If you've been saving for retirement for a while, your thoughts might wander next to where you should retire. If there were one perfect spot to match the needs of every retiree, deciding where to retire would be simple. But no dream location fits every dream―and there are plenty of charming and comfortable options all over the map.
Regardless of your ideal―or your deal-breakers―there are a few factors to consider when deciding on the best place to retire.
- Where you live during retirement can significantly affect your financial situation and quality of life.
- Before you assume you should move in retirement, evaluate your current living situation.
- Major factors to consider in a retirement move include cost of living, taxes, amenities, and access to health care.
- It's always a good idea to visit several areas before you decide to move anywhere for your retirement.
Consider Retiring Locally
Before making any decision, pre-retirees should determine whether a move is necessary. If your current hometown is affordable, close to family, friends, and activities, and you're mortgage-free, there's no reason to move for the sake of moving. In fact, moving in that scenario might actually remove you from the people and things you enjoy.
If you're looking to cut costs with a local move, try to sell your home at a profit and downsize to reduce your utility bills and repair and maintenance costs. If you're in good financial shape, consider whether your desire for change can be satisfied through more frequent brief vacations, or by purchasing an inexpensive weekend getaway home.
Some pre-retirees opt to try a new location on a part-time basis, with a condo in the city and a house in the country. For those who have the means, buying a second home during your working years can offer a pre-retirement trial period. Even better, rent the house out in high season and visit regularly in the offseason. This way, you can make a little extra money and gauge the appeal of living there full time.
Assess the Cost of Living
Given that the average pre-retiree can expect to spend 55% to 80% of their current income in retirement, a low cost of living and housing costs are critical to most individuals to help stretch their retirement income further. They're also factors that will ensure that retirees come out whole should financial circumstances change (upon the death of a spouse, the need for a more hands-on living facility, or just a change of heart).
In these two respects, not all locations make for affordable retirement destinations. Mississippi, Oklahoma, Arkansas, Missouri, and Tennessee are the states with the lowest cost of living, according to a study by Blacktower Financial Management. On the opposite end of the spectrum, Hawaii, California, New York, Massachusetts, and Oregon are the most expensive.
With respect to housing, West Virginia, Mississippi, Arkansas, Oklahoma, and Indiana offer the lowest average property prices. Hawaii, California, Massachusetts, and New York have the highest property prices.
Know Your Taxes in Retirement
Also factor in taxation when deciding where to live later in life. There are three key aspects of taxation consider in retirement:
- State taxes: Currently, seven states—Alaska, Florida, Nevada, South Dakota, Texas, Washington, and Wyoming—do not have personal state income taxes.
- Taxes on retirement income: Four states—Hawaii, Illinois, Mississippi, and Pennsylvania—exempt all or most retirement income (such as Social Security benefits) from taxable income. Twenty-seven states tax some, but not all, retirement and pension income. Ohio, Oregon, and Utah provide a tax credit for these types of income.
- Taxes on dividend income: New Hampshire and Tennessee only tax dividend and interest income.
Keep in mind: A state with lower tax rates in any of the above categories doesn't necessarily make it cheaper to live in. It depends on other taxes that apply. For example, choosing an area with a smaller tax break but a lower cost of living or lower property taxes may actually save you money.
Focus on life planning over tax planning. If you don't like where or how you're spending your days, low taxes won't necessarily make you happy. Depending on other financial data points of the location, low taxes may not save you much money, either.
Evaluate Amenities for Retirees
The place where you should retire ought to have high liveability indicators―for example, a vibrant economy where you can find work should your financial situation change, mild weather, a low crime rate, and access to the Internet to keep you connected to the world. You may think you want to move away from civilization, but you can easily begin to feel isolated without connectivity.
In addition, experts recommend that retirees seek out areas with quality hospitals and assisted living facilities, adult day services, and ample wellness opportunities (fitness centers, golf courses, or ski resorts, for example).
The best places to retire also have qualities that attract newcomers, such as arts and retail venues, public libraries, and civic organizations. Natural endowments, such as recreational land and historic landmarks, can also make your stay more memorable.
Given their cultural, educational and recreational resources, as well as access to top-notch university hospitals, college towns are increasingly popular retirement destinations. Universities attract newcomers by design, and the towns that surround them often have better public transit systems and stronger rental markets than other cities. Many state capitals also often meet much of the above criteria and tend to be relatively recession-proof.
If you plan to move to a college town, consider acquiring property before retirement and renting it to local students before you make the move as a supplemental income source.
Take a Trip to Find the Best Place to Retire
If many different locations appeal to you, get out and see them. Starting years before retirement, visit five or six places. Once you have narrowed down your choices to three or fewer, spend a few weeks in each location to carefully weigh the pros and cons of day-to-day living.
Don't spend all of your time near the hotel―instead, get out and visit neighborhoods to get a sense of the people and the overall community engagement. Most importantly, do not base a decision on average home prices found on the web, which might be inaccurate. Meet with realtors in the area to get a sense of actual home prices, and find someone committed to helping you find the right place.
Research the Best Places to Retire
Before making any decisions about where you want to live, do some research:
- Get the scoop on the economy: Visit the site of the local Chamber of Commerce and Economic Development Agency to get a sense of the local economy and industries. Most towns also have visitors bureau website that will give you a sense of the population, quality of life, and local attractions.
- Check out the weather: Use the interactive climate data tool from the National Climatic Data Center to view climate data by zip code.
- Determine the cost of living: The Council for Community and Economic Research uses data from its annual cost of living index to power a handy cost-of-living comparison calculator. It measures the cost of living in over one hundred urban areas.
- Ensure that the area has a low crime rate: The FBI's Uniform Crime Reporting Program can give you a helpful overview of crime in all but the smallest American cities and towns. You can also easily access local crime reports once you've narrowed your search.
- Find health providers: Use the web to find the physicians and hospitals available in the area and guides to the best hospitals by location or specialty.