You've heard the old saw that the three most important things in real estate are location, location, location. Well, that truism can apply to retirement too. Depending on where you retire, you may be able to dramatically boost the spending power of your Social Security check and your retirement nest egg, not to mention improve the quality of your post-career life.
Relocating in retirement isn't the right strategy for everyone. If you like and can afford your house, have a solid network of family and friends to socialize with, and you enjoy your neighborhood and all it has to offer, you may not want to consider a change.
But if you're looking to stretch your retirement resources—or rewrite the script a bit in the retirement phase of your life—then relocating may be just the right move. If nothing else, lowering your living costs will give you more flexibility in withdrawing money from your nest egg and reduce your chances of going through your savings too soon.
The main reason that a change in venue can allow you to get a bigger bang for your buck in retirement is that housing costs are the single largest expense you'll face in retirement. That's right, even though health care gets all the attention—and health care is definitely a major expense, not to mention one that typically grows as you age—the costs of owning a home or renting eat up the largest share of most retirees' budgets.
Indeed, a recent Employee Benefit Research Institute study shows that for 65-to-74 year-olds, housing expenses accounted for 38% of total spending, a figure that grew to 42% for those 85 and older. Health expenses, conversely, represented just 12% of the spending of the 65-to-74-year-old group, although that percentage was almost double, 21%, for those 85 and older.
Combine the fact that retirees devote such a large part of their budgets to housing with the fact that house and condo prices vary significantly from one part of the country to another—the median home price is $692,000 in Anaheim, Calif., vs. $91,000 in Decatur, Ill.—and that means moving to an area with lower housing costs may allow you to cut your spending significantly, or divert much of what you had been devoting to housing to other activities like travel, entertainment, hobbies, whatever.
Lowering your housing costs isn't the only way you may be able to reduce your outlays by relocating. You may also be able to benefit by paying less for the cost of other items and services that can vary widely from one city another, such as health care, food, transportation and (another biggie) taxes.
The gains you can achieve by relocating will be limited if you already live in a low-cost area. But to get a sense of how far your resources might go in different states and metro areas, you can check out the Cost-of-living Calculator in RDR's Retirement Toolbox. You may also want to take a look at the Regional Price Parity figures published by the Bureau of Economic Analysis. These "RPPs," as they're known, measure the differences in price levels between different states and metro areas. If you want to see how the tax bite might vary from state to state, you can check out the info on state taxes at the Tax Foundation and CCH sites.
You don't want to base your choice of where to live on livings costs alone, however. After all, you also want to be able to enjoy yourself with any extra money you might free up. So if you're considering relocating—whether for financial or other reasons—you'll also want to check out the lifestyle and living conditions different places have to offer. Are you okay with the area's climate? Will you have access to the health care you'll need? Is there a vibrant sports or arts scene? Are there work opportunities for retirees? These are just a few of the questions you'll want to ask yourself before making any move.
Fortunately, you can narrow down the number of candidates that meet your criteria fairly easily by consulting one or more of the lists that highlight the most attractive retirement spots. Earlier this week, for example, Money Magazine unveiled its annual Best Places To Retire feature. This year's list profiles nine cities and towns around the country that retirees should find particularly appealing, including three that offer low living costs, three that provide opportunities for an encore career and three that are a good choice for a well-rounded retirement. In addition to highlighting the pros and cons of each area, Money also provides pertinent stats for each, which in some cases may be the median home price or cost-of-living index, in others the state income tax or unemployment rate.
For a decision as momentous as relocating, you don't want to limit yourself to just one source of information. And you don't have to, as there are plenty of other compilations of retirement spots out there—including ones that focus on cheap places to live in retirement, the best places if you're living on Social Security alone, and the best places to retire abroad.
Ideally, in the five to 10 years before calling it a career, you'll want to do what I call "lifestyle planning"—essentially, thinking hard about how you actually intend to live in retirement and assuring you have the resources to realize that vision.
If after going through that exercise you find that there's a gap between the income your resources can generate and the lifestyle you'd like to lead—or you just want to begin your new life in retirement with a new place to live—think relocation, relocation, relocation.
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