Retirees worry about their portfolios in a turbulent market and rightly so, but for many the most important financial and personal decision is where they move to in retirement. If they make a mistake (moving to a city they don’t like, buying a house they don’t like, or incurring expenses they weren’t expecting), it can permanently damage their retirement.
While the majority of retirees stay close to the home they lived in during their working years, a significant portion travel hundreds or even thousands of miles in search of better weather, tax breaks, or to closer to their family. The recent surge in home values has increased the incentive to move. Many seniors are sitting on hundreds of thousands of dollars in home equity and hoping it will help fund their retirement if they move somewhere less expensive.
But property prices are also skyrocketing in popular retirement destinations. Retirees may save less money than they think by moving there, or even struggle to buy a home in some of the hottest markets.
Here are some things to keep in mind if you’re considering moving in retirement:
Low income taxes are not everything. Many retirees who live in high-tax states are eager to move to states without income taxes, says Rhian Horgan, chief executive of Silvur, an app that helps baby boomers manage their retirement. But she says they need to look at their total costs, including property taxes, sales taxes and healthcare costs.
Florida has no income tax, for example, but has high healthcare costs. A person on Medicare with supplemental medical and drug coverage will face average total medical costs of $8,352 per year in Florida, Horgan says. That compares to $6,208 a year in Tennessee, another state with no income tax.
Indeed, Silvur calculates that a couple retiring with $1.1 million in total assets will run out of money at age 88 in Florida but at age 104 in Tennessee.
This couple’s money would run out at age 77 in Hawaii, even though each spouse would only pay $5,408 in total medical bills on Medicare, the lowest in the country, according to Silvur. Hawaii has high real estate costs and income taxes.
“Even with very low health care costs, it’s proving difficult to make your money last a lifetime in retirement,” says Horgan.
And whichever state you choose, you can’t completely dodge taxes. While Tennessee has no income tax, it has some of the highest sales taxes in the country.
Rent before you buy. Advisors say they don’t see many retirees moving to a retirement destination like Florida, Arizona or Tennessee and hate it. Many have already spent many holidays there before moving.
However, counselors often see people moving across the country and decide they’d rather live a few miles away in their new location. For this reason, they almost always advise retirees to rent before buying a house when they make a big move.
That’s true even if you’ve vacationed or been a snowbird in one place for years, says Rick Miller, a Boston-area financial adviser. The quiet town you love on vacation can drive you crazy if you’re there all the time.
“The experience of being somewhere for a few months a year is very different from being there for a full year,” he says.
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Have a plan. Jonathan Harrison, a Kansas City-area financial advisor, says every retiree who moves should have a long-term plan for retirement.
“The first phase may be where you want to be in hot weather or travel a lot,” he says. But Harrison says a later phase could be getting back close to his family.
Harrison’s client Kim Mastalio, 74, is a perfect example. Mastalio spent his working life as an engineer in the Kansas City area. After retiring, he and his wife split their time between the Kansas City and San Diego areas for several years before moving near the California town.
The couple had planned to return to Kansas eventually to be near their children and grandchildren, but in 2020 the pandemic hit and changed their plans. Mastalio found himself uncomfortable with the harsh measures California was imposing to fight the pandemic. “Everything has changed,” he says. “It was much more strict and locked down in California than in Kansas.”
After enduring a year of virtual isolation, the couple decided to return much earlier than planned to Lawrence, Kansas, where one of their children lives. They rented for a while and then bought a house there.
“I did well,” says Mastalio. “We always knew we would come back here to be close to family.”
Give yourself options. If you’re moving and buying a new home, don’t just think about your current needs, but also your future needs, says Rodney Harrell, AARP’s vice president for family, home, and community.
Pay a little extra for wider doorways and “stepless entrances” that will accommodate a wheelchair or anyone who has trouble with stairs. Install grab bars in showers. Consider building auxiliary housing where a child or caregiver can live if your health declines.
You may be feeling good now, Harrell says, but things can change quickly. And considering future needs now will give you options so you can stay in the same house for the rest of your life.
Moving near your children is not always a good idea. As retirees approach their late 70s or 80s, some will be moving near their adult children. This can make a lot of sense, especially for older people who are alone and need more help.
But it can also be heartbreaking for healthy seniors who drift away from the friends they made in retirement.
Michael Landsberg, a financial adviser in Punta Gorda, Fla., says he’s had a number of clients who moved south to Florida when they were in their 50s and 60s and then moved back north. 10 or 20 years later to be near their family only to learn you still can’t go home.
“They often find that their children and grandchildren are too busy to spend much time with them,” says Landsberg, who tells the story of a client five years ago who was thrilled to return to the Saint -Louis to be near his family, but came to regret it. He says the client told him, “I probably see my kids and grandkids one day a week, and six days a week I miss my friends in Florida.”
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