” confirms Johnson. “That car you leased a while back could actually net you a nice profit if you find a dealership that wants to come to the table and strike a deal with you.”
What to consider before selling your leased car
Now is a great opportunity to make some quick and serious cash by selling your lease. But before you sign on the dotted line, consider a couple of caveats:
You may be without a car
If you are not part of a multicar family and do not have access to affordable and efficient public transportation, getting rid of your vehicle may not be the right move.
New and used vehicle prices are at record highs
If you do sell and need to replace the vehicle with something new, be ready to pay those premium prices that you were charging when selling your lease. What goes around comes around.
In fact, some experts say that taking advantage of dealership incentives for ending leases is a bad idea for this very reason. “My recommendation would be: don’t do it,” says Kyle MacDonald, Director of Operations at Force by Mojio. “No matter how much you can earn in the moment, with the state of the market right now, there’s no guarantee you’d be able to find a replacement easily.”
MacDonald does offer one exception: “If you’ve already locked down a new car to purchase, in that case, ending a lease a month or two early may be worth the cash incentive.”
You leased that car because you liked it
Finally, consider if you’re ready to part with the car. At the end of the day, you work hard for a paycheck that affords you nice things. If a car to you is just a way to get from point A to point B and you couldn’t care less what make and model you’re sitting in, sure, end the lease.
Timothy Moore covers bank accounts for The Penny Hoarder from his home base in Cincinnati.