Better weather and lower taxes aren't the only keys to a happy retirement.

By Ryan Derousseau
April 18, 2016

Columbus, Ohio has much to offer, like Ohio State Buckeyes football, the cultural pluses of a college town, and affordable real estate. But it’s certainly not known for its weather, which is why financial advisor Bob Gavlak often finds himself discussing potential moves to warmer locales with his retiring clients. And the climate isn’t the only topic when places like Florida and Texas come up: Those states also offer a lower tax burden, in addition to supposedly better living.

Retirees who want to pull up stakes to flee high prices and cold weather are familiar characters in the American narrative. And Merrill Lynch discovered in a survey last year (PDF) that retirees in the Northeast and Great Lakes give their own regions among the lowest rankings for quality of life and cost of living in retirement. Still, “there are a lot of things to consider” when thinking of escaping from your home state, says Gavlak, who works with Strategic Wealth Partners in Columbus. While a lower cost of living may sound attractive, the decision to relocate involves a variety of important factors, including some that a potential mover may overlook.

First and foremost, there are those tricky tax implications to address. If much of your retirement income comes from a Roth, or from a taxable savings or investment account, rather than from a traditional IRA and Social Security, then you won’t benefit as much from moving to a state with low or no income tax. If you do escape to, say, Texas to get escape state income tax, remember that the Lone Star State has state and local sales taxes that average over 8.1%. If you’re a big spender, that can become a weighty consideration, says Gavlak, but even those that spend frugally can feel a pinch at the grocery store when sales taxes eat into a fixed income.

Property taxes matter, too. “Reality is, Florida doesn’t have income tax, but property taxes are astronomical,” says Aaron Vickar, a wealth advisor in St. Louis for Buckingham. (In fact, the average real estate tax rates for Missouri [1%] and Florida [1.1%] are similar, but higher median home values in Florida mean someone who’s relocating may be more likely to notice the bite.)

For those concerned about leaving money behind for their loved ones, there are also estate and inheritance taxes to consider, and those too can vary widely. Some states don’t impose additional ones on top of federal taxes; Washington state, on the other hand, has a 20% maximum estate tax.

Of course, there’s more to life than just paying (or not paying) taxes. Healthcare costs are a major concern for retirees, and those costs will differ depending on the locale. Medicare, Medicaid, and the Affordable Healthcare Act have helped make the short-term costs of healthcare, especially the basic tab for going to the doctor, relatively similar across states. But the cost of long-term care can vary considerably. The average annual cost of nursing home living in Florida, at $91,000 for a single bedroom accommodation, looks like a deal compared to the $136,000 for New York, as calculated in research by insurer Genworth. But you might consider Florida itself too expensive, compared to the $75,000 cost in South Carolina or $60,000 in Missouri.

There are resources and calculators online that can help you compare costs in your current location and your dream one, though each varies in what it includes. SmartAsset has one that provides cost differences in taxes and housing, while Bankrate.com’s calculator highlights everyday costs.

Typically, though, “it’s not the financial aspect that drives [retirees] to the initial location,” says Vickar. Instead, it’s the appeal of a new place. Entering a new community or finding new friends can be invigorating. But there are also risks involved in retiring to an unfamiliar place. There’s quite a bit of research that shows that the strength of one’s network of friends correlates closely with how happy one is while in retirement.

Vickar says he has seen multiple clients move, buy a home, and a few months later reverse course because they didn’t like life in their dream location. The reasons can vary from wanting to remain closer to grandkids to not liking the lack of seasons or struggling to connect with new friends. But whatever the reason, changing course can mean a costly hit to the portfolio.

Vickar advises testing the waters on a potential move by vacationing in the new place for a lengthy period (even a few months, if possible) before making the leap. It’ll give you a chance to gauge whether the dream spot is truly your paradise, or whether it’ll leave you longing for Columbus again.

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