How To Determine The Best Place To Retire: 5 Tips

Posted by Jim Kantowski, CFP®, CPA on May 26, 2022

How To Determine The Best Place To Retire: 5 Tips

Wherever you decide to spend your retirement, you want to enjoy this new stage in life to the fullest extent. Choosing a retirement location that’s right for you—and your spouse, if you’re married—is a big step. In this blog post, we’ll explore how to determine the best place to retire, and offer five tips for consideration.

Do you need a comprehensive retirement plan that includes investment and tax savings strategies? Book a call with our team to find out how we can help.

Common Reasons To Move For Retirement

Some Americans opt to stay close to home in retirement, while others are excited by the idea of a new adventure in a new city or town—perhaps even in a new state or country. In 2019, nearly 20% of Americans aged 65 and older relocated to destination states or abroad.

The idea of moving for retirement can be attractive for several reasons. You may be tired of the cold and snow in your northern home base and long to live in a southern locale that boasts warm, sunny weather year round. Or, you might want to move to a place that offers more activities geared toward seniors, or a more cosmopolitan lifestyle where you can enjoy interests like the arts. You might also be looking to live closer to your children or other relatives.

Whatever is driving your decision to move, knowing how to choose a retirement location wisely is important. You may spend the rest of your life in your new hometown, so you want to make sure it’s a place you’ll truly enjoy living.

Pro Tip: Talking through your plans for retirement with your financial advisor is a smart step to take. This way, you’ll be prepared if you decide to relocate, and they can help you think through the pros and cons. For example, if you move away from your children to a cheaper living area, your advisor can help you consider how to budget for costs like travel expenses for future visits, or how to pay for long-term care in the event you have no relatives close by to assist you.

 

5 Tips For How To Determine The Best Place To Retire

1. Consider where you want to live above all else.

We’re all for giving practical advice (like the advice in the forthcoming tips!), but when it comes to your new home, it’s essential to feel comfortable with the decision.

Before you tackle any of the steps below, take the time to become clear on where you want to spend your golden years. Think about the kind of lifestyle you’re looking for and everything that entails. Don’t settle for any old plan—map out your best case scenario, then work with your financial advisor to figure out how to reach your destination.

2. Explore tax savings opportunities.

States like Florida, Tennessee, and Texas have 0% state income taxes, while other states don’t tax pension income or Social Security income. This is important information to consider if one of your objectives is to save on taxes in retirement, which could provide you with additional cash flow to cover your expenses.

The right tax strategy for you depends on your personal financial situation. If you have income sources that all produce taxable income during retirement, such as pensions or Social Security IRA (individual retirement account) distributions, you may want to live in an income tax-free state. On the other hand, if you plan to use after-tax money or have been lucky enough to sock away funds in a Roth IRA—or you won’t have a lot of taxable income in your golden years—it might not matter whether you relocate to an income tax-free state. You may be better off choosing a retirement location with no sales tax.

Be careful, because states have to generate income somehow. If there are no state income taxes, be on the lookout for high property or sales tax, which might affect your spending.

3. Seek out more bang for your buck.

Part of identifying the best place to retire is determining affordability, in terms of both the location and property type. Many Americans seek to downsize from a larger family home to a smaller empty-nest abode and reduce their expenses in retirement. However, this may not be the case for everyone, so if you plan on upgrading your home or moving to a more expensive area in retirement in your golden years—just be sure you can afford it.

Determine whether you’ll be downsizing and get a rough idea of the type of home you’d like to live in—for example, a condominium on the beach or an apartment in the city—as well as the cost. How you pay for the new home could have a major financial impact, so be sure to explore all options. You may be able to sell your current home and use the proceeds to pay cash for the new home. In contrast, if you’ll need access to that cash reserve to live, you may want to opt for a long-term mortgage instead.

If all of your liquid assets are tied up in retirement accounts, you’ll want to be careful about how you withdraw funds to pay for a home purchase. Taking a large withdrawal from an IRA while you are still working could have a major tax impact, so it may make sense to take a loan and wait until your income goes down and you drop into a lower tax bracket before you make a big withdrawal. In addition, taking a loan would allow you to leave money in tax deferred accounts for a longer time period.

Do your research and understand the various levels of affordability in the locations you’re considering before you actually retire. One way to plan carefully is to rent first in your desired locale and spend some time in the area before deciding to move there permanently. This will enable you to check out the neighborhoods and activities and costs in the region.

4. Research property availability.

It’s no secret that the real estate market in the U.S. is, as Beyoncé would put it, “crazy right now.” Take a state like Florida, for example—people are moving there in high numbers and prices are rising significantly. If you have your heart set on a particular location, you may need to settle for a property with a higher listing price than you’d ideally like to pay.

If you decide to stretch your budget, talk to your financial advisor. They should be able to run a cash flow analysis for you to make sure your plan will be affordable. They may also be able to provide you with various options. The timing of selling your current property and buying a new one can make a big difference in your ability to fund your retirement, as well as the income tax implications of your move.

One way to protect against rising prices is to purchase your future home prior to retirement. If you can afford to carry two mortgages or you are willing to rent out your future home for a while, this might be a good option. In this case, you would lock in the price of the home and a loan at the current interest rate, which would protect you from an unforeseen price increase. Once you’re fully retired and ready to move, you could sell your current home and pay down the mortgage (if that is what makes sense). As we mentioned in tip #3, be careful how you fund a down payment!

For example, say you’re planning to buy a house in Florida before selling your house in Maryland, but you’re still working and your money is tied up in retirement accounts. You could incur a hefty tax bill if you fund your down payment from your 401(k). If you can find another way to come up with the down payment such as a home equity line, you’d avoid paying state income tax on the money in Florida. In addition, if you wait until you’re no longer working to purchase your new home, it would be taxed at a lower rate.

5. Think about your health care needs and other costs.

If you have a chronic illness or other medical issues and need regular access to health care, moving to a remote island may not be your top choice. Or, if you just can’t resist the allure, you may want to budget for regular travel to the U.S. mainland for health care-related visits. When choosing a retirement location, consider the quality of care in your potential new home base, as well as how easy it is to access care and what it costs.

When it comes to other costs like insurance, retiring to a state where hurricanes occur frequently may mean facing a significant property insurance increase. Don’t forget about other costs, either. The price you pay for a condo may be lower upfront, but these types of homes often come with monthly, quarterly, or annual fees that can increase over time. If you are in an area that has a clubhouse or other extra amenities, be on the lookout for one-time assessments for maintenance or improvements.

Need a sounding board for your retirement planning?

Stuck on how to determine the best place to retire? At Bay Point Wealth, our team has the expertise you need to navigate this important decision. It’s worthwhile to begin considering where you’d like to move three to five years prior to retirement, but you can reach out to us anytime with questions.

When you sit down with one of our advisors, they’ll help you think through what kind of retirement you’d like to have, get a general understanding of whether your plan is affordable, and figure out how to make it happen from a financing and tax perspective. They’ll also act as a valuable sounding board to make sure you’re approaching the process in a way that will avoid unnecessary costs.

Ready to have a conversation about your future? Schedule a call with us today.

Schedule A Call - Bay Point Wealth

Topics: Retirement Planning