Recently, after putting down our 14-year-old dog, my wife and I took our kids to Florida as a sort of distraction trip. Immediately, it became evident that this income tax-free state was no longer any cheaper and, in many ways, was more expensive than the DC suburb we call home.
There was a time where it seemed that the default for retirees in the DC metro area was to leave as soon as their work was done. While a spreadsheet may reaffirm that decision, today I’m going to give you three reasons why you may want to stay wherever you have called home throughout your career. Before I do, a few points of clarification: This article is more qualitative than quantitative. There is a never-ending list of articles highlighting “the cheapest places to retire.” This is not that. This column is also not an argument to stay in your current home. While that may be an option for some of you, my experience is that it is the small minority. This is an argument for why you may be happier staying in your current geographic area rather than automatically flocking to Florida (or any other retirement destination).
1. Social Network
At my previous firm, we had a client retire in her early 50s. On a spreadsheet, and in our planning software, there was no question that she could pull it off financially. She also had plenty of interests, and thus, theoretically, would have no trouble filling her days. The problem: She had no one to pursue those interests with. It’s kind of like going on vacation by yourself. For the highly stressed professional, this may seem incredible but now imagine doing it for a period of years. Pretty lonely.
Research on retirement well-being consistently points to the strength of social relationships as one of the strongest drivers of happiness. Even if you are a social butterfly and are proactive about making friends in a new place, it is hard to replace relationships that have been formed over the last 30 years. I have also seen clients move away only to move again once the grandkids come. Yes, grandkids are the ultimate location catalyst. If they are in your future, it may make sense to put off that move until you know where they will be.
2. Health
If social connections are a strong driver, health is almost always a close second. There’s an argument to be made that you can be healthy anywhere. But, if you have a good routine and a good set of doctors that keep you on track today, that should not be taken for granted.
Most of my clients are not in the DC metro area, but of those who have moved away from here, many still come back to see their doctors. That may be unique to a major metro market, but those major metro markets tend to be the places where you spent your career and where the major hospital systems make finding a doctor a bit easier.
If you plan to move, I encourage you to find your doctors before you do. Often a relocation coincides with a switch from private insurance to Medicare. You want to be sure that new doc is accepting new patients and Medicare.
3. Purpose
I once heard a retired MLB player say that he never wanted to be known as the guy who used to play baseball. He always wanted to be identified by what he was working on now. Put that in the context of your retirement. If someone were to observe you in your first year of retirement and come up with your new job title, what would it be?
Cognitive stimulation is a driver of physical and mental health, so there is some overlap here. Retiring and turning off your brain can be detrimental to your long-term physical and mental well-being. You want to be in a place where you can get involved. That could be volunteering with a non-profit, a faith-based institution or anything that keeps your wheels turning. Many of our clients continue to work in retirement, but they do it for themselves and they do it part-time. Once again, there is an argument that you can do this anywhere, but it’s probably easier to do it where your network is.
Now the happiness driver that I skipped over: financial security. When folks talk about relocation in retirement, the numbers are usually somewhere in that equation. However, I can remember only one client in my entire career whose numbers were so tight that getting to a tax-free state where housing was about half as expensive was the difference between success and failure in their plan. Now, we work with wealthy retirees, and I am aware that if you looked across the entire population of folks who are considering relocating, a much larger percentage would benefit from a lower-cost area. However, the numbers often aren’t as clear as they seem on the surface.
Tax-free states often have higher property taxes that make that benefit less clear. States with income taxes often treat retirement income preferentially, which makes effective state tax rates come down. We use a “relocation” feature in our planning software that projects out overall impact on your financial life if you retire to ________ vs. ________. We can also change the state in our tax software to see how the state income tax bill changes, all else equal.
In closing, question conventional wisdom. Just as kids these days are questioning whether they have to go to college, get married, buy a home, and have kids, in that order, you should question whether retirement automatically means relocation. I have had two clients sell their places and move away—only to come back a year later. Expensive moves…
This article is provided for informational and educational purposes only and should not be construed as investment, tax, or legal advice, or as a recommendation regarding any particular strategy. Whether a Roth conversion is appropriate depends on an individual’s financial circumstances, tax situation, investment objectives, and applicable law. Tax laws are subject to change and their application may vary. Examples discussed are hypothetical and are intended solely to illustrate general planning concepts. They do not reflect the experience of any specific client or guarantee future results. Consult your financial, tax, and legal advisors before implementing any strategy.