Best places to retire? It’s complicated

Health care and activities, not just cost, are deciding factors in choosing a retirement destination.
By Ilana Polyak

There is no shortage of suggestions about where to retire, be it on a sunny beach or in a college town bustling with cultural and educational opportunities. But deciding where to live is a complicated calculation that must balance charm with affordability, community, and medical care.

Even so, CPAs say, many clients approach retirement without a clear plan about where they'll live.

Clients need plenty of time to consider all their options, and CPAs need time to run the numbers about all the possibilities under consideration. Our experts share their best ideas and what's involved in helping clients make a well-informed choice.

First up: housing

Many clients strive to cut expenses in order to stretch their retirement dollars. Therefore, it makes sense to "look at the most expensive budget items like housing first," said Jim Shambo, a CPA/ PFS who is retired from Lifetime Planning Concepts Inc. in Peyton, Colo.

By moving, retirees could substantially lower their costs. Consider that the average new home now clocks in at 2,400 square feet, much more than typical empty nesters need. Moving to small accommodations could help clients pull some equity out of their existing homes, while also reducing taxes, insurance, and upkeep.

"It makes sense to downsize," said Brooke Salvini, CPA/PFS and principal at Salvini Financial Planning in San Luis Obispo, Calif. "But it could actually cost more," if the move is into a thriving city center. If reduced housing costs is a goal, a long-distance move may be necessary. The median sale price of a home in the District of Columbia is $542,000. But in Florida it's just $197,000, and $217,000 in Arizona, according to the property listing website Trulia.

To slash costs further, a growing number of retirees are moving abroad. Nicaragua, Panama, and Ecuador are among the most affordable places for retirees to put down new roots, according to International Living magazine. Even with domestic help and dining out frequently, retirees could trim their monthly expenses to under $2,000. "Places like that have a large expatriate community where you can stretch the dollar and it could be quite fun," Salvini said. But the cost of traveling back to visit family and friends can be significant for retirees living abroad. Those expenses could eat into the potential savings of relocating.

Also, a less expensive locale—either stateside or overseas—can have hidden costs. In Florida, for example, retirees must consider the cost of hurricane insurance, Shambo said. In low-lying areas, flood insurance is crucial.

Follow your interests

Cost alone can't drive the decision about where to live, insisted Michael Eisenberg, CPA/PFS, managing partner of Innovative Wealth Advisors in Encino, Calif.

A retired client couple of his recently moved to Santa Fe, N.M. They wanted to lower their housing costs, which the move helped them accomplish. But because the wife was an artist, they were especially drawn to the artistic community the town boasts. "You want to make sure there are recreational or education activities wherever you go that you want to do," Eisenberg said.

For others, being close to family is paramount, and they want to be near their growing grandchildren no matter where they live. But bear in mind that this choice could increase living costs, Eisenberg noted. Young professionals are drawn to vibrant urban areas with career opportunities—but also high costs of living. On the other hand, retirees can benefit by receiving help from family, Eisenberg said. If the relationship between family members is a good one, a retiree may be able to rely on children and grandchildren instead of hiring a home health aide.

Tax considerations

Seven states—Alaska, Florida, Nevada, South Dakota, Texas, Washington, and Wyoming—levy no income tax at all, according to the Tax Foundation. That's a good starting point for retirees seeking to lower their expenses, said Jean-Luc Bourdon, CPA/PFS and principal at BrightPath Wealth Planning LLC in Santa Barbara, Calif. It's also important to compare tax brackets, he added. "Moving from a state where you pay a 10% income tax to a state where you pay none is compelling," Bourdon said. "Moving from a state where you pay 2% is not."

Furthermore, a retiree's tax burden is determined by his or her income mix. For some, pension and Social Security benefits make up the lion's share of income. Many states don't tax Social Security benefits, and some may even provide a tax break on retirement income.

Other retirees' income may derive primarily from dividends, and two states, New Hampshire and Tennessee, do tax interest and dividend income even though they don't tax most other types of income. "Those states that don't have an income tax logically have to make it up somehow," Bourdon said. "You have to know the entire tax picture."

There are also property taxes and sales taxes to consider. New Hampshire, though generally a low-tax state, has among the highest property taxes in the nation. Texans, while paying fewer taxes than residents of other states, are saddled with a steep state sales tax.

Pay attention to health care

No matter how enticing the beach or how hopping the restaurant scene is, it won't mean much if there aren't doctors nearby. Moving may be out of the question for clients who suffer from chronic conditions and require a big team of specialists.

Access to health care, Shambo said, is something retirees must keep in mind. A move to a rural area may bring clients the quiet they crave, but what happens when there's a major health event and it takes more than an hour to get to a health care facility? And for those who live overseas, there are other complications. "Medicare does not cover out-of-country costs," Shambo noted. What's more, some locations may have substandard care, leaving retirees with the dilemma of whether to be treated locally or return to the U.S. On the other hand, places like Colombia and Malaysia have high-quality healthcare that's affordable by U.S. standards, according to International Living magazine.

There is no one best place to retire. That decision is as individual as clients themselves. However, by understanding what's important to clients, CPAs can guide them to their ideal retirement spot.

Ilana Polyak is a freelance writer based in Northampton, Mass. To comment on this article, contact Chris Baysden, senior manager of newsletters at the AICPA.

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