6 Costly Mistakes To Avoid When Picking a Place To Retire

If you’re planning to move when you retire, you’re not alone. Last year, nearly 340,000 U.S. residents moved when they retired. And while many people stay in the same area, others move to a completely different city or state.

As you plan your retirement, before you make the big move, it’s important to be prepared so that you don’t end up spending money you didn’t anticipate — or don’t have.

Here are some common, but costly, mistakes people tend to make when they choose a place to retire.

Tax planning might not be fun, but it’s necessary if you want to ensure your retirement savings go as far as you need them to — and perhaps beyond. This isn’t entirely location-dependent — though every state taxes income differently — but it’s still important to have a plan.

“Saving money and investing can be relatively simple. Creating a tax plan for spending your money in retirement can be a challenge,” said Jay Zigmont, Ph.D., CFP, founder of Childfree Wealth.

“Retirees need to have a plan for which accounts to pull from, and when,” he continued. “They need to figure out a plan for RMDs (required minimum distributions), IRMAA (income-related monthly adjustment amount) surcharges, Roth conversions, giving and more.”

Tax planning is part of having a comprehensive retirement plan. If you have a relatively simple situation, you might be able to do it yourself. Otherwise, you might be better off working with a certified financial planner or CPA.

As you choose a new place to live, don’t forget about the healthcare situation in that area.

“Are there good doctors and hospitals in the area that meet all of your needs? What about health insurance coverage?” said Chris Urban, CFP, RICP, founder at Discovery Wealth Planning.

Consider your current or future available plans, too.

“If you are not yet eligible for Medicare, consider what plans are available in that area under the Affordable Care Act public marketplace and at what cost to you. If you are on Medicare, consider costs, risks and the network in the local area, depending on if you are on original Medicare or Medicare Advantage,” Urban said. “Understand your total out-of-pocket cost if you should unfortunately have a catastrophic situation.”

You already know the importance of having good health insurance, but if you haven’t thought about your long-term care options in your new area, this could end up costing you greatly.

“Before you retire, you need a plan for long-term care. With the average cost of a year in a skilled nursing facility being $115K, it can be very pricey,” said Zigmont. “Long-term care becomes a challenge for couples without a plan, as the first person who goes into long-term care can spend down much of your retirement nest egg.”

The taxes in your new area should be a major consideration when you retire. This includes retirement income tax, of course, but it’s not just that. Your new location might also have property, local and sales taxes that can eat into your retirement income.

“When moving to another state, you may be moving into a state with a higher income tax or sales tax rate,” said John Stevenson, CFF, an expert contributor for Annuity.org. “Property taxes can be costly, too, in some areas of the country. When retiring, consider tax-friendly states that either reduce or eliminate taxes. You’ve worked hard for it, so keep as much as you can!”

The cost of living includes taxes, healthcare and the like. But it’s more than that. Even the smallest things — like the cost of fuel — can eat into your retirement savings if you’re not prepared.

Jake Falcon, CRPC, CEO at Falcon Wealth Advisors, suggested researching everything from the state taxes to the cost of utilities, clothes, food and transportation in your new retirement community. Run some calculations to determine if the new area is still affordable.

“Some places in the U.S. or even internationally can be very expensive to live, and even if you are paying cash outright for your retirement home, the property taxes over the years can come back to bite you and take a chunk out of your monthly budget,” added Stevenson. “You don’t want to end up moving to your dream place only to find out the cost for living is 20%-30% higher than what you planned for.”

You might not think about it when picking out your new retirement community, but natural disasters can cause a lot of financial hardship down the line.

“Ignoring climate and natural disaster risks can disrupt retirement plans,” said Cliff Ambrose, FRC, founder and wealth manager at Apex Wealth.

Make sure you’re aware of these factors ahead of time so that you can ensure financial security — and sustain a good quality of life — during your retirement years.