7 Factors to Consider Before Retiring in a Different State

After decades of hard work and diligent saving, you’re finally about to retire. The process of retiring involves many important decisions.

One of those decisions:

Where will you live after you retire?

While many people decide to continue living where they’re currently living, others decide to move to a different state when they retire.

You might hate the snow and currently live in Minnesota. Alternatively, you could be ready to escape a high tax state such as New York or California.

There could be many reasons to move but you need to make sure you’re considering the whole picture -- the positives and the negatives.

Regardless of which you choose to live in during retirement, there are some key factors you need to consider to make sure moving is right for you.

1. Taxes

Taxes are among the biggest factors you’ll want to consider before you retire to another state.

It’s important to understand:

  • where your income will be coming from
  • how much of it will be subject to tax for this exercise 

While money from a Roth IRA isn’t taxable, money from a traditional IRA is.

State and local taxes

First, you’ll want to research the state and local income taxes you’ll be subject to. Look at the tax rates as well as any deductions or credits you may qualify for.

Now:

This should help you determine how much you’ll need to set aside to pay the actual tax bill to the state and locality each year.

While individual tax rates are important, state and local business taxes can also be important if you still own a business in retirement. Sometimes these taxes can take a significant chunk of your income.

Property taxes

Don’t forget about property taxes.

Real estate property taxes can be very different from area to area.

Additionally, some states and localities charge tax on the value of your car and other expensive personal property.

Sales tax

Another tax to consider is sales tax. Most states set a flat sales tax rate, but localities can add additional sales taxes.

Some states even have extra sales tax added when you eat at restaurants or purchase prepared food.

These sales taxes can add up to a hefty percentage of your budget, so make sure to understand how they work.

2. Insurance

Each state has its own laws regarding how insurance companies can work.

This can lead to huge differences in premiums for insuring something with the same exact value.

Take car insurance for one example:

A car may cost $1,000 per year to insure in a state with friendly insurance laws and good drivers. The same exact car may cost $2,000 per year to insure in a state with unfriendly insurance laws and bad drivers.

Homeowners and renters insurance rates can change drastically, too.

For example, homeowners insurance can be very expensive for an old structure not built to current wind codes in hurricane-prone Florida.

However, if you purchase a new home built to code in Florida, insurance rates could be much cheaper.

That said:

You may be able to find even cheaper homeowners insurance rates for a similarly valued house in another state like North Carolina.

3. Housing

Housing prices are pretty easy to research thanks to the internet, but what you see isn’t always what you get.

While it’s easy to see rental prices and home prices, there are other housing expenses to consider, as well.

When purchasing a home, don’t forget to look into:

  • property taxes
  • insurance costs
  • transaction costs for buying a home
  • homeowners association fees
  • any other home-related costs

The costs above a home’s price can often make a home that you thought was reasonably priced turn out to be unaffordable.

So:

Whether you buy or rent, make sure to consider the other household costs when you move. These costs may have to deal with climate, how well a home is insulated or simply be a factor of the state you live in.

If you want nice landscaping in the desert, your irrigation bill could be sky high.

Similarly, if you want a cool home in the summer in Texas, your electricity bill could be steep. Want a warm home in a blizzard in Maine, your heating oil or natural gas bill could shock you.

Some states may even add additional taxes on your utility bills to generate additional revenue for the state.

For instance, Florida taxes electricity.

4. Everyday Expenses

What may be harder to estimate are how your everyday expenses will change.

Ask yourself questions like the following to help explore these costs:

  • How much do groceries cost in your new area?
  • Is gas more expensive?
  • Will you end up driving more or less?
  • How will your entertainment expenses change based on the entertainment options available and their cost?

Go down your list of monthly expenses and try to research how every expense may change.

It’s likely some will go down and others will go up.

5. Quality and Cost of Healthcare

Just like you leave friends and other local businesses, you’ll be leaving your healthcare team, as well.

If you have a doctor you trust, it can be hard to replace that relationship with a new doctor in your new hometown.

To make matters more complicated, you’ll typically use healthcare more as you age in retirement.

For that reason:

It’s important to closely examine the healthcare options in the states you’re considering moving to.

Before you move, examine the healthcare facilities in the areas you’re considering moving to. Does the area have the hospitals, general practice doctors, specialist doctors and any other healthcare services you’ll need?

Even if the area has the services you need, how do the costs compare? Healthcare costs can vary wildly depending on the area of the country you live in and the available services.

If you have Medicare supplement plans or are retiring early, it’s important to examine insurance options in the new area, as well.

Insurance networks and costs can be very different from one state to the next.

Make sure you can afford the new rates and will have access to the care you need before you decide to move.

6. Social Security Income Changes

Thankfully, your Social Security income won’t change if you move to a different state.

Even so:

Different states do tax your Social Security income differently. That means living in a different state can make a difference in your bank account balance.

Before you move, check to see whether the states and localities you’re planning on moving to tax Social Security income.

If they do, determine the difference between where you currently live and where you’re considering moving to. This will give you an idea of how it will impact your Social Security benefits.

7. Leaving Everything and Everyone You Know

It seems obvious that moving means you’ll leave your old hometown behind.

However:

The magnitude of the decision to leave doesn’t typically set in until after you move.

When you move to a new state to retire, you’re essentially leaving everything and everyone you know in your old hometown behind.

Local favorites

You will no longer be able to stop by your favorite restaurant and be served by the waitstaff that knows your regular order.

You won’t be able to have your favorite hairstylist cut your hair or stop by your favorite mom and pop local store, either.

Friends and family

Friends and family could be left behind, as well. Technology makes the transition a bit less painful in this case.

After all, it’s easier than ever to stay connected thanks to Facebook Messenger and other video chat programs, but the connections won’t be the same.

Over time, connections can fade if relationships aren’t properly nurtured.

Of course, you can return to visit your old hometown and your friends. It won’t be free though.

Travel

If you have to fly, returning home can get expensive quickly. This is especially true if you decide to stay in a hotel or AirBnB when you visit your hometown.

Unfortunately, these expenses can add quite a bit to the cost of moving to retire in a different state.

Will the Move Make You Happier?

Assuming you can afford where you plan to move to, the most important factor to consider is deciding if you will enjoy living there more than where you live now.

While it’s easy to get caught up on the numbers, as long as you can afford the changes you should do what makes you happy.

Moving is expensive, though, so make sure you actually want to make the move you think you do.

Go for a test run

Visit the state you’re considering moving to for an extended period of time, if possible. This gives you a feel for the area and the people.

If you find out the area you thought you’d love isn’t for you, it could easily save you thousands of dollars in moving and transaction costs.

If you love it and can afford it, you may have found your perfect place to retire.

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