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Thinking of moving in retirement?

Key takeaways

  • Where you live in retirement can have a dramatic impact on your lifestyle and ability to leave a legacy.
  • Costs vary significantly from town to town and between different regions of the US.
  • The financial planning process can help you weigh the potential impact of different locations.

People sometimes say that geography is destiny. Where you choose to live certainly can make a big difference in your social life, career, activities, and without question, your finances. If you are considering moving, whether that's due to a new job, retirement, or any other reason, you should definitely weigh the financial trade-offs.

Consider the vast variation in expenses in different parts of America. The cost of living in Manhattan is more than twice as high as the national average, while San Francisco, California, is 1.7 times and Washington, DC, is nearly 1.5 times, according to the Council for Community and Economic Research (CCER).1 On the other hand, Kalamazoo, Michigan, is about 83% of the national average, and Decatur, Illinois, is about 78%.

Cost of living takes into account differences in costs for housing, health care, food, taxes, and other expenses. They can vary a great deal from town to town as well as state to state. Cost of living comparisons can also vary based on individual expenses and how the estimate is calculated.

With such big differences in cost, why not consider what a move could mean for your retirement? Working with Fidelity or some other financial professional can help you understand how a shift in cost of living might change your financial picture throughout your retirement, and the legacy you may leave behind. Financial planning with a professional is one way to do this kind of analysis, but Fidelity also allows you access to our planning tools so you can do at least some of this modeling on your own.

The trade-offs

Let's look at a hypothetical situation. Henry and Linda live in San Francisco and work with a Fidelity financial professional named Daniel as part of their relationship with Fidelity.2 They tell Daniel they love San Francisco but are considering moving to Kalamazoo where several friends have retired, and the cost of living is lower, according to the CCER. So Daniel helps them illustrate 2 options.

The goals

First, they discuss Henry and Linda's goals. Both are age 60, healthy, and hope to retire in 3 years. They want a retirement plan that will enable them to maintain their current active lifestyle, and leave a legacy for their 2 adult children and their families.

Daniel encourages the couple to set a goal of planning to age 96, based on longevity trends in the US, so they can be confident in their plan even if they have a very long retirement.

The checkup

Next, Daniel helps Henry and Linda review their financial situation. Currently, the couple earns about $250,000 each year, before taxes, spends about $80,000 a year, and saves close to $60,000. They have managed their money well and have no debt other than a $500,000 mortgage on their San Francisco home, which is worth $800,000. They also have $1 million in savings: $510,000 in Linda's workplace retirement plan, $360,000 in Henry's IRA, plus another $130,000 in a joint account. Looking across all their accounts, their money is about 55% in US stocks, 20% in international stocks, 15% in bonds, and 10% in cash.

The options

To compare their options, Daniel starts by going through the couple's expenses and estimating how they may change in retirement. Some costs, like commuting and saving for retirement, are expected to drop. But for Henry and Linda, some other expenses will actually go up, because of the couple's plans for travel and adventure. After going through their budget, they think their overall expenses won't change much after they retire. They decide to plan for their expenses to remain around $80,000 per year if they stay in San Francisco.

Daniel uses a financial planning tool that models 1,000 different scenarios based on different market simulations. Since it's impossible to predict the actual return of the markets, the goal is to look at lots of different possible outcomes and create a plan that will work even in challenging market conditions.

If they stay in San Francisco, the illustrations suggest the couple would have a moderate chance of maintaining their lifestyle until age 96, meaning the plan succeeded in about 80% of the scenarios. In an average market, they could leave a legacy of about $2.4 million. Of course, sometimes markets are below average. In about 20% of the scenarios, the couple would need to cut spending or make other lifestyle changes to avoid running out of money in their portfolio. And in a very challenging market (defined as the worst 2.5% of scenarios), the couple could have spent all their savings and be about $700,000 short of their estimated expenses.

The data in the chart is described in the text.

For illustration only.

IMPORTANT: The projections and other information generated by eMoney Advisor regarding the likelihood of various investment outcomes are hypothetical in nature, do not reflect actual investment results, and are not guarantees of future results. The results are based upon market assumptions provided by Fidelity. Results may vary with each use and over time. eMoney Advisor is a diagnostic, web-based tool owned and maintained by eMoney Advisor, LLC, a Fidelity Investments company.

See endnotes for important details about how these values were calculated and how median and downside markets were defined.

If they move to Kalamazoo, the illustrations suggest the couple would have a stronger likelihood of maintaining their lifestyle and leaving a legacy. Their estimated expenses, including federal and state income taxes, would drop to about $70,000 a year starting in 3 years. In an average market, the couple's legacy could grow to nearly $6.3 million. Even in a very challenging market, the couple's portfolio is projected to provide for all but roughly $430,000 of their anticipated lifetime retirement expenses.

The data in the chart is described in the text.

For illustration only.

IMPORTANT: The projections and other information generated by eMoney Advisor regarding the likelihood of various investment outcomes are hypothetical in nature, do not reflect actual investment results, and are not guarantees of future results. Results may vary with each use and over time. eMoney Advisor is a diagnostic, web-based tool owned and maintained by eMoney Advisor, LLC, a Fidelity Investments company.

See endnotes for important details about how these values were calculated and how median and downside markets were defined.

Decision time

Henry and Linda review the numbers and consider the trade-offs. Daniel discusses some other options, like downsizing in San Francisco or moving to a nearby community, working a few additional years, or trying to save more in the final years of retirement. But Henry and Linda really want to enjoy their retirement—and leave a legacy. Plus, they think a new place sounds like fun. After considering various options, the couple decided that with the financial savings and economic climate, the move made sense for them.

The power of planning

Deciding where to live in retirement is a very personal decision that can shape relationships, hobbies, and many other parts of life. Among those many considerations are your finances. It can be hard to estimate what a change in location might mean for your retirement income. You have to consider the cost of everything from housing to health care, taxes, and more. Over a long time period, these differences, and the impact on your investment portfolio, can really add up. But scenario planning as part of the financial planning process can help illustrate those trade-offs, so you can feel more confident in your ultimate decision.

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1. The cost of living data is based on the Cost of Living Index research from the Council for Community and Economic Research through the first quarter of 2023. 2. The hypothetical situation depicted in this story reflect services available to some clients in fee-based advisory relationship with Fidelity and may not be available to all customers. About the numbers in this story:

The scenario analysis depicted in this story was calculated using eMoney, a financial planning software available to some Fidelity clients as part of a fee-based relationship. It is not available to all clients. eMoney uses Monte Carlo analysis, which is based on a mathematical modeling process that attempts to take into account the changing and uncertain nature of the markets to evaluate the likelihood of certain outcomes under various market conditions and presents a probability of success, i.e., an estimate of the probability that a minimum amount of assets is achieved at the end of the simulated period (investment horizon). Monte Carlo analysis use estimates of asset class expected rates of return, and expected volatility and correlation, to model an asset allocation (each a simulation). In each simulation, a rate of return is generated for each asset class using the mean and standard deviation of the market index in the randomly chosen year. Up to 1000 trial runs are calculated resulting in a range of values that is further analyzed to produce a statistical probability (i.e., the probability of success) of an investment strategy.

The scenarios modeled assumed that the couple qualified for the residential home sales tax exemption and that the value of their housing assets would increase at 4% annually throughout the course of their plan. The analysis took into account current state and federal taxes but did not account for local taxes. None of the scenarios described would have required payment of the state or Federal estate tax.

The San Francisco scenarios assume $80,000 of expenses starting at age 63 when retirement begins and adjusted for inflation, from retirement to age 96. The Kalamazoo scenario reflects $64,000 in expenses beginning at age 64 and adjusted for inflation until age 96. Expenses are projected to grow at the hypothetical annual inflation rate of 2.5%.

The scenarios modeled assumed that the couple qualified for the residential home sale tax exemption and that the costs of their housing-related expenses would increase at 4% annually throughout the course of the plan. This analysis did not specifically account for relocation expenses or real estate transaction costs, which may have decreased the benefit of moving.

This information is intended to be educational and is not tailored to the investment needs of any specific investor.

Fidelity does not provide legal or tax advice. The information herein is general in nature and should not be considered legal or tax advice. Consult an attorney or tax professional regarding your specific situation.

Investment decisions should be based on an individual’s own goals, time horizon, and tolerance for risk.

Past performance is no guarantee of future results.

Diversification and asset allocation do not ensure a profit or guarantee against loss.

Stock markets are volatile and can fluctuate significantly in response to company, industry, political, regulatory, market, or economic developments. Investing in stock involves risks, including the loss of principal.

Foreign markets can be more volatile than U.S. markets due to increased risks of adverse issuer, political, market, or economic developments, all of which are magnified in emerging markets. These risks are particularly significant for investments that focus on a single country or region.

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