If you're thinking about relocating once your retirement kicks off, you're in good company. That's because 40% of respondents in a recent Nationwide survey plan to move to a different city or region once their careers wrap up.
But while relocating might seem like a good idea in theory, it might end up hurting you financially, logistically, and emotionally. Here's why.
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1. You could end up with higher taxes
Tax rates can vary from one state to the next. Some states charge no income tax at all, whereas in other states, income tax rates can be high.
If you expect your Roth IRA or 401(k) to be your primary source of retirement income, you might not be so worried about state income taxes, since your withdrawals will be exempt from taxes no matter what. But if you're housing your retirement savings in a traditional IRA or 401(k) plan, then you'll need to consider the tax implications of moving.
2. You might end up getting taxed on Social Security
Your total income picture will determine whether you're forced to pay taxes on Social Security benefits at the federal level. But you should know that these 12 states impose taxes on Social Security:
- Colorado
- Connecticut
- Kansas
- Minnesota
- Missouri
- Montana
- Nebraska
- New Mexico
- Rhode Island
- Utah
- Vermont
- West Virginia
Now, before you write these states off, you should know that many do offer exemptions that might allow you to keep all of your benefits. But definitely research that before making a move, because if you expect Social Security to be a large portion of your retirement income, you don't want to lose a chunk of those benefits to taxes.
3. You might spend more on healthcare
Some areas offer a wider range of healthcare options -- and a broader array of Medicare plans to go along with them. Relocating could, in some cases, leave you spending more money on healthcare. And given that medical bills generally tend to rise in retirement, an increase might put a strain on your limited income.
4. You might lose your support system
In the aforementioned survey, 22% of respondents cited wanting to be near family as a top reason for relocating. But what if you end up in the opposite situation? What if, in the course of settling down in an area with lower taxes and living costs, you also put yourself far away from family, friends, and any support system you might have otherwise had?
Retirement can be a tricky enough transition, and it can be an isolating experience for some people. Abandoning your network of family and friends could end up being a poor choice from an emotional and logistical standpoint.
A choice to think through carefully
It's easy to see why the idea of relocating might appeal to you as a retiree. After all, if you're not tethered to a job, why not explore your options for lowering your taxes and living costs and potentially gaining access to more entertainment and a better climate? But do consider these pitfalls before making your decision official -- and make sure to do plenty of research so you don't regret it.
