Retirement Strategies to Address Higher Costs of Living

Retiring in a state with a higher cost of living isn’t easy. Elevated income tax and property rates, higher costs of living and excessive estate and inheritance tax rates are all attributes of states making the list of where “not to retire”.  While it may be easy to identify states that are more ideally suited for retirees, it is not always feasible to relocate simply because a state has significantly lower taxes or expenses.  In fact, Kiplinger’s list of Best States to Retire in lists South Dakota as their number one choice.  While South Dakota may be a wonderful place to retire, the comfort of home and the pull of friends, family and grandchildren can make that type of move unrealistic.

Minimize property taxes

It is important to prioritize exactly how you want to earmark your income. Remember, there is only so much available so you have to determine what is most important to you.  For many retirees, paying excessive real estate taxes is less than ideal and many states on the worst states to retire list exhibit higher than normal real estate taxes.  Ask yourself, would you rather spend $15,000 in property taxes or have additional funds available for travel?  Consider identifying communities within the state that offer lower real estate tax rates.  While you may have to relocate to another town or county further from metropolitan areas, this may be more feasible than leaving the state entirely.

Reduce housing costs by downsizing

In addition to finding towns with lower real estate tax rates, downsizing to a smaller, less expensive home on a smaller property can also help reduce property taxes even further. A smaller property may also reduce the maintenance and utility bills, ultimately putting more money back in your pocket.  Improving the energy efficiency of your home can help too.

Eliminate liabilities by downsizing

Attempting to retire with significant debts such as mortgages, auto loans or credit cards is difficult in any state, let alone when you are trying to retire in one of the more expensive states in the country. In fact, it may be completely unrealistic.  Instead, consider using equity you may realize from downsizing (right-sizing) your home to extinguish your debt by paying off mortgages and credit cards.  Keep in mind, downsizing and reducing your mortgage size may not be enough – Do your best to eliminate your mortgage and debts completely.

Slash unnecessary spending

Identifying and eliminating unwanted expenses is another critical component to successfully retiring in an expensive state. Consider establishing and monitoring your budget each month to identify waste.  From cell phone bills and television service to homeowners and auto insurance, take a closer look at your spending to see what you can slash.  With so many service providers charging reoccurring monthly fees, it is easy to lose track of your spending.

Be strategic with your estate plan

Many of the most expensive states to retire in also have excessively high estate or inheritance taxes. For example, while New Jersey does not currently have an estate tax, there may be an inheritance tax if assets are left to beneficiaries other than a spouse, child or grandchild.

With many retirees focused on maximizing financial resources for the next generation, developing a game plan to reduce these taxes is critical if you want to retire here.  Consider establishing an estate plan that addresses gifting and the creation of trusts as needed, along with core documents such as powers of attorney and health care directives.

Delay retirement by a few years

While no one wants to delay retirement, retiring in a high expense state may require you to work for a few extra years to accumulate sufficient savings. Again, this is where an assessment of your priorities is critical.  Ask yourself, would you rather have to work for an extra 3-5 years or retire early in a more affordable state?

Retiring in an expensive state can put tremendous strain on the financial plans of retirees. While moving to a more affordable state may not be feasible for some, it may be financially necessary for others.  Reducing real estate taxes, utilities expenses and unnecessary budgetary waste along with the elimination of mortgages and debt can help make retirement sustainable for the future.  Since everyone’s situation is unique, consider speaking to your attorney and financial advisor to determine the most appropriate approach for you.

Kurt J. Rossi, MBA, CFP®, AIF® is a CERTIFIED FINANCIAL PLANNER & Wealth Advisor.  He can be reached for questions at 732-280-7550, & LPL Financial Member FINRA/SIPC.