In the Great Pandemic Migration, with so many people moving out of the big cities to work remotely, the general assumption is that you save a ton of money.
Well, not so fast.
You may indeed pocket some more cash, but it might not be as much as you expect. And while the financial prospects may be attractive – like relatively cheaper homes, for instance, or no state income tax – there are significant non-financial considerations that come into play, as well.
In short—it’s complicated.
Just ask Clark Kendall, a wealth manager in Rockville, MD who has counseled many relocation-curious clients. “A lot of people didn’t save that much money at the end of the day,” he says. “And while the financial aspects are important to look at, I think other things are even more important.”
There is no doubt that the workforce has been on the move during the pandemic era: According to the National Association of Realtors, almost nine million Americans relocated from March through October of last year. The biggest population losers included New York and D.C., while the biggest gainers were New Jersey, Maryland and South Carolina.
Mark it up to a mix of pandemic fears, financial stresses, and the rise of remote work. According to the freelancer platform Upwork, which conducted three different surveys on the subject, up to 23 million Americans said they were planning to move because of remote work options—potentially making for overall migration rates around 3-4 times normal.
“Urban exodus is real, and the pandemic gave permission for folks to decide where they want to live,” says Byron Carlock, U.S. real estate practice leader for consulting giants PwC. “Growing numbers of people will look to stay in more affordable and tax-friendly areas, if employers adapt to longer-term remote work arrangements.”
Relocation is a major life choice, though, and one that shouldn’t be taken lightly. A few factors to consider:
State income tax.
A number of states don’t even have their own income tax—Florida, Texas, Tennessee and Nevada among them, which explains why they might be particularly attractive to big earners (like Tesla’s Elon Musk, who recently announced a move to Texas). Check out a full state-by-state tax breakdown here.
But just know that savings in one area could be offset by higher rates in other areas, like property or sales taxes. “States need to generate revenue somehow, and I would point out that real-estate taxes can be even more expensive in low-income-tax states,” warns Kendall.
One example he ran the numbers for: A couple in Maryland’s Montgomery County, with a $100,000 annual income and a $700,000 home, who moved to West Palm Beach, Fla. would fork over $1,300 a year more in property taxes, while insurance for their home and car would cost $1,600 a year more—which makes state income tax advantages seem not quite so attractive.
Home prices
Affordable home prices are an obvious reason to want out of Manhattan or San Francisco. It’s not always an apples-to-apples comparison, though: If you are trading up from a tiny city one- or two-bedroom to a nice house in the suburbs, then your lifestyle might be more spacious, but you might not be saving additional money.
Currently the most affordable states for real estate are Iowa, North Dakota, and West Virginia, while the most expensive are California, New York and Rhode Island, according to NAR data.
Cost-of-living differences
Beyond big-ticket items like a mortgage, there is also the question of how much it costs to live on a daily basis—everything from groceries to insurance to healthcare to utilities.
When the site Insure.com crunched the numbers, it found that the lowest cost-of-living states were Mississippi, Arkansas, New Mexico and Oklahoma. Meanwhile the most expensive were Hawaii, D.C., New York and California.
The cost of moving itself
Even if your estimated monthly expenses in your new location will be lower, there is still the little issue of getting there. If you are selling your home, for instance, you are likely giving real-estate agents 6% on that deal – and moving all your stuff could cost you thousands. In other words, it could take a while before you start making money on the trade.
Consider college savings
For parents, 529 college savings plans won’t be the highest consideration for a potential move. But they are on the list: Say you have a newborn child, and are planning to put away money every year towards university. If one state offers residents a $10,000 annual tax deduction for contributions, along with standout investment options, while another features underperforming funds without any tax advantages, that makes a big difference over 18 years. Research firm Morningstar ranked the best state 529 funds here, and you can dig into each state’s tax treatment for contributions here.
Think way ahead about your estate
No one likes to think about this, but what happens to your estate in the event of your passing? Your assets could be treated very differently in your new location—maybe better, and maybe worse. While federal guidelines are clear – current estate exemptions are up to $11.7 million for individuals, $23.4 million for married couples – 17 states and DC have their own state or inheritance taxes to consider. Better to know that information beforehand, before it’s too late to do anything about it.
Game out different scenarios
The ability to work remotely certainly does change the cost-of-living math. But you would be wise to play out future possibilities in your head: At some point the pandemic will end, and employers may decide they want staff back in the main office. Or you might lose your gig, for whatever reason, and then find yourself in a remote location with a local economy that’s much less vibrant than the city you just left.
That’s why non-financial considerations are just as important, if not more so, in relocation decisions. “If you are moving to the middle of Montana, make sure you like the middle of Montana,” says Kendall. “If you really like the lakes or the mountains, move there for that, and not just the financial aspect.”
One smart idea: Do a trial run first. Before you pull the trigger on a full-on relocation, rent in your target area for a few weeks or months. That way you can see if the money savings are as big as you are hoping, and if the lifestyle really matches what you’re looking for.
“Pandemic relief seekers are looking for cute places with a Mayberry lifestyle,” says PwC’s Carlock. “We do have a war for talent going on – and employers are being forced to be flexible for this new reality.”
