Journey Into Retirement

RELOCATION – HOW TO GIVE YOUR RETIREMENT FINANCES A BOOST

In my last post, I started the discussion about relocation in retirement. The focus was on resources you could use to find places that fit your priorities such as weather, cost-of-living, recreation, etc. In this blog post, I will discuss the issue of how a relocation decision can affect your retirement finances.

I cover this topic in great detail in my book if you are looking for more (“Do I Have Enough Money to Retire”). In this post I will discuss some of the basics. You may be perfectly happy staying in your current locations when you retire. That is fine! However, a significant portion of retirees prefer a different place. Maybe you want to be closer to family. Perhaps, you have had your fill of brutal midwest winters and want to move to the Sunbelt or the beach. Whatever your personal priorities, this is a discussion that many people have.

Of course, there will be expenses to get to your new home. However, my focus in this blog is on your ongoing financial situation as you consider relocation alternatives. The reality is that relocation can be an alternative that will put you in a better financial situation. Or, potentially it could put further stress on limited retirement resources. How do you figure this out?

This discussion fundamentally is about a comparison of the cost-of-living in the location where you reside prior to retirement compared to alternative locations you might consider. The first order of business, of course, is to develop a shortlist of alternative retirement locations that are of interest to you. Finances are one element of this, but the major priority should be on identifying locations where you truly want to live. There is no benefit in moving to a location that is cheap, but is a place that makes you miserable. Your standard-of-living involves finances, but it also involves your personal quality of life. My last blog post (Relocation Possibilities I) listed resources that can help you figure this out. So, I am assuming that you have done the due diligence before you take on the financial discussion.

Let’s look at how you would determine the financial implications of various relocation decisions. First, we need to make some cost-of-living comparisons. To do this we need to use a cost-of-living calculator. The one that I would recommend can be found on Sperling’s Best Places website:

(http://www.bestplaces.net/col)

While there are a number of cost-of-living calculators on-line, this is one of the better ones because it lets you compare down to the town level (rather than at a large metro level).

I went onto the Best Places website and evaluated several retirement locations that were of interest to me. The inputs required by this calculator are: 1) your current location, 2) the new location you are considering, and 3) your current salary. One trick that I have learned is to use a current salary of $100,000. This will allow you easily to calculate a percent change in the cost-of-living requirement. The table below shows you the results from several comparisons that I made. If I make $100,000 currently, what income would I need to maintain my current standard-of-living in the other locations listed? (NOTE: Click Table to enlarge)

These are the numbers that I got from the Best Places website. So for example, if I moved to Pensacola, Florida, I would need slightly more than $84,000 to maintain my current standard-of-living. However, if I moved to San Diego, California, my requirements would balloon to nearly $135,000. The numbers in this table are the incomes you would need BEFORE you retire. OK, so far so good!

However, in retirement it is a somewhat different story. The reason for this is that your expenses will change and you need to calculate this number. There are a lot of guidelines floating around such a 60%, 70%, 80%, etc. – the percentage of your pre-retirement income that you will need when you retire. You can download a spreadsheet from this blog that will help you figure this out (my book will also help guide you through how you estimate this). But, your retirement expenses are something that you need to determine.

Relocation can factor into this equation. How does this work? Let’s say, for example, that you determine that you need 70% of your pre-retirement income when you retire. But, 70% is based on the cost-of-living in your pre-retirement location. So, let’s say that you are considering relocation to Pensacola, Florida. Your retirement income could get a double boost. You get one boost because you have fewer expenses in retirement (70% of your pre-retirement expenses in this example). The second boost is if you move to a more affordable location. So, taking Pensacola as the example, you would need:

$100,000 (pre-retirement income) x 70% (reduced retirement expenses) x 84.1% (relative cost-of living in Pensacola). If you stay put, you would need $70,000. However, if you moved to Pensacola, you would need only 84.1% of that $70,000 or roughly $58,900. Of course, if you moved to San Diego you would need a little over $94,000 instead of the $70,000 in your pre-retirement location.

As the next table shows, this will vary by the percentage of your pre-retirement income that you need so take some time to figure out what this percentage will be (NOTE: Click Table to enlarge):

Relocation is a decision that can take pressure off of your retirement expenses or can add to your headaches. This is definitely something to consider. If you want more detail, see my book. The one clear benefit of this discussion is that you may become depressed by your income needs in retirement until you realize that relocation may be exactly what the doctor ordered.

Retirement finances can be daunting, so look for creative solutions to put you in a better position by “thinking outside of the box.” Relocation can be one of those creative solutions.

Please pass this blog post on to your friends and family and let me hear your perspective on this topic.