Editor's note: This is the first of a two-part series. Part two, arriving Sunday, will be Seven Financial Considerations When Downsizing for Retirement.
During COVID, I had two clients sell their Washington, D.C.-area homes to move to Florida. Within 12 months, they had sold their Florida homes to re-buy in D.C.
It turned out the place they vacationed wasn't quite the same when you don't get to eat out every meal and you must endure a Florida summer.
Sign up for Kiplinger’s Free E-Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.
Profit and prosper with the best of expert advice - straight to your e-mail.
The cost? Capital gains taxes, transfer taxes and agent commissions ate into about 20% of the home equity each client had built.
The Kiplinger Building Wealth program handpicks financial advisers and business owners from around the world to share retirement, estate planning and tax strategies to preserve and grow your wealth. These experts, who never pay for inclusion on the site, include professional wealth managers, fiduciary financial planners, CPAs and lawyers. Most of them have certifications including CFP®, ChFC®, IAR, AIF®, CDFA® and more, and their stellar records can be checked through the SEC or FINRA.
Research, including The Harvard Study of Adult Development and the University of Michigan Health and Retirement Study, dives into the drivers of happiness in retirement. Most studies find physical and emotional health, social relationships and financial security to be highly correlated with retiree contentment.
When thinking about possibly downsizing or moving, it's helpful to use these three components of happiness in retirement as the basis for your decision framework. Let's break the thought process down.
1. Health factors to consider in a move
About two years after my clients' ill-conceived moves, a good family friend relocated from Maryland to Texas. Our friend had some pre-existing health conditions, and it turned out to be harder than expected to replace their network of doctors in Maryland.
I don't know if this would have caused them to change their decision, but frequent trips back to the Old Line State for care proved to be costly and stressful.
Physical and mental health are often considered to be the No. 1 driver of retirement happiness. But this is not just about where your doctors are. It's being in a place that allows you to maintain your health and age well.
Are there good places to walk (to maintain mobility)? Is there easy access to public transportation and ride-sharing apps?
2. Social relationships: Will they be better or worse?
Grandkids top all when it comes to a retirement relocation. As a parent of three young kids with local grandparents, I am very thankful for this.
However, you need to also consider where your friends are, especially those who are in a similar life stage, and whether you can make new friends easily.
The trouble with evaluating a relocation based purely on kids and grandkids is that they are probably in their busiest stage … just as you are entering your least busy stage.
Once- or twice-a-week meet-ups are great, but they won't fill your schedule. Unless, of course, you are providing daycare.
Continuing care retirement communities (CCRCs) tend to be easy places to find friends as there is a large cohort of folks living and playing bridge together. Think college, but 60 years later.
There are also what are often referred to as naturally occurring retirement communities (NORCs), which are exactly what they sound like. These condo buildings don't have age restrictions but have naturally become majority retirees.
3. Cost: Try not to make it your top deciding factor
Imagine joining a pool that's half the cost of the one down the street. The problem with the cheaper pool is that you don't have any friends there and it's too deep for you to stand.
If you can afford the more expensive pool with the shallow side and friends, it probably makes sense to pay up.
I often advise clients not to move primarily based on cost unless it's necessary. Said differently, I believe health and social relationships matter more.
Looking for expert tips to grow and preserve your wealth? Sign up for Building Wealth, our free, twice-weekly newsletter.
Of course, once you do decide to move, you will want to take cost into consideration. At that point you should know that cost is not just cost of housing, although that's the big one.
You also need to consider state income taxes, property taxes, taxation of retirement distributions and estate taxes.
We tend to rely on financial planning software to get an idea of how much more you can spend per month if you move to a lower-cost area. If you're interested, you can access a free version of that software.
Our tax planning software allows us to change the state return and see how much more or less your state income taxes would be if you moved. Unfortunately, there's no free version of that one.
In tomorrow's column, I'll dig deeper into how to evaluate the most important cost considerations. Hold your breath.
Related Content
- How to Have a Happy Retirement
- How Much Does It Cost to Sell a House? Don't Overlook These Common Fees
- Will Retiring Early Make You Happier? It's Complicated
- Age in Place or Move? How to Decide Where to Live in Retirement
- 10 Things You Should Know About Selling Your Home to Downsize in Retirement
-
Worried About Your Retirement Income? Four Questions to Ask Yourself, From a Financial PlannerIf you're nearing or in retirement and stressing about your retirement income (so many of us are), consider taking some time to think about these four issues.
-
Stock Market Today: Stocks Step Back From New HighsInvestors, traders and speculators continue the low-volume summer grind against now-familiar uncertainties.
-
Worried About Your Retirement Income? Four Questions to Ask Yourself, From a Financial Planner
If you're nearing or in retirement and stressing about your retirement income (so many of us are), consider taking some time to think about these four issues.
-
Stock Market Today: Stocks Step Back From New Highs
Investors, traders and speculators continue the low-volume summer grind against now-familiar uncertainties.
-
Do You Need Flood Insurance? I'm an Insurance Expert, and Here's Where You Can Get ItStandard homeowners insurance does not cover flood damage, so you might need separate flood insurance, which you can get either through FEMA or private companies. Here are the details.
-
I'm an Investment Professional: These Are the Three Money Tips I'm Giving My College GradCollege grads can help set themselves up for financial independence by focusing on emergency savings, opting into a 401(k) at work (if it's offered) and disciplined, long-term investing.
-
Stock Market Today: S&P 500, Nasdaq Hit New Highs on Retail Sales RevivalStrong consumer spending and solid earnings for AI chipmaker Taiwan Semiconductor Manufacturing boosted the broad market.
-
If You'd Put $1,000 Into Berkshire Hathaway Stock 20 Years Ago, Here's What You'd Have TodayBerkshire Hathaway is a long-time market beater, but the easy money in BRK.B has already been made.
-
New SALT Cap Deduction: Unlock Massive Tax Savings with Non-Grantor TrustsThe One Big Beautiful Bill Act's increase of the state and local tax (SALT) deduction cap creates an opportunity to use multiple non-grantor trusts to maximize deductions and enhance estate planning.
-
Know Your ABDs? A Beginner's Guide to Medicare BasicsMedicare is an alphabet soup — and the rules can be just as confusing as the terminology. Conquer the system with this beginner's guide to Parts A, B and D.
