Considering a Move for Retirement

We’re in the time of year when many people think seriously about moving in retirement. Cold weather seems to make a few more people decide that since they no longer are tied to a particular area for a job or business, they shouldn’t have to put up with weather they don’t like. The harsh winters of the last few years in much of the country seem to have increased such thoughts.

Deciding where to live in retirement is one of the most difficult decisions, and it is one you have to work very hard to make correctly. The home is one of the most valuable assets most families own. A home also involves a high level of continuing costs. The decision of where to live is unique, because it also involves many nonfinancial considerations. It is a very emotional decision for many and can influence mental and physical well-being as well as finances.

There generally are two aspects of the housing decision. One aspect is the type of residence. Retired people have many choices, and we summarized the basic choices in the August 2015 visit. The other aspect is location. We’re going to discuss the factors to consider when a change of location is contemplated. Many people overlook key factors when making the decision and end up either moving again or living with an unsatisfactory decision.

A major motivation for many people to relocate is to lower the cost of housing. Yet, they overlook key expenses that affect the total cost of housing when making a decision.

But first, before leaving a higher-cost area, be sure you really want to live somewhere else. Once you sell a home in a high-cost area, you probably won’t be able to afford to move back. The longer you’ve lived in an area and the more home prices have appreciated, the less likely you are to be able to buy back in without reducing your overall standard of living.

The cost of buying a home is not the only factor in the cost of housing. An area could have relatively inexpensive housing but offset it (or more than offset it) with higher costs in other spending categories.

In some areas, regulations or special factors make utility costs much higher than in other areas. Compare the cost of basic utilities with what you’re paying now.

Some communities have a host of services provided by the local government and the cost is included in property taxes. Other communities require those services to be provided by homeowners’ associations or similar entities. The cost is embedded in association dues. You need to check the range of services provided by local government and by the association, as well as what the homeowner has to take care of.

The financial strength of the association also needs to be examined. You want to be sure the association has enough reserves to cover major upkeep and replacements and is systematically setting aside part of its revenue each year for this purpose. Also, examine the history of increases in both local taxes and association dues.

The analysis is especially tricky with a new development. Usually the developer covers many common expenses until the community is built to a minimum level. Then, the association takes over. Often, there’s a big jump in dues the first few years after the transition. There might be a relatively small number of owners to split the expenses, plus the association needs to build up reserves for future replacements and improvements.

Many people give taxes as a reason for moving in retirement. They want to move to a state with no income taxes. But income taxes are only part of the tax picture. Most states with a low or no income tax have higher property or sales taxes or both. State and local governments also like to add fees or taxes to a range of services, especially utility bills. You need to check the full range of taxes you’ll pay. As mentioned earlier, there might be services other states or localities provide as part of their taxes, while a low tax state leaves it to residents or homeowners’ associations to provide them. On the other hand, some states that in general are high-tax states provide generous exemptions or other benefits for seniors, essentially becoming tax havens for seniors.

Don’t overlook estate and inheritance taxes. Over 20 states in the U.S. still have at least one of them. If you move from a state with no such tax to one that has one, that will greatly diminish the legacy for your loved ones.

The next step is to review your regular activities and how you would engage in them in a new location. Would you have to drive longer distances to engage in some of them? Do these activities cost more, whether it is shopping, entertainment, dining out, or recreation? I’ve known people who lived during their careers in areas with a lot of parks and other recreational activities nearby at little or no cost. They took for granted the ability to regularly go for walks, bike rides, or other activities. Then they realized an area they were attracted to for retirement didn’t offer anything comparable nearby or that it cost more.

Perhaps the most overlooked factor in a move is medical care: its quantity, quality, and cost. People who lived during their careers in urban or major suburban areas take for granted that high-quality medical care is nearby, affordable and accessible. A different location, especially one with lower housing costs, might have a completely different supply of and access to medical care. In some areas, if you develop a serious medical problem you have to drive three hours or more for the right treatment.

The cost of medical care, even basic medical insurance, is another consideration. The cost of all aspects of medical care varies considerably around the country. Insurance companies usually price their policies by county, ZIP code, or some other local designation. Of course, as we age medical care accounts for a higher portion of annual spending and is a more important part of our lives. You need to take a hard look at the cost, quality, and quantity of medical care and insurance in an area. Be sure to also review the options for assisted living and nursing home care. Some areas have few options, so these services might not be there in the future if you need them.

One easy way to explore the cost of medical care in an area is to visit the Medicare web site and review the Part D and Medicare Supplement insurance policies available in the area. The cost of all types of long-term care around the country can be found on the web sites for Genworth and John Hancock Insurance. The sites give average costs plus the high and low costs.

Friends, family, and a social network also are overlooked by many people. If you make friends easily and with different types of people, this might not be much of an issue. Moving can be more difficult when you’ve lived in a place for a while and have a deep social network or you don’t make new friends easily. To leave that situation for one in which you have no close friends or even people who know you is a major change. Keep in mind that the latest research says that social interaction is important to successful aging and retiring. Having close friends and relatives and regular social interactions improves both mental and physical health as we age.

Many factors need to be considered before making a move in retirement. It’s not enough to enjoy a vacation, even a long one, in an area. My recommendation is that you rent in an area over a period of years before deciding to move. You can rent for a few weeks or months at a time. Or you can rent for a full year before deciding on a more permanent change. Moving is expensive, stressful, and sometimes traumatic. You need to become as familiar with an area as you can before making a decision.

RW December 2015.