For many people, retirement presents an opportunity to shake up their current living situation. Three in five Americans would consider moving to another city or state in retirement, according to a recent Bankrate survey.1 Others want to stay in the same city but move into a smaller house. Whatever their motives, those considering a change of place when their working days are over must consider a host of financial and lifestyle factors. Sit down with these clients to make sure they're covering all of their bases before they decide whether to make a big move.
Housing Costs
The first thing to consider is the cost of housing itself. Many retirees find they have more space than they need and decide to move into a smaller and less expensive home. Moving from a $400,000 five-bedroom home to a $250,000 two-bedroom home would generate about $125,000 to spend in retirement, taking into account moving and transaction costs. A profit of that amount would likely be tax-free: Couples who have used a home as their primary residence for at least two of the last five years can collect up to $500,000 in capital gains tax-free. What's more, smaller houses typically cost less to heat, cool and maintain, adding to the savings as time passes.
Taxes
For those looking to relocate to a different state, one of the most important considerations should be taxes. Help your clients examine the income, sales, property and estate taxes of the states they're eyeing as potential new homes. Some states exempt Social Security benefits and other forms of retirement income from their income taxes, while others offer low property taxes, no sales tax or senior-specific tax breaks. Depending on where your clients live now and where they'd like to move, they stand to gain—or lose—significant sums of money due to tax changes.
Cost of Living
While taxes are important, they are only one part of the overall cost of living. Make sure you and your clients research the cost of groceries, transportation, and utilities. The cost of healthcare, too, varies from state to state, and with healthcare laws in flux, it's more important than ever to understand the costs and coverage limits of the plans under consideration. If your clients are considering moving a long distance from their families, or to a more remote location, add in the higher costs of travel such a move would bring. Even slightly higher expenses can add up quickly and can be a powerful incentive to stay put in retirement.
Lifestyle
Many clients may want to move in retirement for a change in scene or lifestyle. According to the Bankrate survey, access to the outdoors—mountains, rivers or beaches—is the deciding factor for 65% of workers considering a retirement move.2 Others want to have greater access to museums, restaurants, concerts or other cultural resources.
Just be sure your clients have a complete picture of life in a new place. The weather may be perfect in the winter, for example, but hot and sticky in the summer, and greater access to nature or culture may have to be weighed against greater distance from friends and family. It's also easy to underestimate the importance of social interaction, and retirees who fail to take it into account run the risk of emotional and physical harm. Recent research has shown that greater social engagement results in resistance to illness and disease, greater cognitive health, an increased sense of purpose and greater longevity.3 If moving to a different city means building a social network from scratch, it might be a better idea to stay put.
For clients who have particular destinations in mind, walk them through the costs and savings to determine how the move will affect their finances. Then work with them to develop a plan that will last through their retirement, ideally one that incorporates a variety of income sources, from growth stocks to Social Security to variable annuities. For those who confirm that they want to relocate, proper planning can make that possible. Others may decide after weighing the costs and benefits that remaining where they are is the best move they can make.
1 http://www.bankrate.com/finance/retirement/survey-who-wants-to-retire-elsewhere.aspx#ixzz4awPDxJD5
2 Ibid
3 http://sightlinesproject.stanford.edu
