The Informed Investor

Choosing the Right Location For Your Retirement

May 18, 2022

Retirement planning usually focuses on developing a prudent investment strategy to produce reliable post-retirement income. When you sit down with an investment advisor, you can discuss how much you need to save, how to make the most of your retirement account contributions, and what active and passive income strategies you can employ today to help you ensure a comfortable and fulfilling retirement lifestyle. However, there is an additional component of retirement planning that is often overlooked by some financial advisors, and that is choosing the right location for your retirement.

4 Financial Factors to Consider in Choosing a Retirement Location

Many of us dream of living in a perpetual state of vacation after we retire. This might include long days on the golf course, followed by dinner with friends. Some people look forward to retiring to a sunny beach town. Others are after an urban vibe, hoping to live in a culturally rich community with abundant venues to enjoy the arts. And some of us will want to continue working even after we leave our current jobs, finally feeling the freedom to pursue a new vocation or volunteer with a favorite non-profit organization.

Whatever your dream retirement looks like, there are some important financial factors to consider if you have contemplated relocating after you leave your current work-life behind. These considerations include:

  • What you will pay in taxes in your new location
  • The cost of housing
  • Everyday living expenses
  • Work opportunities
  • Quality and availability of health care

Tax Considerations

Many people choose a retirement location based, at least in part, on whether or not the state collects income taxes. Alaska, Florida, Nevada, South Dakota, Texas, Washington, and Wyoming do not have state income taxes. Tennessee and New Hampshire only tax interest and dividend income (not wages), and Pennsylvania has a low 3.07% state income tax.

To get a complete picture of how a particular state’s taxes will play into your overall tax burden, you can look at state and local sales and property tax rates. Alaska’s overall average sales tax rate is 1.76%, for example, while Oregon, Delaware, Montana, and New Hampshire do not collect any sales tax. The Nevada state sales tax rate is currently 4.6%. However in some large municipalities, the total sales tax rate can be as high as 8.265%. Although New Hampshire only taxes dividend income and interest, it has the fourth-highest property tax rate of any state in the country.

Your ICC retirement planning advisor can work with you and your accountant to help you determine the tax impact of your desired retirement location, considering the specific elements of your retirement income and earnings plan.

Housing Costs

Housing may make up a significant part of your retirement budget, and the location you choose for retirement will play a big part in your housing choices and their costs. Along with the state and local home tax implications of your housing choice, you’ll want to consider the benefits and drawbacks of owning your home versus renting.

For instance, owning a home might offer stability and the opportunity to build equity that can be used later for your care needs as you age. Homeownership also means you could face substantial cash outlays to cover unexpected maintenance costs or increased insurance premiums. For some, renting becomes the preferred choice. Renting offers greater flexibility — you don’t have to be concerned with home value market fluctuations — as well as greater potential liquidity as you’ll be free of the majority of maintenance worries and responsibilities. The amount you’ll pay in renter’s insurance should be a lot less than what you would be paying in homeowner’s insurance if you owned your place.

Everyday Living Expenses

\When determining where you can afford to retire, you will need to look at the total amount of money you will need to cover your basic expenses, including housing, food, transportation, cable, internet, utilities, and healthcare.

It is going to cost you a lot more to maintain your desired retirement lifestyle in Hawaii, California, or New York (the three most expensive states) than it will if you decide to retire in Mississippi (which has the lowest cost of living in the U.S.) or Michigan (which boasts the seventh lowest). Making a comparison of the cost of living in different locations may help with your decision-making.

Work Opportunities

Not everyone approaches retirement with the same mindset. Some people — either out of a need to add to their retirement income or a desire to stay active and engaged — plan to continue working well into their 70s and beyond. For these types of retirees, opportunities for finding employment will play a part in determining the right location for retirement.

Employment opportunities vary from city to city and from state to state. Research the job markets in the areas you are considering, particularly with respect to employment opportunities that appeal to you. Since salaries for the same work can vary significantly depending on location, be sure to take into account what kind of pay your skills and profession command in different areas.

Lifestyle Considerations

Of course, your decision about whether to relocate after retirement should not be based on finances alone. An active and fulfilling lifestyle is important too. Toward that end, make sure to live in a community that offers you the opportunities to pursue your hobbies and interests.

If you are an avid reader, you’ll want to check out the proximity of local libraries and bookstores. If you like to work out, you’ll want to make sure there is a gym nearby, as well as bike paths, tennis courts, and other outlets for fitness activities. If you’re a lifetime learner, you may want a location that offers adult education classes or university lectures. And, of course, you’ll want to select a place that meets your weather preferences. Some people can’t live without seeing the change of seasons while others are drawn to year-round summer-like weather. If you like to travel, a location not too distant from a major airport might be more desirable.

You’ll also want to consider your retirement location’s proximity to caregivers, either family members or professional staff, who can help out if you need assistance. Eventually, you may need long-care services from an assisted living facility or live-in providers. Choosing a location where you can remain regardless of care needs may be of paramount importance to you and your family. Costs for assisted living facilities varies dramatically depending on the state and urban area you live in.

Let ICC Help You

The financial advisors at ICC can help you understand the myriad factors that go into making wise choices for your retirement years. Our goal is to help you develop a comprehensive financial plan that strives to meet your needs and provide peace of mind. If you have $1,000,000 or more in investable assets, contact us today to learn more about our investment management services. 702-871-8510.