When it comes to retirement, there are numerous factors you'll need to ponder in the course of your planning. For example, will you work part-time to generate income or rely on your savings and Social Security benefits to stay afloat? Will you travel extensively or be content staying local and seeking out entertainment close by?
But here's another question you'll need to answer when mapping out your future: Where will I live?
It's a question countless older Americans have been pondering, too. In fact, TD Ameritrade reports that 28% of married Americans downsized or expect to downsize in retirement, while 16% moved or have plans to move to a more affordable state than their current one.
Unmarried older Americans seem to follow a similar trend: 18% have downsized or plan to downsize and another 18% have moved or plan to move to a more cost-friendly state
If you're wondering where to settle down in retirement, it pays to consider the benefits of downsizing a larger home and moving to a state with a lower cost of living. But it's certainly not a decision to be taken lightly.
Should you downsize in retirement?
Some seniors have trouble saying goodbye to their homes, but if you own a larger property and no longer have children living there, it could make sense to downsize. In doing so, you'll likely reduce your housing costs significantly. Not only will a smaller property generally come with a cheaper price tag, but its associated real estate taxes and maintenance might be considerably lower than those of a larger space.
The latter is an important point to consider because currently, the average homeowner spends 1% to 4% of his or her home's value on regular upkeep each year. If you're dealing with an aging home that's large in size, you might easily hit the high end of that range -- but whether you can afford that on a retirement budget is another story. Living in a smaller property might not only save you money on maintenance, but reduce the stress that comes along with major repairs. And that's reason enough to think about unloading some square footage.
On the other hand, if downsizing makes it difficult for family and friends to visit, that's a negative to think about. And while larger homes typically come with more maintenance, if you have enough space at your disposal, you may have the option to rent out a portion of it, thereby generating income to offset your housing expenses.
Should you move to another state in retirement?
Once you move over to a fixed income, you'll want to do whatever you can to stretch your savings. And that could mean moving to a state that's more affordable than your current one.
There are several factors that dictate a state's affordability, from housing costs to property taxes to income and sales taxes. Amenities also play into the picture. Retirement means having a lot of free time on your hands, and having access to low-cost (or no-cost) entertainment is crucial when your income is limited. Knowing which states are the most and least retiree-friendly will help you start narrowing down your search, but be careful not to sacrifice affordability for quality of life. For example, South Dakota and Wyoming are among the most affordable states for seniors, but if you can't bear the climate, you shouldn't move there.
Then there's healthcare to consider. Right off the bat, you know this is going to be one of your most substantial costs as a senior, especially since the average healthy 65-year-old couple today is expected to spend $400,000 or more on healthcare in retirement. That's why it pays to read up on the best and worst states for senior healthcare and factor that into your decision, as well.
Finally, there's proximity to family to think about, especially if you're counting on your adult children (or grandchildren) to care for you in your old age. Having family around could limit your need for long-term care, which can be an expense that's just as colossal as regular healthcare.
Narrowing down your choices
Maybe you'll decide to downsize in retirement. Maybe you'll choose to relocate to a different state. Or maybe you'll do both simultaneously. No matter what option you decide on, think about it from all angles.
Generally speaking, downsizing will save you money, but if doing so cuts your connection to family, it may not be worth it. Similarly, moving to a more affordable state might ease some financial stress, but if the climate isn't ideal for you and the healthcare system isn't great, you could quickly come to regret that decision. Ultimately, there are pros and cons to every option, but if you weigh them carefully, you're apt to make the right choice.