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If you are like most people, you've probably given at least a fleeting thought to relocating after retirement. But despite dreams of warm winter days strolling on the beach, less than 1 percent of new retirees actually pack up and leave their state, according to David Savageau, author of Retirement Places Rated: What You Need to Know to Plan the Retirement You Deserve (Wiley Publishing).
Yet even at that rate, up to a half-million Americans each year find new places to call home during their retirement. Interestingly, escaping snow and cold is no longer the primary motivation for relocating. "A generation ago, retirees wanted a better climate, but now the most important reason for moving is cost-of-living expenses," says Savageau.
For some people, it doesn't make good financial sense to keep a huge, multi-million-dollar house, especially if it's in a high-tax locale, says Savageau. "Many people sell their homes and buy another one at half the price and pocket the difference," he notes. "And in some cases, the less expensive property is actually better than the one they just sold because they're getting more value for their dollar." Even for high-net-worth individuals, making the most of their wealth remains a priority, especially during the retirement years.
New Migration Patterns
Although plenty of new retirees continue to head to Florida, Arizona, and Nevada, Savageau sees new patterns emerging. "Areas in the Southwest and the south Atlantic region have become crowded, so people are looking for different options," he says. "More retirees are considering the Pacific Northwest, the North Woods region, and the Rocky Mountain states. And baby boomers have been moving to college towns in New England or the Midwest."
According to Dr. Charles Longino, Director of the Reynolda Gerontology Program at Wake Forest University, family ties are also a very important consideration. "If a couple lives within 10 miles of their children, it measurably suppresses their likelihood of moving," says Longino, who has studied migration patterns among retirees. "At the end of the day, it's really about people."
Savageau says the time to start planning for possible relocation after retirement is long before that moment arrives. "Ideally, this process should begin in your 50s, when you still have a few years left to work," he says. "By that time, you'll know roughly what you can count on in terms of retirement benefits, and you may also have acquired enough money to buy a second home."
Many people use a second home to determine how much they enjoy living in a new area before taking the plunge on a more permanent basis later, says Savageau. A side benefit is that many wealthy individuals rent out their second homes during the rest of the year to generate extra income.
Even if you don't go the second-home route, Savageau recommends first vacationing in locales where you might want to live after you retire. Longino's research confirms that prospective retirees often look before they leap. "If people vacation on a regular basis in a certain location, it really increases the odds of them retiring to that place later on," he says.
Sidebar: Tax-Friendly Retirement Locales
Clearly, $2 million will buy a lot more house in Tuscaloosa, Alabama than in Santa Barbara, California. And while nine states (Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, Washington, and Wyoming) don't have a broad-based income tax, retirees often find that sales and property taxes take a bigger bite out of their budgets.
Even within the income tax category, how a state taxes pensions, Social Security benefits, and dividends can be more than important than its treatment of earned income. Meanwhile, food and healthcare costs remain relatively similar across the country.
States in the Gulf region and Mississippi Valley generally have the lowest cost of living for retirees, says Savageau. He lists McAllen, Texas; Natchitoches, Louisiana; Thomasville, Georgia; and Roswell, New Mexico, as the four most cost-friendly cities for retirement living.
Updated: January 1, 2013
This article is for informational purposes only and is not intended as an offer or solicitation for the sale of any financial product or service or as a determination that any investment strategy is suitable for a specific investor. Investors should seek financial advice regarding the suitability of any investment strategy based on their objectives, financial situations, and particular needs. This article is not designed or intended to provide financial, tax, legal, accounting, or other professional advice since such advice always requires consideration of individual circumstances. If professional advice is needed, the services of a professional advisor should be sought.
© 2013 Wilmington Trust Corporation.