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Step 1
Make a list of your values, the things that are important and worthwhile in your life, and then determine which are high priorities. Your values will influence your lifestyle choices. For example, proximity to children/grandchildren -- If you value family and friends above all else, then proximity to your loved ones will likely be a key factor in your location decision. Additionally, some people prefer warm weather year-round than temperature climates. Ideally you should consider these and other lifestyle factors before you examine the financial implications of your location decision.
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Step 2
Consider your financial situation. Cost of living is a big factor when researching a retirement location, particularly for retirees who rely on a fixed monthly income. For example, taxes can take a big bite out of your retirement budget. Check the income, sales, and property taxes where you live and compare them to areas you are considering. States with no income taxes, such as the traditional retirement haven of Florida, often make up the difference with higher property and sales taxes.
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Step 3
Think about housing, another key factor that will affect your cost of living in retirement. Property values and property tax rates can vary widely by state. That's why it is important to weigh all of your housing options when deciding if and where to relocate.
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Step 4
Consider staying in your current home. If your lifestyle needs will best be met by staying put, consider the financial implications of that decision. For instance, if the mortgage on your home is paid off, your housing expenses will probably be much lower than you'd find in a different living arrangement. However, you'll have maintenance costs that some experts say equal about 2 percent of the home's value each year. Since you may be in this house for another 20 years or more, consider investing in some home improvements, such as insulation, a second bathroom, or even converting a large single-family home into a dual-family home for rental income.
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Step 5
Consider selling your primary home. This decision depends greatly on whether you need to raise money from the sale of your home. If your expected income from Social Security, pensions, and other sources falls short of your requirements, then you probably have little choice but to sell your home. It may provide enough cash to defray your new housing costs and provide additional funds to use as you please. A generoud tax legislation enacted in 1997, states that married couples can exclude up to $500,000 in capital gains from the sale of a primary residence (single homeowners can exclude $250,000). This rule can be a boon for retirees who own highly appreciated residential property, as long as they have owned and used the home as a primary residence for at least 2 out of the last 5 years.
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Step 6
Think about choosing a new home. If you decide to relocate, or if you stay in the same location but sell your home, you will need to decide what type of replacement housing is best suited to your needs. Should you buy a single-family home? Rent an apartment? Buy a condominium? Buy into a retirement community? Many retirement communities come with all the amenities retirees need at their fingertips.
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Step 7
Visit the Tax Foundation's website to research the various state and local tax burdens across the United States (see Resources below). For example, the highest is Vermont with 14.1 percent taxes as a percentage of per capita income and New Mexico is the lowest at 9.8 percent.
