Should Your Client Relocate in Retirement?

Nine states have no state income tax, while 13 states don't tax retirement income such as pensions, IRA or 401(k) distributions and other sources.

On the local tax front, the two biggest considerations are generally property taxes and sales taxes. Many states that do not tax income collect extra revenue by other means. New Hampshire, for example, collects no income or property taxes at the state level but its residence face one of the highest property tax burdens in the U.S.

Housing

Relocating in retirement might entail staying in the same general location but moving to a different residence. Often, this means downsizing. And while clients might want to stay in the larger home where they raised their family, health issues might make this a poor choice for them in the future.

Mark Miller, author of "Retirement Reboot: Commonsense Strategies for Getting Back on Track," suggests "proactive thinking" around housing.

"It's difficult to get people to think about their future selves and what their needs might be — especially since some of the possible futures won't look very pleasant," Miller said. "But thinking and planning in advance can be a great way to avoid being forced to make decisions later in an emergency or crisis situation."

Health Care

Clients deciding to relocate to a new city will likely need to find a primary care physician. If they are being treated for a specific medical condition, there may be a specialist involved.

Clients might need to get a referral from their current physician. They will also want to look at the accessibility of local medical facilities.

Coverage should not be a problem for clients on traditional Medicare. If they are insured under a Medicare Advantage plan, they will want to check into which providers in the new location are included in their plan's coverage. Medicare Advantage enrollees should notify their plan, as a move outside the plan's service area triggers a special enrollment period.

Climate

Clients living in Minneapolis or Chicago may want to experience a climate in Florida or Arizona that allows them a longer season for outdoor activities like golf or pickleball.

Even so, clients need to weigh their proximity to family and friends from the new warm-weather location. They may be willing and able financially to travel to visit them, as long as they are healthy enough to do so.

How will this work if a client moves to a retirement community or needs ongoing in-home care? Are loved ones able to visit on a regular basis? Would the client need to relocate again to be closer to family?

For clients planning to buy property, insurance is a related factor. Natural disasters like hurricanes and wildfires have sent premiums surging in recent years.

Partial Relocation

Clients might consider staying in their current home but spending a portion of the year elsewhere. As someone who lives in Illinois, I see a number of retirees from the area who spend a portion of their year as "snowbirds" in places like Florida or Arizona.

Advisors should be aware of when clients are out of town for an extended period and might want to send them a gift at their seasonal home.

Retiring Abroad

Another option for some is retiring abroad. Over 700,000 U.S. retirees are receiving Social Security benefits in another country, up some 20% in the past dozen years.

Reasons cited by some who have gone this route include the rising cost of health care in the United States, a lack of confidence in the U.S. political structure, the U.S. cost of living and a sense of adventure.

A key financial issue issue in such a decision is taxation. Clients must continue to pay U.S. income taxes as long as they remain citizens — and they may be required to file with their new country as well.

In addition, some countries consider Roth IRA distributions as taxable income. It's also important to update a client's estate plan.

Pictured: A pedestrian market in Santa Fe, New Mexico. Credit: Shutterstock