Whether you're getting ready to retire tomorrow or are just dreaming of a far-off future when you can say goodbye to the daily grind, it's fun to think about where you'll spend your senior years. The world is your oyster once you no longer need to work -- you could technically move anywhere. But there are, of course, practical considerations in deciding where you'll live -- and while dreaming about a megamansion on the beach may be enjoyable, it's also important to make a viable plan.
Your choice of location can affect how much you need to save, how long your money will last, and even what happens to your health and to your legacy. To make the right choice for retirement living, here are a few key things to think about.
1. The cost of living
As a retiree, you'll likely be on a fixed income. Unless you've saved a fortune, you'll need to consider how far your money will go. Some parts of the country cost much more to live in than others, which means you'll burn through your retirement savings much more quickly if you opt for a high cost of living area.
Living wage calculators show a single adult needs a minimum of $28,475 annually in San Diego to afford basic costs like food and housing , while a single adult would need a minimum of just $22,853 to afford basic costs of living in Tampa, Florida . Seniors may need much more than this due to the high costs of medical care older people often incur.
If you have $300,000 saved for retirement -- well above the national average -- your savings would run out in just over 14-years in San Diego if you withdrew $28,475 annually, were in the 25% tax bracket and earned a conservative 5% on your investments. In Tampa, your cash would last 18 years if you dropped your withdrawals to just $22,853. And, the more you can reduce your costs of living, the longer your savings will last.
2. Tax rules for retirees
Another way to make your savings last: Send less of your money to state governments. You don't have to engage in felony tax evasion to spend less of your hard-earned retirement money on taxes, either. Just consider how different locales tax seniors and pick a place where the local government won't come after your cash. There are plenty of options.
A total of 37 states don't tax Social Security and 13 states do not tax pensions or Social Security benefits, including Alabama, Alaska, Florida, Illinois, Mississippi, Nevada, New Hampshire, Pennsylvania, South Dakota, Tennessee, Texas, Washington and Wyoming .
In addition to considering taxes on retirement income, also consider average property tax, sales tax, and de facto taxes in the form of fees for things like car registrations. Choosing a state with tax-friendly policies for retirees will save you thousands, which you can put to better use for travel or other leisure activities.
3. Access to healthcare services
As you get older, the risks increase of a serious health issue, such as a stroke or heart attack. You don't want to be located in a city or state which provides limited access to quality healthcare services. Choosing a locale with top research hospitals could help you to extend your life or allow you to maintain a higher quality of life for longer.
When comparing access to healthcare, factors to consider include accessibility of care, care costs, and care outcomes for patients. A Wallet Hub study, which compared 35 metrics for care, found some of the best states measured by quality of healthcare included Iowa, Minnesota and New Hampshire. Some of the worst states included Louisiana, Mississippi and Arkansas.
Quality of care could be a deal-breaker for seniors who already have serious health issues, but even if you are healthy now, remember that you may get sick in the future and won't want to deal with a move when you're diagnosed with a serious illness.
4. Long-term care costs in the state
Seniors face around a 70% chance of needing long-term care at some time during their lifetimes . Often, the care you require won't be covered by Medicare or by supplementary policies because Medicare provides no coverage at all for custodial care, which is defined as help with activities like dressing, bathing or eating .
Since you may be forced to spend your own savings on care, keeping costs down helps you preserve more of your assets to pass on to your loved ones. There are dramatic differences in long-term care costs from state to state in the United States; for example, state median monthly costs for a semi-private nursing home in Massachusetts almost double median costs for a semi-private room in Tennessee . Choosing a locale with reasonably priced long-term care could be vital for protecting your assets in case you must move to a nursing home for the short-term or the long-term.
5. Estate tax rules
Your potential tax obligations don't end when you pass away. The federal government taxes very large estates, but you won't have to worry about owing federal estate taxes unless your estate exceeds $5.49 million as of 2017. In some states, however, estate taxes kick in at a much lower threshold.
In Oregon, for example, you could be subject to state tax if your estate is worth just $1 million. In other states, no estate tax is ever assessed by state government, no matter the value of assets you pass on. If you don't want to give thousands of dollars of your hard-earned wealth to your state government just because you pass away, it's worth considering whether a place you're looking to live has estate taxes.
With a little bit of research, you should be able to find a low-tax state with a reasonable cost of living and good healthcare services where you can kick back and enjoy the good life.
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