As you approach retirement, it's easy to become overwhelmed by all the choices you have. For instance, retirement opens up the possibility of living in a brand-new location. During their careers, many people often make decisions that value stability over other factors. There are several factors that contribute to these decisions. In many occupations, establishing a successful network of clients and professionals in related fields can take a long time and is often specific to a particular city or region; leaving the area may require someone to essentially start from scratch in building business relationships. Similarly, if someone has a spouse or children who are well-established in their work or school, it can be extremely disruptive to move them to a completely new place. There are strong incentives that encourage people to put down roots and choose one place to live for a long while.
Once you retire, on the other hand, a lot of the factors that hinder a prospective move disappear. You probably no longer need to worry about the business network you established. Your children may have grown up and gone out on their own, and your spouse may be close to retirement or already have retired. Some of your retired friends may also have chosen to leave, giving you less reason to stay. With the disappearance of these obstacles, you can consider whatever dreams you've had about where you'd most like to live in your golden years.
Know your budget
Clearly, money plays a big role in many of the decisions you make during retirement. If you've successfully saved a large enough nest egg to support a jet-set lifestyle, then feel free to indulge. Cash in on your shares of Google and Nymex Holdings, buy yourself a couple of villas in Paris or Italy, and soak up the sun for the rest of your life.
For most people, however, budgetary considerations are a more limiting factor. Adjusting to life without a paycheck can be more difficult than you expect, even if you have a solid investment portfolio to provide you with regular income. It's more important than ever to have a firm grasp on what your expenses are and how to make the most of your money.
Moving can have a big impact on your expenses. If you own a large house in which your children's former bedrooms are now mostly empty, trading down for a smaller house or condominium unit can unlock some of the built-up equity in your home as well as reduce expenses for utilities, landscaping, and home maintenance. Also, if you chose an upscale area to live because it was convenient for your work, you may find that moving to a less expensive part of town may actually put you closer to the activities you want to pursue in retirement. If you don't want to leave the area where you've spent your working years, there are usually options that can help you bring expenses into line with your financial resources.
Considering the big move
On the other hand, many people like the idea of a change of scenery during their retirement. Whether it's a desire to escape decades of cold winters or just the impulse to take advantage of your new freedom, you won't be alone if you consider pulling up your stakes and heading for a new home.
Many retirement resources focus on the financial aspects of moving after retirement. For instance, a lot of information about retirement takes a close look at taxation. If you arranged to have enough taxes withheld from your paycheck during your career, retirement may be your first time dealing with paying a tax bill yourself. Depending on how you've invested your portfolio, your taxes may well be quite a bit higher than you expect. Thus, when you discover that states like Florida, Nevada, and Texas don't have a state income tax, you might find that exceedingly attractive. For those who wish to make big purchases, the lack of a sales tax in states like Delaware, Montana, and Oregon may save you more money.
In considering the financial implications of a major move, it's important to develop an overall picture of the expenses you will pay rather than pinpointing just a few types of expenses. For instance, just looking at taxes, a state with no income tax may have high sales tax, property tax, and other state and local levies that make it more expensive for you to live there than in another state that has an income tax. More generally, there are all sorts of other factors that go into the overall cost of living in a particular area. If you're the sort who likes to keep your home cool and comfortable, you could discover that your air conditioning bills in some of those tax-free southern states more than outweigh the benefit of not having to pay state income tax. Prices for housing, food, and other basic necessities vary widely depending on where you live.
Even though money is an important factor in considering your retirement options, it's definitely not the only consideration. After all, you've spent your career working hard in order to have the freedom to do what you want after you retire. You shouldn't let saving a few bucks be the primary motivation that guides your decisions in retirement. The second part of this article takes a closer look at these non-economic factors and how you can reconcile them with the financial realities of your own retirement situation.
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Fool contributor Dan Caplinger is a long way from retirement, but he already has a few different spots in mind for where he'll kick up his heels. He doesn't own shares of the companies mentioned in this article. The Fool's disclosure policy will keep working long after you retire.
