Choosing a Retirement Location

Baby boomers are going to retire differently than their parents did. Americans are living longer, healthier lives — a fact that is reflected in our notions of what it means to retire. Now, instead of a complete cessation of work, Americans view retirement as a gradual transition into another lifestyle. Some retirees may go back to school, start their own businesses, or work part time. Others will tackle those home improvement projects they’ve been putting off for decades or volunteer their time and talent for causes they care about. Still others will fulfill a lifelong dream of seeing what the world has to offer. Whatever the coming generation of retirees decides to do, where they decide to do it will be of the utmost importance. Deciding whether to relocate or to stay rooted in your own hometown — and your own home — or to “trade down” to a smaller easier-to-maintain home involves a host of issues that you will need to weigh carefully. In making the decision, give yourself plenty of time, do as much research as possible and try to focus your thinking on your needs and those of your spouse or others close to you.

Values Influence Lifestyle Choices

When considering where they want to be in retirement, today’s retirees often place daily lifestyle issues above all else. To help sort through your own lifestyle preferences, make a list of your values — those things that are important and worthwhile in your life — and then determine which are high priorities. It is those elements that you’ll want to incorporate into your lifestyle choices. Proximity to children/grandchildren–If you value family and friends above all else, then proximity to your loved ones likely will be a key factor in your location decision. Small town vs. city living–Do you prefer the sense of community you get from living in a small town or rural area or does the hustle-bustle of city life with its cultural opportunities, restaurants, shopping, and public transportation better fit your style? Climate–Although weather is no longer the prime consideration for today’s retirees, it does play a role in the location decision process. Some people may yearn for year-round sunshine, while others enjoy experiencing the richness of a four-season climate. Ideally you should consider these and other lifestyle factors before you examine the financial implications of your location decision.

Financial Considerations

Cost of living is a big factor to consider when researching a retirement location — particularly for retirees who rely on a fixed monthly income. Take taxes, for instance. Taxes can take a big bite out of your retirement budget. Check the income, sales, and property taxes where you live and compare them to areas you are considering (see table below). You may be surprised to discover that states with no income taxes — such as the traditional retirement haven of Florida — often make up the difference with higher property and sales taxes. Housing is another key factor that will affect your cost of living in retirement. After all, property values and property tax rates can vary widely by state. That’s why it is important to weigh all of your housing options when deciding if and where to relocate. Stay in your current home. If your lifestyle needs will best be met by staying put, consider the financial implications of that decision. For instance, if the mortgage on your home is paid off, your housing expenses will probably be much lower than you’d find in a different living arrangement. However, you’ll have maintenance costs that some experts say equal about 2% of the home’s value each year. Since you may be in this house for another 20 years or more, consider investing in some home improvements, such as insulation, a second bathroom, or even converting a large single-family home into a two-family home for rental income. Sell the home you own. This decision depends greatly on whether you need to raise money from the sale of your home. If your expected income from Social Security, pensions, and other sources falls short of your requirements, then you probably have little choice but to tap your most valuable asset. Selling your house may provide enough cash to defray your new housing costs and provide additional funds to use as you please. Married couples can exclude up to $500,000 in capital gains from the sale of a primary residence (single homeowners can exclude $250,000).¹ This rule can be a boon for retirees who own highly appreciated residential property, as long as they have owned and used the home as a primary residence for at least two out of the last five years. Choosing a new home. If you decide to relocate, or if you stay in the same location but sell your home, you will need to decide what type of replacement housing is best suited to your needs. Should you buy a single-family home? Rent an apartment? Buy a condominium? Buy into a retirement community? These and a growing array of options are available to today’s retiree. Shop around and compare features and costs against your personal requirements and budget. In the end, no matter where you choose to live — from Maine to Montana, in a house or an RV — home is where the heart is, and where you feel most content and comfortable.

State and Local Tax Burdens

Here’s a sampling of state and local tax burdens, which reflect state and local income taxes, property taxes, sales taxes, luxury taxes, and fuel taxes. The taxes are expressed as a percentage of per capita income.

State	State/Local Taxes as a % of Per Capita Income
New York	12.6%
Hawaii	9.6%
Maine	10.2%
Vermont	10.5%
California	11.4%
National Average	9.8%
Arizona	8.9%
Florida	9.2%
New Mexico	8.6%

Source: Wealth Management Systems Inc. Data from the Tax Foundation, 2014. Rates for 2011 tax year (latest available).

Points to Remember

1. Deciding whether to relocate or to stay rooted in your own hometown involves a host of lifestyle and cost-of-living issues that you will need to weigh carefully. 2. Your values — such as family, health, and quality of life — are the elements that you’ll want to incorporate into your retirement lifestyle choices. 3. Cost of living is another big factor to consider when researching a retirement location — particularly for retirees who rely on a fixed monthly income. 4. States with no income taxes often make up the difference with higher property and sales taxes. 5. If the mortgage on your home is paid off, your housing expenses will probably be much lower than you’d find in a different living arrangement. 6. When you sell your primary residence, you may exclude from federal income tax capital gains of up to $500,000 for couples and $250,000 for single taxpayers as long as you have owned and used the home as a primary residence for at least two out of the last five years.

Sources 1. Internal Revenue Service.
Because of the possibility of human or mechanical error by Wealth Management Systems Inc. or its sources, neither Wealth Management Systems Inc. nor its sources guarantees the accuracy, adequacy, completeness or availability of any information and is not responsible for any errors or omissions or for the results obtained from the use of such information. In no event shall Wealth Management Systems Inc. be liable for any indirect, special or consequential damages in connection with subscriber’s or others’ use of the content. © 2015 Wealth Management Systems Inc. All rights reserved.

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This article was written for information purposes only and its content should not be construed by any consumer and/or prospective client as rebel Financial’s solicitation to affect, or attempt to affect transactions in securities, or the rendering of personalized investment advice for compensation. No client or prospective client should assume that any such discussion serves as the receipt of, or a substitute for, personalized advice from rebel Financial, or from any other investment professional. See our disclosures page for more information.

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Phil Ratcliff

Phil Ratcliff, President of rebel Financial, is a senior financial advisor that holds an AIF®, CFP®, ChFC®, and CLU® certifications. He started his career at American Express Financial Advisors in 2003, then moved to AXA Advisors for 7 years before founding rebel Financial LLC in 2013.

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Choosing a Retirement Location

Values Influence Lifestyle Choices

Financial Considerations

State and Local Tax Burdens

Points to Remember

Phil Ratcliff

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