In addition to being a huge financial decision, retirement is not only a question of when, but where. Careful consideration and weighing all the factors are imperative to avoid a costly mistake.
About 10,000 baby boomers approach retirement age every day, according to AARP, and their considerations often include weather, cost-of-living, healthcare services, transportation, cultural activities and outdoor recreation. To avoid making a mistake during this dramatic lifestyle change, consider these tips to find a retirement-friendly place to put down new roots.
Get to Know the Area
Mistaking a great vacation for a new home location is common when retirees are choosing a place to settle, said Kirk Kinder, founder and president of Picket Fence Financial.
“People often take a trip or two to an area, then decide to move there. Short vacations or visits don’t really give you a true understanding of the region. I recommend spending a couple months as a renter to really get the feel for the area,” Kinder said.
Qualitative Factors Should Outweigh Quantitative
“Does the area treat retirees well? Is there an opportunity to find friends or pursuits that fit your interests? Are the healthcare services strong?” Kinder said.
Consider Your Taxes
Cost of living, income tax rates and estate complications are the top factors retirees should consider, said Diane Pearson, wealth advisor at Legend Financial Advisors.
“Many retirees do not take into consideration the income tax and estate (inheritance) tax that can affect them long-term,” Pearson said. Retirees who are considering moving to a new state need to understand the possible income and inheritance tax complications. For example, Pennsylvania has an inheritance tax that many states do not, but other states may have a more expensive probate process, Pearson said.
The new tax overhaul also makes certain states more complicated for retirees.
“It is not that clear now, especially with the GOP tax bill, which punishes certain states that have traditionally been attractive to retirees. California, for example, may now be too expensive for many people — not just the elderly — because of the SALT (state and local tax) provision,” said Aimee Drolet Rossi, professor in the Anderson School of Management at the University of California-Los Angeles. Unlike other states, California provides additional health care coverage for poorer residents who already enjoy lower tax rates in California, compared to wealthier residents, Rossi said.
Remember Friends and Family
“Beyond the obvious financial issues, such as not doing enough research on the cost of living in a new place, I think the most common mistake is going someplace too far from family and friends.” said Patricia Currey, founder and chief executive officer of Currey Financial Consulting.