When contemplating your retirement years, you may envision a particular lifestyle or activities you wish to pursue. However, one of the foremost, if not the paramount, determinants shaping these choices is your financial standing. Projecting your future living expenses holds significance irrespective of your chosen locale; nonetheless, if relocation during retirement is in your plans, meticulous attention to the concealed costs associated with moving becomes imperative.
While diverse opinions exist on the optimal retirement destinations, it is crucial to make decisions aligned with your individual objectives and financial capacity. To aid in your research, this article presents a comprehensive list of financial considerations when selecting the most suitable retirement location.
Financial Considerations
Engaging the services of a financial planner can assist in estimating your future expenses and evaluating the available income and savings upon retirement. However, if contemplating a relocation in retirement, additional calculations come into play. The prospect of selling your current residence, acquiring or renting a new one, and the inherent disparities in expenses based on the chosen destination necessitate careful consideration.
Cost of Living
In navigating a fixed budget during retirement, the ramifications of incremental increases in expenses are significant, notes Eric Mangold, a financial planner and the founder of Argosy Wealth Management in Westfield, N.J. “Ensuring an understanding of the cost of living in your chosen destination is crucial,” he advises. Mangold recommends conducting a trial assessment, even if it entails renting an Airbnb for a brief period. This allows for an exploration of local supermarkets and services, providing insights into the average costs prevalent in the prospective area.
An insightful approach involves evaluating your typical grocery expenses in comparison to those in your current hometown, along with considerations of gas prices, dining options, and other frequented venues in the new locale. Particularly in times of inflation, as exemplified in recent years, the cost of living becomes an even more substantial factor. Ideally, selecting a location with a comparable or lower cost of living than your accustomed standard proves advantageous.
Housing Costs
The Employee Benefit Research Institute’s (EBRI) Spending in Retirement Survey reveals that nearly one-third of retirees allocate a significant portion of their monthly income to housing expenses (Employee Benefit Research Institute, “2022 Spending in Retirement Survey: Understanding the Pandemic’s Impact”). Consequently, when seeking a residence in a new location, careful consideration of housing costs is imperative. This encompasses rent or mortgage obligations, maintenance or homeowner’s association (HOA) fees, and property taxes.
The encouraging news stems from Fidelity’s Spending in Retirement study, indicating a decline in average housing costs for retirees over time. The study reveals a decrease from just over $23,000 per year at age 55 to approximately $18,000 by age 65 and just under $16,000 by age 75. This trend is attributed to individuals downsizing or strategically relocating to more cost-effective areas, underscoring the importance of such moves in achieving the ultimate goal of expense reduction.
Conversely, if considering relocation, property tax emerges as a significant factor, given the substantial variations in costs based on the origin and destination. Eric Mangold emphasizes this point, citing examples of clients transitioning from high-tax states like New Jersey to more tax-friendly locales such as North Carolina, resulting in a noteworthy reduction from $15,000 to $1,100 in property taxes.
Another critical aspect to investigate is maintenance or homeowner’s association (HOA) fees, particularly when moving into a community development or condominium. A thorough understanding of inclusions and potential additional costs associated with amenities is essential.
Healthcare Access
While housing costs exhibit a downward trend with age, healthcare expenses are anticipated to rise. A study by the Center for Retirement Research at Boston College reveals that at age 65, households can expect an average of $67,000 in out-of-pocket health costs over their remaining lives.
The choice of retirement location can significantly influence the cost and accessibility of medical care. For instance, individuals with conditions requiring specialized treatment must consider whether such care is readily available in their new location or if frequent travel to their current healthcare provider is necessary. Beyond the quality and availability of specific care, proximity to essential healthcare facilities, including urgent care centers, hospitals, and regular physicians, should be carefully considered.
Taxes
An integral financial consideration when contemplating relocation for retirement pertains to the tax-friendliness of the chosen state. Currently, several states, including Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, Washington, and Wyoming, do not impose income taxes. Additionally, individuals anticipating pension income in retirement should investigate whether the prospective state is deemed “pension-friendly,” implying that it does not levy taxes on pension income.
Mark Charnet, the founder and CEO of American Prosperity Group in Sparta, N.J., underscores the significance of taxes in the realm of financial considerations. “Taxes should be high on the list of financial factors to consider,” Charnet advises. He emphasizes that selecting a state with no income tax and lower property taxes, in an ideal scenario, allows for more substantial cash flow back into one’s pockets, offering potential savings.
How Relocating for Retirement Impacts Planning
Beyond the shifting dynamics of housing and tax costs, the decision to relocate for retirement should incorporate considerations of its broader impact on family dynamics, lifestyle, and overall budget. Several factors warrant contemplation:
Distance from Family
Considerations of where holidays will be spent and the frequency of visits to children and grandchildren become pivotal. The associated costs and feasibility of travel, encompassing airfare and accommodation, should be factored into the decision-making process. Mark Charnet adds that potential expenses such as hotel stays and car rentals can accumulate quickly, necessitating prudent financial planning.
Furthermore, the geographical distance from loved ones raises concerns about healthcare accessibility. In the event of declining health or the onset of an illness, the financial feasibility of hiring a home health aide should be contemplated, especially if family members are too distant to provide care. Eric Mangold notes that health considerations often lead retirees to reconsider their relocation decisions.
Lifestyle
In the deliberation of a retirement relocation, careful consideration of the desired lifestyle and its associated maintenance costs emerges as a paramount factor. According to Charnet, ensuring proximity to activities that bring enjoyment and evaluating the financial implications of continued engagement in those activities are crucial aspects of this decision-making process.
For instance, individuals fond of walking and biking may opt for a “walkable” city or a locale with access to nature trails. Those with interests in sports like pickleball or pool swimming would likely prioritize communities with corresponding amenities and inquire about associated fees. The assessment extends to factors such as golf fees at nearby courses, aligning the chosen location with one’s recreational preferences.
Aging in Place
Given that the retirement relocation often marks a decision for the long term, considerations of “aging in place” become pivotal. The chosen residence should ideally incorporate features conducive to accommodating potential physical limitations in the future. Features like a single-level layout and a walk-in shower contribute to an environment conducive to aging in place. Charnet, drawing from his own semi-retired status, emphasizes the importance of planning for the future by designing homes with such features, especially in the absence of financial resources for long-term care facilities.
Job Opportunities
Despite the retirement phase, contemplation of job opportunities in the chosen location proves prudent. Even if not motivated by financial necessity, the potential for part-time work, consulting, or engaging in volunteer activities could arise. Charnet highlights the psychological impact of having job opportunities, whether it involves positions at major retailers or contributing time to local community services. This consideration ensures a holistic approach to retirement planning, acknowledging the multifaceted nature of individual preferences and aspirations.
Climate
Selecting a retirement destination involves not only aligning with personal weather preferences but also entails careful consideration of the associated financial implications. For instance, many sought-after retirement locales, such as Florida and the Carolinas, are susceptible to weather-related challenges like hurricanes, while others, like Arizona, contend with extreme heat.
Eric Mangold provides illustrative examples of the financial impacts tied to climate considerations. Clients in North Carolina, anticipating hurricane risks, incurred additional expenses for hurricane shutters. Similarly, a resident in the Fort Myers, Florida area experienced a substantial increase in flood insurance premiums, rising from $1,300 to $3,300 in a single year.
When contemplating a move to areas prone to wildfires, storms, or floods, ensuring the availability of extra funds becomes imperative. These funds serve to cover insurance costs and any additional protective measures necessary to fortify one’s home against potential environmental risks.
Leaving the U.S.
In cases where retirement to the more expensive states is financially unfeasible or unappealing, an alternative consideration may be retiring to another country. While this option is not universally suitable, individuals with family ties to another nation or a particular affinity for a visited locale may find it worth exploring. However, it is essential to note that each country imposes its own rules and regulations governing retirees from other nations, adding a layer of complexity to such a decision.