How to Find the Best Place to Live in Retirement

With retirement often comes a change of scenery. When you no longer need to live near your job, and when your kids are grown and perhaps have moved to other states, you might decide to pack up and move, too.

But while the stereotype might be to escape to somewhere with sunny skies and low taxes, those aren’t the only factors that draw retirees.

"While southern states are regarded as retirement magnets, partly due to their warmer weather and tax benefits for seniors, states in the Northeast and Midwest have among the largest shares of older adults," says the Population Reference Bureau (PRB).¹

That's not necessarily because retirees are trading sandy beaches for snowy suburbs, but rather because many states have populations that age in place, notes PRB. In fact, Maine has the highest percentage of residents 65+ (22%).

Financial factors

When you're planning where to live in retirement, consider what that would mean for your finances.

That's not to say that high-cost areas are out of the question, but you should take expenses into account and make room in your financial plan to still accomplish your life goals.

Specifically, consider the following factors:

Taxes

Taxes can vary significantly depending on where you retire, and you should look at this issue holistically to see how it affects your financial well-being.

For example, Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, Washington, and Wyoming have no state income tax.² But don't assume that a lack of income taxes means a low tax liability overall.

Texas, for instance, has relatively high property and sales taxes—the seventh in the nation. So, even with no state income tax, it ranks toward the middle of the pack—24th—in terms of the most tax-friendly states to retire, according to GOBankingRates.³ Meanwhile, Arizona has state income tax, but a lower effective property tax rate than Texas, so it ranks 13th. New Hampshire—despite having the third highest property tax rate in the nation—has no state income tax on reported W-2 wages, sales tax, or tax on Social Security, making it number four on the list. However, the state does impose a 5% tax on an individual's interest and dividend income.⁴

Still, consider what your tax bill might look like in retirement, as these rankings might not apply to your situation. For example, the GOBankingRates rankings weighted state tax on Social Security benefits twice as much as other factors. But maybe Social Security is a small factor for you.

Most retirees rely on Social Security benefits as their "major source of income," according to the Center for Retirement Research at Boston College.⁵ But the higher liabilities of high-income earners can reflect other taxes, like on withdrawals from retirement accounts and capital gains.

If you max out your IRA every year, for example, you might put extra savings into a traditional brokerage account. So, when you then sell these assets, you might prefer to live in a state that offers some favorable capital gains tax treatment, such as New Mexico or South Carolina.⁶

Affordability

In addition to taxes, consider overall affordability, in terms of housing, food, and so on. You can look at various publications' rankings of the most affordable states to find potential places to live in retirement.

Mississippi, for example, tops the lists from both MoneyWise and U.S. News & World Report⁷⁸. And Michigan ranks first in a Bankrate analysis (with Mississippi coming in fourth).⁹

Like with taxes, however, think about how these rankings align with your circumstances. You might find housing affordability matters less to you than the cost of medical care. That could be because you’re planning to rent out your home for part of the year while staying with family, so higher housing costs could be offset by rent you would earn.

Also, when judging affordability, look at specific cities, not just states. For example, Ohio generally doesn’t rank among the most affordable states to retire in, but Cincinnati ranks second among U.S. cities with the lowest cost of living, according to Move.org.¹⁰

Job market

Another financial consideration is the local job market in the area where you’re thinking about retiring.

Gallup research shows workers retire approximately five years earlier than expected.¹¹ While some people might voluntarily retire early because they have the financial means to do so, others might have their hands forced, due to factors like job cuts or health issues.

So, you might want to be prepared to find part-time employment elsewhere. For example, if health issues prevent you from going into the office five days a week, you might be able to retire in an area with a healthy job market where you can consult for local businesses a few hours per week.

Doing some work while technically retired can also be good for your mental well-being.¹²

Even if you don't plan on working at all in retirement, a healthy job market with a bright future could be good for real estate value. If you want to pass more money on to your children, then buying a house to retire in that also can appreciate in value could be a good way to enjoy your retirement while building up an inheritance.

Plus, a strong job market often coincides with a vibrant community. If you want to live somewhere with great restaurants, cultural institutions, parks, etc., then a good job market could contribute to that in terms of providing tax revenue and an influx of residents that can support these places.

So, like with these other factors, you can find publications that rank the places with the best job markets, and you can weigh these results with other factors that matter to you. If you have a clear retirement second act in mind, like opening a retail store, then you might even put the local job market above other financial factors.

Lifestyle factors

While financial factors can affect where you live, retirement isn't just about money. Even financial issues like the strength of the local job market can feed into your quality of life. So, consider lifestyle factors that might matter to you as much—if not more—than financial issues:

Quality healthcare

Moving to a new city or state, without having access to high-quality healthcare, could significantly diminish your retirement. You might have dreams of living an active, outdoorsy lifestyle in retirement, but if you’re dealing with issues like chronic pain, you might not be able to meet these aspirations.

So, consider places that have high-quality healthcare. This can tie into finances—being able to afford the care you need—but it can also be a matter of accessibility. If you have low confidence in local healthcare facilities' ability to treat conditions covered by Medicare, for example, then that might not be the best place for you to retire.

One place to find healthcare rankings is MedicareGuide. An analysis based on quality finds that Connecticut, Massachusetts, and New Jersey comprise the top three, while Maine, Vermont, and Minnesota earn top marks for access.¹³

If you retire in a low-cost state that doesn't have the healthcare you're looking for, you could end up spending more time and money traveling to another state to receive the specialized care you want. So, you might decide that retiring in the Northeast, for example, is worth any extra costs that it might bring if you prioritize healthcare.

Some people, however, might be more willing to hope they remain in good health for most of their retirement and focus on living comfortably in a more affordable place. Or, if you have other reasons for moving to a state that ranks lower for healthcare, you could spend extra time getting recommendations on doctors that you can trust in the area.

Family and friends

Another important lifestyle factor is being close to family and friends. If you move to a new place where you don't know anyone, it can feel lonely. This can make a big impact on the quality of your retirement, including your health.

"People who are socially isolated or lonely are more likely to be admitted to the emergency room or to a nursing home," among being at higher risk for conditions like high blood pressure or heart disease, finds the National Institute on Aging.¹⁴

So, consider places where you have some social connections. Even having a few friends could help, as they could help you break into new social circles. If you don’t know anyone in an area where you have your heart set on retiring, such as in another country, then at least think ahead of time about how you can make new friendships, like by joining local clubs/groups.

This area can also tie back to finances. If your kids live in Pennsylvania, for example, and you want to fly back often to visit them, then retiring in Florida might be more feasible than Hawaii.

The more specific you can be, such as researching average flight costs and adding up the number of trips you plan to take each year, the more likely you can filter out places that fall outside your budget based on the lifestyle you're trying to live.

Environment

Lastly, factor in the environment of the places where you’re considering retiring. Many retirees envision waking up to sunny skies all the time, but you might be overemphasizing this factor.

As an article in The Atlantic notes, unless you have seasonal affective disorder, moving to a place with sunny weather "probably isn't worth the effort."¹⁵ The article also points to research from Amy Bucher, Ph.D., on hedonic adaptation, which means that over time, the thrill of living in a place with good weather can wear off as that becomes your new baseline.¹⁶

Still, some people do thoroughly enjoy retiring in a place with better weather, so take an honest look at your life to see if there have been any places you lived where the weather seemed to make a big impact on your mood. You can also ask locals (online or in person when visiting) if they still appreciate the weather or if they've gotten used to it, to the point where it doesn't affect them.

Also think about the cultural environment, which sometimes ties into the weather/geography. For example, you're not going to find much of a surfing culture in the Midwest, but you could in California. Warmer weather can also facilitate year-round, outdoor leisure activities like tennis or golf, so if you like these types of sports, that could influence where you retire.

If you prefer other types of leisure and culture, like going to theaters or museums, then you might not need to move to a warm-weather place. Instead, you might retire in a major city like New York or Chicago. There, you might enjoy other factors like public transportation, rather than needing a car to get around.

These might sound like small considerations, but engaging in certain activities, like going to theaters and museums, as well as some leisure activities, like joining sports or social clubs, is associated with lower levels of depression.¹⁷

Making a plan

Figuring out where to retire can be a puzzle. All these financial and lifestyle factors are different pieces, and the ways they fit together can differ from person to person. Making a plan with a financial consultant can help you figure out how to arrange them.

If you prioritize being close to friends and family in a place like New York, for example, then a financial advisor can help you figure out what your retirement income should look like to afford a higher cost of living. A financial advisor can also help you analyze factors like taxes and help you come up with a corresponding plan, e.g., putting more money into a traditional IRA rather than a Roth if you want to move from a high-tax to a low-tax state.

To learn more about retirement planning and figuring out where to live in retirement, please reach out to our team of financial advisors at Santander Investment Services.