A big part of retirement planning is deciding where to live during your golden years. The possibilities are wide-ranging but vitally important because your choices will affect the quality and cost of your retirement. Here are four helpful tips to successfully move after retirement
Should I stay, or should I go now?
The fact is most retirees choose to “age in place” and do so in their current home. This is an excellent option if your existing home meets your physical and financial abilities. Aging in place also includes those who remain in the same community but:
- Downsize into a smaller home.
- Move into a retirement community.
- Move-in with their children.
The primary draw of aging in the community is to stay close to friends and family. Suppose you move away for a lower cost of living, only to return to visit family and friends multiple times a year. In that case, it may defeat the purpose of moving. The most significant factor for relocating, other than finances, is where do your children and grandchildren live?
Why do you want to move after Retirement?
If retirement in your current community is not your goal, you need to list every reason you want to move. Although there may be one primary reason, you have to look at the big picture. There is no perfect location. Ultimately, choosing whether to move in retirement requires a thorough analysis of the four following criteria;
- Cost of living
- Quality of life
You’ve got to live somewhere
Finding a living arrangement that will last you as long as possible in retirement is the first step. Moving is not fun, especially the older you get. Consider the design of the house. You need to search for one with easy maintenance, accessibility, not too many stairs, and most importantly, sized just right. Will the floor plan continue to meet your needs as your knees and hips no longer do?
Don’t move into a larger and more expensive home than necessary. That may mean the children and grandchildren have to stay at a local hotel or Airbnb. Even if you cover the costs for their occasional visits, that likely would be cheaper than the cost for a larger house. Namely, costlier upkeep, property taxes, insurance, and a bigger home equals more work – who wants that in retirement?
Speaking of homeowners insurance – average annual premiums vary from $2,559 in Oklahoma (ranked #1) to $640 in Pennsylvania (ranked #48). The potential for hurricanes, tornadoes, earthquakes, floods, and wildfires will dictate the price of those premiums. Weather is one of the major consideration for moving in retirement, don’t let it ruin your retirement budget.
What about renting?
Even though the majority of people prefer to own their own home, renting is an option with the following advantages:
- You can sell your current home and use the equity to cover your retirement expenses.
- You have the freedom to live in different areas.
- You don’t have to worry about costly repairs or maintenance.
- You can’t do what you want to the home
- You can’t control rent increases
- There is no control over the owner selling the property, resulting in a new home search.
It’s all about weighing the advantages vs. the disadvantages and what is important to you.
Retirement villages come in various shapes, sizes, and price points depending on ownership arrangement, location, and amenities. Again, think long-term when you consider a retirement community. You want one that provides a broad range of conveniences, including healthcare, memory care, and long-term care, to cover any of your aging needs.
Whether you choose an over-55 community, retirement village, or just a home with a homeowners association, you have to understand there may be restrictions. It may require an adjustment if you’re not used to ceding such control.
Understand State tax variability
Besides climate, taxes are a big “move in retirement” reason. There is a wide range of taxes across the 50 states. Every state raises revenue through some of the following methods;
- Income tax
- Property tax
- Sales tax
- Excise tax
- Licensing fees
- Estate tax
- Inheritance tax
Some states are tax friendlier than others, so it pays to know the situation before it’s too late. Most retirees rely on a combination of four income sources:
- Income Tax: Nine states do not have an income tax. Alaska, Florida, New Hampshire, Nevada, South Dakota, Tennessee, Texas, Washington, or Wyoming.
- Social Security: Currently, thirty-seven states do not tax Social Security benefits. Another 13 states have varying taxes of Social Security based on your adjusted gross income.
- Pensions: Fourteen states do not tax pension benefits.
- Qualified Retirement Plan Distributions (401ks, IRAs): Currently, 12 states do not impose taxes on retirement plan withdrawals.
We’re going to die somewhere
Besides choosing where to live, this may also be where you die. That’s a little morbid, but there’s no reason to sugarcoat it and something you might want to consider – 33 states that have neither an estate tax nor an inheritance tax.
You have to look at all of the taxes. It becomes a balancing act between low taxes, the services provided by the state or local municipality, and of course, the cost of living. Also, as you are well aware, the tax laws change, not just at the federal level but also at the State level.
Another tax issue to consider, and one I’ve seen.. I’ll use an example.
During your working career, you lived in a state, we’ll say PA, that taxed your 401k contributions. In retirement that state does not tax your retirement distributions. What happens if you move to a state that taxes your retirement distributions? You are S-O-L and would be taxed twice. Once on your retirement savings in your old state and now on your retirement distributions in your new state. Does that matter to you? It may or may not and depends on how bad you want to move and the other factors involved.
Cost of Living
Low taxes are only part of the financial equation. If your taxes are low, but the cost of everything else is high, what’s the net advantage of moving?
Based on information from the Bureau of Labor Statistics, the average cost of living in the U.S. is $51,624. Hawaii, unsurprisingly had the highest cost of living while Mississippi had the lowest.
The Council for Community and Economic Research has a helpful cost-of-living comparison tool to compare the cost-of-living in almost 400 areas in the U.S. It’s not free. However, if you want to be thorough, it’s worth the $8, depending on how many comparisons you research.
While residing in a lower-cost state can save a considerable amount of money, it is only one of the many factors. You know the old saying you get what you pay for. If the cost of living is dirt cheap, but there are limited medical, recreational, or entertainment opportunities, is it really worth it? That leads to our final point.
How much retirement savings do you need? It depends on how much you spend. The desire to move in retirement starts to creep into your thoughts when you have had enough of cold weather, taxes… pick your complaint. Will your savings support your spending in retirement, whether you age in place or relocate? This is the homework you need to do through pre-retirement budgeting and planning.
Evaluate retiree quality-of-life
Moving in retirement is not just about the taxes and cost but also your quality of life. There are several non-financial factors to consider:
- Friends/Family distance: It could put you farther away from family and close friends. This is amplified as you grow older and need more support. Please consult your family about your move.
- Climate: Check out the interactive climate data tool from the National Climatic Data Center to view climate data by zip code.
- Medical care: You’ll have to find new doctors and medical care facilities and most likely a new Medicare plan.
- Crime: Check out the FBI’s Uniform Crime Reporting Program can give you a helpful overview of crime.
- Accessibility: walking paths, public transportation, or grocery stores within walking distance or a short drive.
- Activities: The best places to retire also have diverse cultural possibilities such as artistic and civic organizations or recreational enjoyments.
College towns are an increasingly popular retirement destination given their cultural, educational (duh), recreational resources, and access to outstanding university hospitals. In addition, college towns are naturally accessible with better public transit systems.
AARP has a helpful Livability Index tool. Enter an address or zip code. You’ll receive a score that measures several community categories and important metrics for retirees.
Kick the move after retirement tires
You really don’t get a feel for a specific area if you vacation there a week or two each year. Before you buy, give it a trial run, spending a few months to weigh the pros and cons of daily living. Whether it’s simply downsizing in your current community or moving to an entirely new area, the cost of your plans needs to be built into your retirement projections. Every location has its pros and cons. Understand every aspect of the move.
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