There's more to relocating in retirement than picking a warm spot and enjoying the future days of leisure. Before making your decision, you'll need to take into account all aspects of your financial life, ranging from your monthly income to your estate plan.
Morningstar’s recent article, titled “6 Questions to Ask Before Relocating in Retirement,” sets out some key questions for you to answer:
Should I downsize? This depends on how many visitors you plan to have and how often. If you're moving far away from family, you may not expect many visits. Also, if you sell your home and buy a less-expensive home, you will probably be able to add the difference (minus fees and other expenses) to your retirement fund.
What's the cost of living at the new location? You have to consider the total cost of living, which goes beyond taxes and includes expenses such as health care, food, and transportation. While real estate prices in popular "glamor" cities like New York and LA are usually higher than smaller cities or college towns, it's your total outlay that counts: you may be able to live in a smaller space in a big city and save money on downsizing. Look at all of the expenses.
How will relocating impact my cash flow in retirement? The article says to remember that it's what you keep after taxes and inflation that counts. Look at state income tax rates because there are a few states that don't have any income tax. These include Alaska, Florida, Nevada, South Dakota, Texas, and Wyoming. But if you examine the tax practices of other states, you'll find variations. To understand the total impact relocating will have on your after-tax cash flow in each place you're considering, work with your estate planning attorney.
Are there going to be estate-planning concerns? Relocating and establishing residency in a new state means new laws. Speak with your estate-planning attorney before you make this relocation decision to see if your estate would be subject to higher taxes and/or greater restrictions in a new location. Does the new state have an inheritance tax? How will the state value your assets? Will your surviving spouse be shielded from taxes? All great questions for your meeting with your estate planning attorney.
Will relocating improve my quality of life? So, will you be able to maintain or enhance your quality of life if you relocate? Will you be happy living farther away from your friends and family? That’s the big question.
Ultimately, the article says the decision to relocate really comes down to whether you can afford it and whether it will make you happier.