Does remote work mean it's now time to relocate?

Before you move during the COVID pandemic, think through the financial implications.

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Key takeaways

  • The pandemic has forced some people to move due to economic changes, while others have been taking advantage of remote work to relocate to places that are less expensive or suit their lifestyles.
  • Moving is mostly a "heart" decision—you want to live somewhere that will satisfy you. But there are major financial components to the choice.
  • Consider taxes, estate planning, cost of living, and work opportunities before you move.
  • A long-term rental may be a way to explore a new location, without the cost of committing to a real estate transaction.

After COVID forced many offices to close, a lot of people started to rethink where they want to live. Economic realities, health concerns, and the promise of a new lifestyle all are helping to drive the decision to relocate for tens of thousands of Americans.

"With every crisis comes opportunity, even when on the surface it may not feel like it," says Meredith Stoddard, vice president of life events at Fidelity. "During this COVID pandemic, many people are taking a breath, and asking if the life they live and the way they are managing their money matches their values and financial situation."

She adds, "Where you live is primarily about your heart—what feels right. But that choice has huge financial components—taxes, salary, cost of living, and employment opportunities. So before you put up the for-sale sign, consider the financial side of the decision."

Will work ever be the same?

The pandemic drove a wave of relocations last year. Some people lost businesses or jobs and couldn't afford their homes, or thought they could save money since they didn't need to live in expensive cities. Others wanted to be closer to family, or find more space or a different lifestyle.1

Given the slow rollout of the vaccines, there is little indication that work will soon return to the pre-COVID style. Some 70% of employers say they expect to downsize office space. Large companies like REI and Facebook have announced plans to make remote work permanent. What's more, only about 9% of office workers surveyed said they wanted to go back to an office full time.2

Those trends help explain the recent exodus of workers from the biggest, most expensive cities, particularly New York and San Francisco. Meanwhile, some smaller cities like Boise, Idaho, and lower-cost states like Florida have seen populations grow (see chart).

Which cities did people move to and leave in 2020?

For illustration only. Data from HireAHelper's COVID Moving Study analyzed data in the US, booked through its online platform or sister sites in 2020. Six states: Alaska, Hawaii, Montana, North Dakota, South Dakota, and Wyoming were excluded due to a lack of sufficiently representative move data. The start of the COVID-19 pandemic was taken from its official declaration as a pandemic on March 11, 2020.

Think longer term about taxes, income, and expenses

Relocation checklist: 5 questions to answer as you test drive your move

1. Generally, how does the cost of essential expenses (housing, food, transportation, entertainment) compare to what you pay now? Higher or lower? By a lot or just a little?

2. What are the tradeoffs in taxes to consider: real estate, local, income, sales, estate, and other taxes?

3. Does your community have the mix of people you are looking for? Will your new neighbors be in a similar life stage and have the cultural and ethnic diversity you seek?

4. What about lifestyle? What amenities and lifestyle choices will your new community have—such as shopping, proximity to nature, restaurants, parks, museums, sports teams, and other things that you enjoy doing?

5. How is the state's infrastructure? Is transportation convenient, does the new location offer high quality health care, and technology like 5G internet or electric car sharing?

Moving can be an expensive endeavor. Real estate transactions come with significant costs. Between real estate agents, bank fees, repairs, and other costs, you could end up paying as much as 10% of the value of your home.

Before you sell, take a step back and think longer term.

"The world won't look like this in 2, 5, or 10 years," says Stoddard. "For some people, it may make sense to wait this period out. That said, some people have to move due to financial situations, while others have the luxury of seeking out a different situation. In either case, you should be moving toward things you value in life, not just reacting to try to get away from something."

Many recent moves may have been temporary, with families escaping to second homes or long-term rentals. That kind of test run may make sense before you make a more permanent move.

"You may want to consider a bridge strategy, like a rental or home exchange, before you take on the costs of selling," says Christin Haley, vice president of advanced planning at Fidelity.

If you do decide to move, consider these factors:

Taxes

Many people in California or New York are used to paying state income tax rates of more than 10%. On the other hand, Texas, New Hampshire, Florida, Wyoming, Nevada, and a few other states have no income tax at all.

A move could potentially mean a big savings in income taxes. But it's not necessarily that simple. In some cases, you may be required to pay income taxes in both the state you reside in and the state where your employer is located—but the rules vary by state.

"It's important to make sure your employer registers you as working from the state where you reside, but even that will not always prevent you from paying income taxes in the state where your employer is located," says Haley. "States are trying to figure out how income taxes will reflect the new reality of telecommuting, but at this point, there is still a lot of uncertainty. Consider consulting a tax advisor about your overall tax picture. When considering a move, you should also give thought to sales tax, estate taxes, property taxes, and local taxes, as those can vary widely by location as well."

Tip: Be realistic about your remote work situation. Don't ignore the reality that from the employer perspective, the current "work from anywhere" approach may not last forever.

For illustration only. Source: The Tax Foundation. For details on these tax rates, visit https://taxfoundation.org/state-individual-income-tax-rates-and-brackets-for-2020/.

*State has a flat income tax.

**State only taxes dividends and interest income.

Cost of living

Beyond taxes, there are regional differences in everyday living expenses, often called your cost of living. Housing is generally the biggest difference, but everything from medical care and transportation to food and utilities will vary based on location.

"Cost of living differences could provide some major financial benefits for certain workers, say if you leave the San Francisco Bay area for Nevada or Texas, or move from New York to Georgia," says Haley. "Be aware though that some employers may adjust your salary to reflect these differences, so it is important that you check on that before making a move."

Future employment prospects and work requirements

While you may love working remotely, it may not last forever. You could keep your job and it is likely that most companies will require employees to return in person full or part time. At that point, you need to consider the commute that will be involved.

"Distance needs to be a consideration if you are expected to return in person at some point," says Haley. "And you also need to consider the economic realities of where you are moving. If you are just renting for a few months, this may not be an issue, but if you are actually moving permanently and decide to look for a new job, you want to make sure you will be able to find work in the future."

Current housing market trends

Because so many people are facing similar challenges, the housing supply and services in some areas exceeds availability.

"Some desirable areas right now are seeing houses sell for cash significantly above asking price, sight unseen, with a waiver of a home inspection " says Haley. "These kinds of conditions can inflate prices, and if the trend changes, you may see the value of your current home drop."

On the other hand, it may be a good time to upgrade. If you live in a city where demand has fallen, you may be able to get more space or a better quality home without spending much more money.

Estate planning

Different states have different laws that pertain to estate planning so it makes sense to have your current documents reviewed by your attorney to help determine the aspects of your plan that need to be updated in a new state. Some states tax estates larger than $1 million, while other states have no state level estate tax at all. If you are moving, you should consult with an estate planning attorney to understand the differences and then update your plan. States also have different requirements for legal structures like trusts and powers of attorney that you will want to update. You should also consider what owning property in multiple states may mean for your estate, as it could complicate probate.

Consider working with a professional

"As you plan your move, take time to weigh the tradeoffs and to ask yourself if you are on the path you want," says Stoddard. "Then, you can work with a financial professional to create a new plan that can help validate your emotions while making sense financially too."

Next steps to consider



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