10 Reasons Why Retirement Isn’t as Expensive as You Think (Part 3)
This is part three in our series about why retirement isn’t as expensive as society may have you to believe. This is immensely important because you want to have the proper amount of money at retirement. Although you probably love your job, you may feel foolish if you worked an extra 15 years longer than necessary just because you got the math wrong…
6. A Less Expensive Home
As mentioned earlier, you’ll likely enjoy a much lower priced home in retirement. Who wants to clean a 5-bedroom house anymore? Most people prefer to pocket the different in price between your family home and a condo, for instance. Downsizing during retirement could turn less into more.
Right now, your home is probably the same home you used to raise a family. With the kids out of the house there’s probably a lot of unutilized or underutilized space. The house is possibly in a high-priced area because of its excellent school district which you longer take advantage of. The house may also be close to your work, which is no longer relevant. A fun exercise before retirement is to go house shopping online. Do you see houses to better suit your needs? Are they priced for less than your current home’s assessed value? You may be able to add another few hundred thousand dollars towards your retirement nest egg just from buying a more appropriate house for your new situation. Talk about savings!
Not only will less of your money be tied up in home equity, you will also save on carrying costs. A small home is more cost-efficient in nearly every conceivable way. You will pay less for heating and cooling. A remodel will cost less since there is less space to fix up. Taxes will be reduced. Repairs will likely cost less not only because the reduced volume of things to break but also the things to break will likely cost less to repair or replace. Think about a small air conditioner unit, hot water heater, and furnace… they cost less than their big brother alternatives.
However, if you can’t cut costs by 25% or more by moving, it may not be worth it to pack up. Why? According to an article from CNBC, after moving many people still spend like they own a big home. Although they have good intentions, many people want to redecorate the new space, buy a more expensive car, or do other things to keep their expenses on the same level as before. Personal finance is so much about will power. If you strongly believe you have the will power to spend less, it’s worth downsizing.
7. Ability to Live Anywhere
If you decide on selling your current home, feel free to take things a step further. Consider moving to a completely different location. Ask yourself, why do you live where you currently live? It makes sense upon retirement to rethink where you belong.
There are many fantastic reasons for moving away. It’s more than just about getting a fresh start for this new chapter in life. For starters, many people move for financial reasons. Retirees enjoy states such as Arizona and Florida largely because of how well they treat retirees. States like these offer a low cost of living as well as other perks such as mild temperatures.
You may also save money by not having to travel to and from your favorite vacation spot – as long as your favorite vacation spot isn’t Vail or the Hamptons. Retirees who flock to the south over the winter and north in the summer are referred to as snowbirds. Keeping up two homes can get expensive. Relocating is the cheaper and simpler option.
Additionally, think about how social security is taxed where you want to move. Certain states calculate a portion of social security as taxable income. If you are counting on as much social security income as possible, keep this in mind. If this is the case, avoid these 13 states.
Also, think about how your estate will be settled. Inheritance taxes vary by state. This will likely be a greater concern than the taxation of your social security income. View this PDF guide to see which states impose heavy estate taxes (also known depressingly as “death taxes”). The guide also explains in great detail how each state handles estate taxes. For instance, some states follow the Federal threshold for taxes, others do not.
According to Kiplinger, the most tax-friendly states for retirees are the following: Florida, Georgia, Mississippi, Louisiana, South Dakota, Wyoming, Arizona, Nevada, Delaware, and Alaska. View Kiplinger’s retiree tax map to compare any of the 50 states.
Where have your kids settled? Perhaps they live far away from your current home. Consider moving closer to be able to help take care of grandchildren and spend more time with your loved ones. Retirement should be about doing what makes you happy.
Don’t worry if you don’t know where you’d like to move to at this point. Begin traveling. Many people move to their favorite travel destination.
Stay tuned to Due.com for part four…