Assessing Financial Adjustments in Retirement: A Comprehensive Guide by a Financial Consultant
In the journey of retirement, the decision to relocate can be a significant one. While cost should not be the primary factor in this decision, it is essential to consider it once the choice to move has been made.
Research from esteemed institutions like The Harvard Study of Adult Development and the University of Michigan Health and Retirement Study has shed light on what truly contributes to retiree contentment. Physical and emotional health, social relationships, and financial security have been found to be closely intertwined. This research underscores the importance of using these components as a decision framework when contemplating a move.
When considering a move, it's crucial to weigh the financial implications. Cost considerations extend beyond housing, encompassing state income taxes, property taxes, taxation of retirement distributions, and estate taxes. Tools like tax planning software can help estimate how much more you can spend per month if you move to a lower-cost area. However, it's important to note that there is no free version of this software.
Financial planning software can also assist in evaluating the impact of reduced housing expenses, such as property taxes, insurance, utilities, and maintenance, which often decrease after downsizing. Such software can help you understand how downsizing might influence your Social Security benefits and their taxation, as well as potential changes in income tax liability.
When assessing a potential new location, it's essential to consider factors that support maintaining health and aging well. Access to places to walk, public transportation, and ride-sharing apps should be considered. It's also crucial to consider the cost of selling and buying homes, including capital gains taxes, transfer taxes, and agent commissions, which can amount to about 20% of each client's home equity.
Relocating based purely on kids and grandkids may not be ideal, as they are usually in their busiest stage, contrasting with the least busy stage of retirees. Grandkids may be a top consideration for a retirement relocation, but it's also important to consider where friends are and whether new friends can be made easily.
Moving can potentially make it harder to replace a network of doctors, especially for those with pre-existing health conditions. Therefore, it's essential to research the availability and quality of healthcare services in the potential new location.
Lastly, it's worth noting that the article was written by a contributing adviser, not the Kiplinger editorial staff. For those interested in checking the records of the contributing adviser, they can do so with the SEC or FINRA.
The Kiplinger Building Wealth program offers valuable insights into retirement, estate planning, and tax strategies to preserve and grow wealth. The program features financial advisers and business owners who share their expertise.
In conclusion, downsizing for retirement is a complex decision that requires careful consideration of both cost savings and tax impacts. By using the components of happiness in retirement as a decision framework and utilising financial planning tools, retirees can make informed decisions to support their retirement security.
When contemplating a move during retirement, it's not merely about the costs but also crucial to utilize financial planning software to evaluate the potential savings from reduced housing expenses and understand the impact on Social Security benefits, taxation, and income tax liability. Simultaneously, considering the accessibility and quality of health services in the potential new location, such as doctors and healthcare facilities, is paramount, especially for those with pre-existing health conditions.
