When you think about retiring, where do you ultimately want to settle down? • The answer to one question could hold the key. • "Before thinking about where to retire, think about what you will be doing in retirement," said Tom Murphy, certified financial planner. "Then determine where you can most easily do those things. Once this analysis is complete, you can start looking at the cost of living, tax rate and other factors." • Terry and Mike Hovey knew they wanted to maintain an active social life and stay fit when they retired. One place the Hoveys considered for retirement was a farm in Alabama that belonged to Terry's father.
"Mike said, 'When we retire, I'd like to have elbow room, wide-open spaces, maybe can't see a neighbor, that kind of thing,' " Terry said. So they gave the farm a test drive.
But after a couple of visits, Mike decided against it. The Hoveys are avid golfers and enjoy the theater and eating out.
"There are no really nice restaurants around there, there's no nightlife around there," Terry said. "Golf is limited around there, there's limited social life. I don't want to live in this kind of wide-open space where there aren't people and things we like to do."
Before picking a place to retire, ask yourself these other questions:
• Are services nearby?
If you're contemplating moving to an area, make sure the neighborhood has the services you need, such as doctors, pharmacies, banks and grocery stores.
• What's the climate like?
Do you desire a change of seasons? Can you tolerate months of snow and cold? Or are you burned out from the heat?
• Can you afford it?
Murphy advises those approaching retirement to record every dollar spent for a minimum of three months spread throughout the year. Then look to see what expenses will change or end in retirement.
"The bottom line is, moving in retirement can significantly reduce retirement expenses, making your retirement dollars last longer, but only if moving also results in decreased expenses," Murphy said.
"Of course, moving for nonfinancial reasons — such as to be near grandchildren, or because you like golf, beaches or mountains — can give you great pleasure in retirement. Just make certain you understand the financial impact of doing so before selling your existing home."
• What about taxes?
Keep in mind that things might not always be what they seem. For example, Texas doesn't have a state income tax, but it has one of the highest property taxes. What's more, the state sales tax is 6.25 percent, but local rates can add another 2 percentage points.
"Utility costs might be higher or lower," Murphy said. "Calculating all of the costs associated with a new home can be difficult without talking with one or two people who live in the same area and asking them some fairly detailed questions."
That goes along with Terry Hovey's advice to sample a location before actually moving there for retirement.
"Before they actually commit, lock up your house and go live somewhere for two months and see if that's really going to be for you before you sell your house, and now you're really in trouble," she said.