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Where Should You Retire? Cost of Living Factors to Consider

9 Minute Read

When it comes to retirement planning, hands-down the most common question financial advisors hear is: “When can I retire?” But there’s another critical question that every pre-retiree should consider carefully: “Where should I retire?”

Everyone would like to retire in a location that provides all the good weather, safety, recreation and social opportunities that contribute to quality of life. But one of the most important considerations when deciding where to live in retirement — according to Wendy Wong, a senior financial advisor for UnionBanc Investment Services in San Francisco — is cost of living.

In other words, Wong counsels, find an enjoyable place to retire — whether it’s where you reside now or in some other city, state or country — but make sure you have the savings and income necessary to comfortably bear the costs.

Key considerations

Some places simply cost a lot more to live in than others. Here are the three major cost-of-living factors all soon-to-be-retirees should investigate when considering a retirement location, Wong advises.

Housing costs. With real estate values going through the roof, those who own homes in pricey locations like San Francisco have a golden opportunity, Wong says. Many people are able to sell their expensive homes at today’s sky-high prices, buy a similar quality but much less expensive home in a location with lower real estate values and a lower cost of living, and then use the difference to build up their retirement nest egg.

Wong is seeing clients execute this strategy with short, in-state moves (e.g., San Francisco to Sacramento); migrations to other, lower-cost-of-living states such as Arizona and Oregon; and even relocations to other countries, such as Japan.

The tax environment. The major tax consideration is state income taxes. Currently there are nine states that have no individual income tax or tax only certain types of investment income, which adds to their appeal as retirement locations.  These tax-friendly states are Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, Washington and Wyoming.

Other tax considerations include sales tax, local property tax rates and whether the state has an estate or inheritance tax.

All of the states on Kiplinger’s list of the 10 most tax-friendly states for retirees exempt Social Security benefits paid to seniors from state income taxes, and most allow an exemption for at least a portion of other retirement income, such as private pensions or IRA withdrawals. Delaware is the top-ranked tax-friendly state. Interestingly, the First State has a modest state income tax, but it overcomes that by having no sales tax, low property taxes and no estate or inheritance tax.

To research the tax environment of any state you are eyeing, visit Kiplinger’s State-by-State Guide to Taxes on Retirees.

Health care expenses. Another critical piece of the cost-of-living equation is health care expenses, which can differ enormously depending on where you choose to retire. Typically, Wong says, there is a correlation between the real estate values and general cost of living of a city and the cost of its health care, including long-term care.

In a city like San Francisco, she says, assisted living and memory care costs can easily reach into the tens of thousands of dollars each month. The same or even higher levels of care can be obtained in lower-cost-of-living cities at a fraction of that expense, she notes.

Wong advises clients doing financial planning to factor in the possible need for such care in retirement. In addition to considering buying long-term care insurance, that could mean moving to a location where long-term care is both high quality and more affordable.

Where are some of the best places to retire?

A great starting point to learn about desirable retirement locations is the latest U.S. News & World Report Best Places to Retire rankings. These rankings are based on housing affordability, tax friendliness and health care quality — in addition to a “happiness index” that represents how content residents are with important aspects of their daily lives, and a “desirability index” that measures how interested Americans are in retiring in a given metropolitan area. The rankings also take into account employment opportunities for those who want to continue working either full- or part-time.

Eleven of the top 25 highest-ranked retirement areas are in Florida, including the top four: Sarasota, followed by Naples, Daytona Beach and Melbourne.

Seven are in Pennsylvania, with Lancaster coming in at No. 5.

Other states represented in the “best places to retire” list are Michigan (Ann Arbor), South Carolina (Myrtle Beach), New Hampshire (Manchester), Tennessee (Nashville and Knoxville) and North Carolina (Asheville and Raleigh/Durham).

Cost of living: Now more important than ever

From a financial planning perspective, finding a place to retire with a reasonable cost of living is more important than ever due to current economic factors, Wong says. Heightened stock market volatility is weighing down retirees’ wealth and soaring inflation is sapping their buying power, she notes.

“If you have the money, you can pretty much live anywhere in retirement,” Wong says. “But selecting a place that offers a high quality of life and a lower cost of living can enable you to live comfortably while you retain more of your wealth.”

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UnionBanc Investment Services is making this article available for general informational purposes only and does not purport it to be a complete analysis of the subject discussed. Nothing contained in this material is intended to constitute legal, tax, securities, or investment advice, nor an opinion regarding the appropriateness of any investment, nor a solicitation of any type. The general information contained in this article should not be acted upon without obtaining specific legal, tax, and investment advice from a licensed professional.

Brokerage and investment advisory services are available through UnionBanc Investment Services LLC, an SEC-registered broker-dealer, investment adviser, member FINRA/SIPC, and subsidiary of MUFG Union Bank, N.A. Insurance services are available through UnionBanc Insurance Services, a division of MUFG Union Bank, N.A. with a California domicile and principal place of business at 1201 Camino Del Mar, Suite 208, Del Mar, CA 92014. California State Insurance License No. 0817733. Non-deposit investment and insurance products: • Are NOT deposits or other obligations of, or guaranteed by, the Bank or any Bank affiliate • Are NOT insured by the FDIC or by any other federal government agency • Are subject to investment risks, including possible loss of the principal amount invested • Insurance and annuities are products of the insurance carriers.