Things to Consider Before Retiring to Another State

By Hightower Westchester on January 31, 2023

As people look to retire, one of the most important decisions they will make is determining where they will live.  There are many qualitative and quantitative factors that one should consider prior to making this decision.  There could be many reasons to move but you need to make sure you’re considering the whole picture – the positives and the negatives. Here are five things to assess when considering where you’re going to live during retirement:

Taxes

This is one of the main reasons people tend to make a move.  It is important to understand where your income is coming from and how much of it will be subject to taxes.  Having a budget to understand how much you spend and your current cash flow is an important initial step.  The other part is consulting with your tax advisor and financial advisor to model out the pros and cons of your overall budget.  Such things to consider are state and local taxes and whether they will be more or less than your current tax burden.  Real estate property taxes may differ in various areas, and you should also consider that despite some states setting a flat tax rate, localities can add additional tax rates.  Some states also charge tax on the value of your car and other expensive personal property.

Housing

One of the driving forces behind a move is the desire to live in a different climate.  We suggest spending time in the area you think you’d like to move to, prior to making such a big decision, to make sure you are comfortable with that change, and it is where you want to be.  Renting a home may make sense as you get the benefit of experiencing life in the area but can more easily change your mind if you decide it’s not what you want. 

When a decision is made to buy, you need factor in things such as property taxes, insurance costs, transaction costs of buying a home, homeowners association fees and other home- related costs. Electricity is also a variable as it may cost more in certain areas and some states, Florida is one example, generate revenue through taxing utility bills.

Another thing to consider that may impact your decision of where to live is weather related issues such as blizzards, hurricanes, flooding, and earthquakes, and the insurance you may need to have as a result of these things.    

Quality and Cost of Healthcare

As we age, we will typically use healthcare more.  Before moving to a new area, we recommend researching the medical facilities and hospitals in the area to make sure they are reputable and will be adequate for your needs in the near- and long-term. You also should research doctors in the area as finding a new doctor can be difficult depending on where you want to move. Make a list of all the doctors you currently use, and their specialties, and research those doctors in the area you’re thinking of moving to. If you’ll have to travel to another area for to see a specialist, commute time should be considered as well.

Healthcare costs vary widely in different states so it’s important to look at your insurance and any supplementary insurance to make sure they will be adequate in the area you’re thinking of moving to. Making sure you can afford the new rates and will have access to the care you need before deciding to move will save you from headaches, and potentially a financial burden, down the road.

Social Security and Retirement Accounts

The good thing is that your Social Security will not change irrespective of where you move.  However, one area that is often overlooked is the taxation of Social Security as it varies state by state. Consult with your tax advisor to understand the impact this may have on your income.

When assessing retirement accounts, there are some benefits to living in a state that has no state income tax.  In other words, if you live in one of these states, the funds coming from a traditional IRA or old 401k will not be taxed at the state level.  Roth accounts have no taxes, but they are still something to factor in to balance out pre-tax and post-tax investments based on your tax bracket.

Estate Taxes Consideration

Each state has their own state-specific estate planning laws. If you’re moving to a new state, you’ll need to take another look at your estate planning documents, such as your Will or a Trust, to make sure they will still be valid in the state you’re moving to.  Rules and laws regarding Executors, Power of Attorney, Marital Property Rules, etc., may be different in the state you’re moving so you’ll have to make changes accordingly. 

Many states also have much lower estate-tax exemptions than the federal government, which could result in a state estate tax applying to heirs. 

The grass is not always greener on the other side when making these decisions. Many times, parents follow their kids and grandkids to be closer and spend more time together, but things don’t always work out. You may be closer to your children, but you may find it challenging to find a new friend group. Or what happens if your children move or relocate for a career opportunity? Moving becomes much more difficult as you age.

And lastly, you shouldn’t overlook the emotional aspect of moving and the potential of being further away from family and friends. Having to travel to see those you love can become challenging, not to mention expensive. Like all decisions, it is about assessing your needs and making a calculated plan to have a fulfilling retirement.

Roman Ciosek – Managing Director, Partner – Hightower Westchester

914.825.8633 – rciosek@hightoweradvisors.com