November 11, 2021

James Stewart

 

For many retirees, the call of a warmer climate, lower cost of living, and lower taxes is too strong to ignore. Retirees are selling their houses in suburbs on the coasts and moving to retirement-friendly condos or subdivisions in the Southwest or Southeast. For others with kids living in major metropolitan areas – the umbilical cord doesn’t stretch that far. Being close to your kids and participating in your grandkids’ lives is what retirement is all about.

If you’re thinking of relocating in retirement, we’ve got some things you should consider in your planning.

Think Through Housing

Selling your house likely won’t be a problem. Home prices are soaring, and the housing market is booming. But where will you live after the sale? Moving to an expensive metropolitan area can put a dent in your expenses and weigh on your retirement planning. The retirement tradition of downsizing (buying a smaller and cheaper house) will help so long as you take advantage of the full range of options.

You’ll need to think through how much you can downsize – how many bedrooms do you need? What about a home office? Do you want to be able to host big family gatherings at home?

How about the outside? Do you need a garden, a lawn to mow, or a swimming pool? For many people, moving to a city and buying or renting an apartment near kids is a great solution. As kids follow the trend and move out to the suburbs for space, having family conveniently located in the cities they love can be a great solution. For older folks, it’s a great way to have the full freedom of retirement. There are no upkeep responsibilities and travel is as easy as locking your door.

When Rentals Look Appealing

Buying is a great move and there are associated tax benefits to swapping out a primary residence. However, childhood is short. When college comes around everyone starts thinking about different plans. One solution could be selling your primary residence and investing in a family vacation home that will eventually become a full-time residence. You can rent to be near kids in the short-term and have the benefit of building memories and connections to a place that will endure as your kids and grandkids get their lifepaths going.

Depending on where you live now – one option may be to rent your existing house. One trend among millennials is to maximize “work from home” by taking advantage of a new home. Homes in neighborhoods with good schools and outdoor space are at a rental premium for this cohort because they often cannot afford to buy, despite good salaries. This creates a different set of options to think through, but it can be a good intermediate move if you’re finding it hard to completely cut ties.

Impact of Taxes

You may be moving to a state with a very different tax regime than what you’re used to. While many retirees count on lower taxes in retirement, yours may go up.  It depends on where you relocate.  Be sure to review State AND Local taxes.  Currently, there are eight states with no state income tax – Alaska, Florida, Nevada, South Dakota, Tennessee, Texas, Washington, and Wyoming.

If you choose to buy a home, property taxes could be substantial. You can itemize and get some of these back – but the limit on what you can deduct for State and Local Taxes (SALT cap $10,000) is currently lower than the standard deduction.

In retirement, you won’t have the benefit of a steady paycheck you could utilize when you were working.   If you are going to restack your expenses in retirement, you’ll need to think carefully about your cash flow to ensure you can still get enough income and that your accounts are structured in the most tax-efficient way.  It may be helpful to review my colleague’s article on “Converting an IRA to a Roth IRA after age 60”.

Healthcare Coverage

Healthcare will also be different.  If you are under the age of 65, you will have to decide how to get coverage until Medicare kicks in. This can be tedious, frustrating, and complicated. You will need to start a new application and enroll in a plan in your new state if you are covered under one of the Affordable Care Act Marketplace Exchange policies (bronze, silver, gold, or platinum). How you apply also depends on whether your new state uses healthcare.gov or its own exchange and website.

Just one more thing to bear in mind as you work your way down the relocation checklist. Switching to a spouse’s healthcare coverage may be an option, but that requires your spouse to be able to keep their job despite relocating. This may not be possible.

You’ll also need to make decisions if you’re on Medicare. Your supplement plan works nationwide, but you may find that healthcare quality is different in your new home state. You may want to update your Medigap policy as a result. This could mean a higher price tag. You may also need to change your coverage if you are enrolled on a Medicare Advantage plan and move to a part of the country that is outside the provider’s service area.

At minimum, you will probably need to change all your medical relationships. This includes the actual boots-on-the-ground work of finding and securing connections with a new team of physicians. Depending on the life you see in retirement – particularly if a second home in another state or travel is on the cards – you might want to think about upgrading your Medicare to a more expensive but more flexible option.

The Social Aspect

You’ve built a life where you are. You may have decades of relationships with neighbors and friends. You might be active in your community and people may depend on your volunteerism or your expertise. All the comforting threads that make up life – church, rooting for your local sports teams, even your favorite grocery chains – will change.  You’ll need to join new clubs or get involved in other new ways. Social ties are important at every age, but especially so as you get older.  Your family does love you, but they have jobs and school activities as well and you will have time to explore your own interests.

The Bottom Line

If you’re thinking about moving closer to family or a warmer climate as part of your retirement plan, you should be mindful that there’s more to it than packing up like the Clampetts. Before you make a move, you should think through all your options, and then run every decision through the filter of your retirement plan. You need to be sure that tax considerations, healthcare, income generation, and the ability to stay flexible are all considered before you lock yourself into what could be an expensive or lonely proposition.

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