Today’s retirees are yesterday’s hippies, yuppies and war vets—men and women who came of age in that tumultuous time of the Vietnam War, the fight for civil rights, second-wave feminism and momentous revolutions in sexuality, music and fashion.
Is it any wonder that they want more from retirement than a rocking chair and a fishing rod?
Alas, chiefly because of the financial crisis and the worst recession since the Great Depression, many faced with dwindling resources cannot afford the ideal retirement in upscale locales they had previously visualized.
That’s why more and more 60-somethings are seeking to stretch their retirement savings by relocating to places where the living is cheap and where—in seven states—there is no state income tax. Some retirees are even moving to foreign countries, where they not only can make their money last longer but find excitement in a different culture and exotic geography.
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Whether it’s central Florida or Central America, the fear of outliving their retirement nest eggs is typically what drives the yen to spend those golden years in a more affordable locale.
“It helps clients free up their money and gives them more breathing room. If, originally, it looked like they’d run out of money at age 85, now that probably won’t happen till they’re 102,” says Guy Weinhold, a financial advisor with Edward Jones in Bee Cave, Texas, on the edge of Austin.
However, FAs agree that decamping to the tax-free states of Alaska, Florida, Nevada, South Dakota, Texas, Washington and Wyoming simply to avoid paying state tax and otherwise reduce expenses is pennywise and pound-foolish.
“As a planner, it’s important to first think about what the client wants their lifestyle to be, then figure out if they can afford it. It isn’t just about the money—that’s the last part of the equation,” says Linda Lubitz Boone, founder-president of The Lubitz Financial Group, in Miami. “Even if they don’t have [many assets], you can pretty much make anything work.”
Lubitz asks clients to envision the activities they’d like to participate in during retirement. Then she creates a budget, including what they’d be willing to give up—like lots of travel or a second car. With that information, she then determines the best place for them to live.
Among cities with a low cost of living and affordable housing are Omaha, Nebraska; Knoxville, Tennessee; and Tulsa, Oklahoma. While the state of Florida is immensely popular with retirees, partly because it has no state tax, “Florida is not an inexpensive place to live,” other than the central region, Lubitz says.
Advisors can indeed play a critical role when clients are making the life-changing decision of whether or not to uproot themselves and move far away, hopefully, for the rest of their lives.
“You’re playing devil’s advocate,” Weinhold says. “It’s a matter of being a sounding board. When someone walks in and says, ‘We plan on retiring in three or four years, and we think we want to move to Branson, Missouri,’ I say, ‘We need to have a conversation about that.’ Sometimes we have to rein in their emotions and have tough conversations but be pleasantly assertive because they’re looking for leadership.”
Weinhold continues. “We evaluate the pros and cons and try to make educated, high-probability decisions. Then we need to continue the dialogue not only till they move but afterward, to see if they’re getting the savings they thought they would.”
Several clients of Peter Eckerline, a Merrill Lynch managing director and financial advisor, who heads The Eckerline Management Group, relocated from California to Florida because of the latter’s tax-friendliness and lower cost of living. Another client couple moved to Las Vegas.
“They’re not golfers and didn’t want to just sit around,” recalls Eckerline, based in Wayzata, Minnesota. They love Vegas and report that “there are a million shows to go to and something to do every day. The wife has taken part-time work to bring in some extra income.”
Because the couple is now taking out somewhat less from their retirement portfolio, Eckerline has updated their financial plan to show an increase in assets they can transfer to heirs.
Other Eckerline clients, whose retirement savings took a major hit in 2008, moved from Minnesota to the Ozark Mountains, in Missouri, after finding they were unable to fund their dream retirement on the west coast of Florida.
“They didn’t want to return to work, and the Ozarks has a much cheaper cost of living,” Eckerline says. “Also, they wanted to go back to Minnesota frequently—driving is a lot cheaper than flying.”
The advisor adjusted their portfolio to beef up growth—more equities versus bonds—since the couple would now be drawing down less income than initially planned.
A more unconventional approach to retirement relocation is making the move to a foreign country. Latin America, especially Central America, is notably popular with American retirees, who spend little for a lovely place in the sun in such places as Belize, Costa Rica, Nicaragua and Panama.
“We’re definitely seeing more and more Americans moving overseas, trying to get more bang for their buck and reduce expenses. They’re also looking for a more interesting retirement and an adventure rather than doing the typical thing of going to Florida or Arizona,” says Lief Simon, financial editor of the online Live and Invest Overseas.