How Relocating Can Impact Retirement: Tips from a Financial Advisor

People often say that where you live shapes your life. Your location can influence your social connections, career opportunities, lifestyle choices, and, without a doubt, your financial well-being.

If you are thinking about moving for a job, retirement, or personal reasons, consider the financial impact. Moving can affect your finances in many ways. It's important to plan ahead.

The cost of living varies dramatically across the U.S. For example, living expenses in Manhattan are more than double the national average. San Francisco is 1.6 times higher, and Boston is about 1.5 times higher. This information comes from the Council for Community and Economic Research (CCER).

Cities like Muskogee, Oklahoma, and Decatur, Illinois, have lower costs. Muskogee's costs are 84% of the national average. Decatur's costs are 80% of the national average.

The cost of living includes housing, healthcare, food, taxes, and other important expenses. These costs can vary a lot between states and even nearby towns. Personal spending habits and calculation methods can also impact these comparisons.

Given these wide-ranging costs, it's worth exploring how relocating might affect your retirement plan. Talking to a financial advisor can be helpful.

You can also use planning tools. These resources show how changes in living costs impact your finances. This includes your retirement goals and the legacy you want to leave. Whether you prefer professional guidance or a hands-on approach, this type of financial planning is a key step in making informed decisions about your future.

Weighing the Options

Imagine this example: Henry and Linda have lived in San Francisco for a long time. They are working with their financial advisor, Daniel. They enjoy the lively lifestyle in San Francisco.

However, they are thinking about moving to Kalamazoo. Many of their friends have retired there. They are attracted by the lower cost of living, according to the Council for Community and Economic Research (CCER). To help them decide, Daniel outlines two potential scenarios.

Setting the Goals

At 60 years old, Henry and Linda are in good health and planning to retire in three years. They aim to sustain their active lifestyle and leave a meaningful legacy for their two grown children and their families.

Daniel recommends planning for retirement until age 96. This aligns with current trends in how long people live in the U.S. This helps to ensure their financial plan remains resilient, even if their retirement spans several decades.

Assessing Their Finances

Daniel helps the couple take stock of their financial standing. They currently earn $250,000 annually before taxes, with $80,000 allocated for yearly expenses and $60,000 directed toward savings. Their prudent financial habits have left them with no debt apart from a $500,000 mortgage on their $800,000 San Francisco home.

Their savings add up to $1 million. This amount is divided like this: $510,000 is in Linda's retirement plan.

$360,000 is in Henry's IRA. The remaining $130,000 is in a joint account. Their investments are diversified across 49% in U.S. stocks, 21% in international stocks, 25% in bonds, and 5% in cash.

Daniel helps Henry and Linda look at their finances and lifestyle goals. He shows them the benefits and trade-offs of moving. This way, they can keep their retirement plans on track, no matter where they decide to live.

Exploring the Scenarios

To help Henry and Linda decide, Daniel first looks at their expenses. He then estimates how retirement might change these costs. Costs for commuting and retirement savings are expected to decrease.

However, their plans for travel and adventure will raise some expenses. After looking at their budget, they find that their yearly expenses will probably stay around $80,000 if they stay in San Francisco.

Using advanced financial planning tools, Daniel runs 1,000 simulations based on various market scenarios. These models account for unpredictable market returns, aiming to create a resilient plan that works even in difficult economic conditions.

If Henry and Linda stay in San Francisco, they have a good chance of keeping their lifestyle until age 96. They will succeed in 85% of scenarios. In an average market, they could leave a legacy of about $1.8 million.

In 15% of cases, usually in weak markets, they may need to cut spending. This helps avoid draining their portfolio. In the toughest situations, they could still pay their estimated expenses. However, they would leave a smaller legacy of $432,000.

For illustration only. IMPORTANT: The projections and other information generated by eMoney Advisor regarding the likelihood of various investment outcomes are hypothetical in nature, do not reflect actual investment results, and are not guarantees of future results. The results are based upon market assumptions provided by Fidelity. Results may vary with each use and over time. eMoney Advisor is a diagnostic, web-based tool owned and maintained by eMoney Advisor, LLC, a Fidelity Investments company.

If they sell their $800,000 home in San Francisco, they can move to Kalamazoo. They have a $500,000 mortgage.

This means they have $300,000 in equity. They could use this money to buy a home in Kalamazoo without a mortgage. This move would lower their annual expenses to approximately $70,000, including federal and state taxes, starting three years into retirement.

In this scenario, the projections are much more favorable. On average, their legacy could grow to $7.7 million. Even in the most challenging market conditions, they could still leave a robust legacy of nearly $4 million, all while maintaining their desired lifestyle.

By comparing these options, Daniel provides Henry and Linda with a clear understanding of the financial trade-offs and benefits tied to their decision, helping them plan for a secure and fulfilling retirement.

Making the Decision

After reviewing the projections and weighing the trade-offs, Henry and Linda take time to reflect. Daniel also presents additional possibilities, such as downsizing in San Francisco, relocating to a nearby town, working a few more years, or boosting their savings before retirement.

However, the couple’s priority is to fully enjoy their retirement while leaving a meaningful legacy. They like the idea of starting fresh in a new place. The financial benefits also match their goals. Ultimately, they decide that moving is the best choice for their lifestyle and future plans.

The Value of Financial Planning

Choosing where to live during retirement is a personal decision. It affects relationships, activities, and many other parts of life, including finances. Estimating how a new location might affect your retirement income involves considering costs like housing, healthcare, taxes, and more. Over the years, these factors can significantly influence your investment portfolio and financial security.

Scenario planning is a powerful tool within the financial planning process. It provides clarity by illustrating potential outcomes, helping you understand trade-offs and make informed choices. With a good plan, you can handle the challenges of retirement. This will help you build a future that matches your dreams.

Sources:

https://www.fidelity.com/learning-center/personal-finance/retirement/where-to-retire

Disclosures:

This information is an overview and should not be considered as specific guidance or recommendations for any individual or business.

This material is provided as a courtesy and for educational purposes only.

These are the views of the author, not the named Representative or Advisory Services Network, LLC, and should not be construed as investment advice. All information is believed to be from reliable sources; however, we make no representation as to its completeness or accuracy. Please consult your Financial Advisor for further information