10 Considerations When Relocating to a Different State
/In December of 2019 in a white paper titled “Are you considering relocating when you retire? Tax issues to consider”, I provided an update on various tax differences between states to consider prior to relocating during retirement.
The popularity of relocating has grown, in particular over the past several months, and you have likely read stories about the rising interest of individuals and families moving to different areas of the United States. The pandemic has caused many to reevaluate where they want to reside, whether that be for cost-of-living (including a lower future tax burden), personal health and well-being, or closer proximity to family and friends.
After enduring the current period of economic shutdown in much of the country, many Americans are in the process of researching, or have already decided to start a new life in a nicer climate where an improvement to one’s overall lifestyle is possible. For employees who have the capability to work remotely due to the various technologies and innovations that are available today, mobility across state lines has also made that decision easier.
Because of this, some areas of the country have seen an increase in population growth compared to others. In the 2020 annual study by the moving company United Van Lines, states such as Idaho and Florida saw significant increases in migration into their states, while states such as New Jersey and Illinois saw an increase in outbound traffic.
Today, based on the current tax laws that are in place and the strong possibility that future tax increases on all residents are more likely in some states compared to others, many individuals and couples, particularly retirees, are factoring in whether a move to a different state makes sense from strictly a long-term tax savings standpoint.
State and local taxes and the impact of future taxes should be one of the factors considered when trying to decide on where to relocate, but often overlooked are some of the non-tax issues that are often as important or even more important. In no specific order, here is a list of some other considerations when evaluating a possible move to another state.
1. Quality and Cost of Health Care
When you begin your retirement, you will probably be healthy and active, but in your later years the availability of highly rated doctors and specialists, one or more quality hospitals and decent, affordable assisted living facilities and nursing homes will become very important. It makes a lot of sense to investigate the services that are available in the area you are considering. While much could change in the future, the current availability of good medical services today is a good indicator of what should be available in the future.
Cost of health insurance. If you retire before you become eligible for Medicare at age 65, or if you will not have employer-provided health insurance, then you will need to purchase your health insurance on the open market until you reach 65. The cost of health insurance varies widely from state to state. The number of choices you will have for insurance plans and carriers will vary widely as well, especially if you qualify for a government subsidy and will be buying your health insurance on your state’s health care exchange.
If you are eligible for Medicare and have Medicare supplemental coverage, note that even though most plans are standardized across state lines, there are some differences among states. For example, some states such as Massachusetts, Minnesota and Wisconsin also currently offer their own standard plans for residents. Other states allow those under 65 to purchase Medicare supplement insurance.
Even though the health care landscape will continue to evolve as the country wrestles with health care reform, it is important to research the costs and levels of coverage provided by the insurance plans that are available. Gaining a better understanding of whether you will have access to the care that you might need and be able to afford is important to consider before deciding to move to another state.
2. Housing-Related Costs and Other Housing Considerations
Housing prices and housing-related costs are fairly easy to research thanks to the internet, but what you see is not always what you get.
While it is easy to see rental prices and home prices, there are other housing expenses to consider as well.
When purchasing a home, you should also educate yourself on the following:
· 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.
For example, if you are planning to buy a condominium, a home in an active adult community or a home in a neighborhood with a homeowners association, it is essential to learn as much as you can about the community’s rules and the fees involved with living there.
Whether you buy or rent in your new location, make sure that you consider other out of the ordinary household costs, such as those that may have to deal with climate, how well a home is insulated or simply some of those extraordinary issues that might only be a concern in the new state you are thinking about moving to.
For example, if you want nice landscaping in the desert, your irrigation bill could be extremely high, while if you want a cool home in Texas during the summer, your electricity bills could be steep.
Prior to making the re-location decision, it might make sense to rent for a few months in that new locale before buying a home. By doing this, it will allow you to not only determine whether you are going to enjoy the area, but it will provide you time to learn more about the local housing market.
When the time comes to buy a new home, consider choosing one that will continue to serve you well as you get older. For example, a one-story home that would be easier to move around in down the road might be a wise choice. You should consider the size of your new home – i.e. do you want the work and cost involved with maintaining a large home and yard, not only now but in the future?
3. Distance from Family and Friends
For many retirees, relocating to an area that is a distance from family and friends is one of the most important factors to consider. How far will you be from the people you love most? If you have got your eye on Florida but your children and grandchildren live on the West Coast, how often will you be able to see them? Would it be convenient and inexpensive for your family members to visit you and you to visit them?
Many retirees have family and friends scattered around the country or even the world, which can make this consideration still more complicated. It is important to think about those who you plan on seeing regularly, how often you would ideally be able to visit them, and the travel costs involved with such visits before settling on where you will be relocating to during retirement.
Another issue to consider is the type of care you expect during your advanced years and whether that involves care from family or friends. For example, if you plan to have family assisting with your care later in life, then relocating to a different area of the country away from them is probably not a wise option.
4. Proximity to a Major Airport
If you plan to travel more during retirement, you would probably appreciate living within a reasonable drive from an airport that offers regular flights to many destinations. Having to drive several hours in addition to the time spent on an airplane could make your travel a less enjoyable, more costly experience, not to mention the inconvenience if you are driving yourself or relying on friends in order take you to and pick you up from the airport. Similarly, if you expect to entertain visiting friends and family members, living closer to an airport will make transportation easier for them.
5. Cost of Everyday Living Expenses
What may be harder to estimate when evaluating a possible change to a new state is how your everyday expenses would change from what they are currently.
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 available entertainment options and their cost?
By living in a region for a few months, you should be able to obtain a better understanding of the cost of living there and how that compares to your current situation. You will likely find that some expenses will increase, while others will decrease. There are also a number of basic cost-of-living calculators available online where you can plug in a location and a list of approximate costs for different categories such as those listed above becomes available.
6. Social Security and Retirement Income Factors
Thankfully, your Social Security income will not 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 the net amount you receive from Social Security.
Before you move, check to see whether the states and localities you are planning on moving to tax Social Security income. If they do, determine what the net difference would be between where you currently live and where you are considering moving to.
Taxes on other forms of retirement income should also be factored in.
Interestingly, there are nine states without a state income tax where retirement income is not taxed at the state level, those states are: Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, Washington, and Wyoming. Additionally, there are currently five states that exempt all or a portion of most retirement income (such as Social Security benefits) from taxable income: Hawaii, Illinois, Mississippi, Alabama, and Pennsylvania.
Keep in mind that a state with lower tax rates on Social Security and retirement income does not necessarily make it a cheaper place to live. An area with higher retirement income taxes might have lower expenses in other areas that make the higher-taxed state a better alternative from an overall cost of living standpoint.
7. Amenities and Opportunities to Support your Desired Lifestyle
Think about the activities that you plan on participating in during your retirement years, and then investigate whether the area you are considering offers the amenities that will support those interests.
For example, if you are an artist, see if there are art supply stores, galleries and places that offer art classes. If you plan on playing a musical instrument, find out if there are bands, orchestras or clubs that you can join with opportunities to practice or perform.
If you enjoy fine dining or international cuisine, look at what the local restaurant scene offers. The same applies for adult education classes, museums, theaters, live music, hiking trails, golf courses and more.
Also, are there opportunities for socialization in the new location? An engaging social life is often times one of the most important components of a happy retirement. If you prefer to socialize with other retirees, you may want to move to an active adult community or live in a city that has a large senior population.
It is also good to know whether services such as home care providers and transportation for people with mobility challenges are available in the community you are considering.
If you prefer to socialize with people of various ages who have similar interests to you, you can research whether there are clubs and social networking opportunities available in the area by reading local publications. Also, visiting the website of the local Chamber of Commerce and Economic Development Agency in order to get a general sense of the local economy and industries would make sense (www.thebalance.com, April 2020). Most towns also have a visitor’s bureau site that will give you a sense of the local attractions and overall quality of life.
8. Things You Value in Your Everyday Life
On the visitor’s bureau site, you can also learn whether the types of shops and restaurants that you enjoy attending are also available in the new location.
For example, if you enjoy shopping at Trader Joe’s and there are none in your new location, would you be okay with shopping at alternative grocery stores?
Another item to consider is the church options that are available in the new location. If you plan on joining a church, is your religious denomination conveniently available to you in the new location?
9. Climate
Residing in a climate where there is nicer weather, particularly in the winter months, is one of the more popular reasons for moving to another state when one retires. When you are “officially” retired and not tied to a particular area for work, it might make sense to head to a state where the weather is more to your liking throughout the year.
If a change in climate is a main driver for relocation, rather than just researching the average temperature in a particular region during the year, it would be a good idea to visit that new location during different times of the year prior to deciding to move. By doing this, it will help you to get a better understanding of not just how comfortable you are with the climate, but also the area and the people who live there.
For example, Arizona and Florida have consistently nice weather from October until June, but the hot summers can be unbearable for many.
Also, besides educating yourself on the seasonal weather in the state you are considering moving to, it is a good idea to educate yourself on the frequency of natural disasters occurring in that area. If it is sunny and beautiful for most of the year, but there is a chance that you will have to deal with the possibility of evacuating every couple of years due to hurricanes or wildfires, is that an area that you will be comfortable living in?
10. Signs of Future Prosperity or Decline
Keep in mind that an area or neighborhood that you are considering might look attractive now, but it is important to look forward and try to envision what it will be like in the future. Obviously, nobody has a crystal ball, and much can change over time within any location. There are some indicators though that might be helpful in determining the longer-term health and stability of a particular area.
For example, if the local economy is currently strong and the major employers in the area are involved in industries with a promising future, such as those focusing on technology/innovation and medical research, that might bode well for the health of the future economy. On the other hand, a region that is reliant on a few aging manufacturing plants may raise concerns regarding the sustainability of the standard of living for residents in the future.
It is easy to research population growth and employment rate trends online, as well as to learn whether new construction projects and revitalization of existing neighborhoods is taking place, or if homes are falling into disrepair and shopping centers with vacant stores are prevalent.
Also, to become educated on the level of crime in a particular area, the FBI's Uniform Crime Reporting Program is a good online resource. This program provides an overview of crime in all but the smallest of American cities. You can also easily access local crime reports once you have narrowed your search as well (money.usnews.com/on retirement, September, 2017).
In closing
There are many factors involved when deciding whether it makes sense to relocate to another state, and the list of variables goes well beyond those that are listed here. While moving to a new place after you retire can be an exciting event, it will require extensive research and a clear understanding of what you want your retirement years to look like.
As you consider these and the overall financial implications of relocation, speak to trusted experts including your Clearwater Capital Partners team. We are, of course, here to help you!
