The Geography of Retirement: Where You Live Makes a Difference

The Geography of Retirement: Where You Live Makes a Difference

By James O'Brien.

It's an oft-cited piece of advice: If you want to maximize your retirement savings and investments -- in other words, get the most for your fixed-income buck -- then moving to a community with a low cost of living makes sense.

What factors should come into play, however, when picking locations that help you make the most of your retirement assets?

You'll want to pay attention to the cost of housing, food, and transportation, but you'll also need to be savvy about taxes, health care, and the hidden expenses that can come with maintaining contact with the people and things you love to be around.

Let's turn to some strategies and tips that illuminate more about how location and retirement intertwine, and how you can plan to be in the right place for your golden years.

Cost of living: putting money back in your pocket
When you're working, salaries tend to represent the cost of living in your area. In other words, a $50,000 position in St. Louis might pay $60,000-$70,000 in New York City (and whether that's a sustainable salary in Manhattan or certain other boroughs is another matter).

Of course, when you're retired, it's a different story. You don't get an income boost because your community is an expensive place to live, so moving to a different region can work either for you or against you. Let's look at one example.

According to recent reports, a male retiree makes a median annual income of about $28,000, combining Social Security and income from retirement savings. Rounding that up to $30,000 and running it through CNN Money's online cost-of-living calculator, one can see how location can change the game.

Say our retiree moves from Manhattan to Queens. His housing cost just dropped by 49%, and he pays 15% less for groceries in the less central borough. He only needs about $21,000 to cover the same costs. If he moves to New Jersey -- in this example, we'll pick the Newark-Elizabeth area, just a half-hour away from NYC -- and housing dips by 62% and groceries by 24%. He would only need about $18,000 to cover the same expenses. In both cases there are also breaks in transportation, health care, and utilities, but housing and food represent the biggest savings.

The point is that relocating from the center of the city can mean putting $9,000 to $12,000 back into play for our retiree. And that's a strong argument for looking at geography in the bigger picture of retirement planning. Unfortunately, however, the location equation isn't quite that simple.

Other costs
Cost of living counts for a lot when it comes to your retirement finances, but there are other factors that come into play. Here are some key location-related details that can alter the kind of scenario we looked at.

  • Taxes: Even if you pick an income-tax-free state -- such as Alaska, Florida, Nevada, South Dakota, Texas, Washington, or Wyoming -- you still need to assess the costs of property taxes, property insurance, and sales taxes. Choosing a state such as New Hampshire or Tennessee might get you off the hook for income tax, but those states do tax dividends and interest from investments. Look at the total tax picture and decide whether what you might save in one category is offset by what you spend on others. Additionally, check to see whether the state in question offers property-tax programs for seniors. In Texas, for example, residents over the age of 65 don't have to pay school-related taxes. Other states offer income-based breaks on property taxes.
  • Travel: If you plan to spend a lot of time with family, getting back and forth from your low-cost-of-living community could end up costing you a lot in the long run. If you $5,000 annually on planes and trains, then you might be undercutting the very advantage for which you moved. Your retirement planning needs to account for how much you'll spend to stay connected to your loved ones.
  • Healthcare: It's one thing to assess the health care costs in a given city, but you also need to ensure that you're not moving to a community where you have to pay for of out-of-network treatment because the specialists you need in your new area aren't part of your insurance plan. Healthcare becomes even more complicated for retirees when it comes to Medicare and moving out of country, where coverage by the government program is limited or nonexistent.

Remember that residency isn't a given, either: Splitting your time between two locations -- the seasonal living model that some retirees adopt -- doesn't mean you automatically get to pay the most advantageous location's tax rates. Typically, to qualify for residency, you have to live in a place for longer than six months.

So, the place you choose to live is crucial to your retirement lifestyle. But relocating is not as cut-and-dried as picking a spot with a lower cost of living. As with many elements of a successful retirement, it's about weighing the numerous pros and cons and making sure the apparent costs outweigh the less obvious expenses that can arise.

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