Make smart moves if you relocate for retirement

Published 12:02 am Sunday, December 8, 2013

Retirement opens the door for many retirees to consider a change in residence. Here are answers to questions about the financial implications of relocation at this stage in life.

Q: When I retire, I’d like to spend the winter in a warmer climate. Should I purchase a second home in my favorite destination?

A: The decision to buy a second home in another state may depend on how well your budget can endure the costs. Can you afford to take part of your nest egg to buy another home or allocate monthly income to new mortgage payments? Will you be left with sufficient funds to manage unpredictable retirement expenses, such as future medical care? And are you prepared to hire a property management company to maintain your property when you’re away? You also need to think about travel, upkeep, homeowner’s insurance and taxes as you tally up projected expenses of owning a second home.

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It’s also important to recognize that real estate may not be the best investment for your situation. As the recent recession clearly demonstrated, there’s no guarantee that a property purchased today will retain its value when you want to sell. Additionally, many warm weather states were hit hard by the real estate crash and remain vulnerable.

As an alternative to buying a second home, consider renting a vacation property in the desired area. This option poses less financial risk and ultimately offers more flexibility, including the freedom to visit other locations to get your warm weather fix.

Q: My spouse and I are debating whether to stay in our current home or move to a smaller residence once we retire. What are the pros and cons of downsizing?

A: Trading in the family home for something smaller can be a good financial decision for some people. Generally speaking, a smaller home is easier to maintain. That means less work and expense for the occupants. Assuming your new home is less expensive, you can put the difference toward retirement savings or remodeling projects in your new home. Downsizing also provides the option to choose a home with fewer levels or other features that may be more suitable as you age. And, with less room to fill, you won’t be as tempted to make unnecessary purchases.

Moving also gives families the opportunity to look at all of your possessions, pass on some heirlooms to loved ones and “let go” of nonessentials. Clearing away the clutter is not only personally freeing, it can reduce the burden on those who will ultimately be responsible for dividing your estate at some point.

Q: I’ve heard of retirees moving abroad to stretch their retirement dollars. Is this a good idea?

A: It’s true that some Americans are moving abroad in retirement. If you’re eager to experience a different country and culture firsthand and have the resources to make such a move, foreign relocation might be a dream come true. Popular relocation spots in Europe, Central America and South America can provide a warmer climate, more relaxed lifestyle and may be more affordable.

On the other hand, living in a foreign land can have drawbacks. Medicare dollars will not follow you overseas. If you’re wary of health care services in your new country of residence or can’t afford to purchase care abroad, you’ll have to travel to the U.S. to use these benefits. Trips home will be subject to fluctuating airfares and may become more difficult to manage as you age. In addition, Social Security dollars generally can’t go to foreign banks, and Americans retired abroad will likely still need to file a U.S. tax return. Furthermore, foreign currencies can be unpredictable. Should conversion rates change abruptly, the buying power of your American dollars may fall quickly.

If you’re serious about foreign relocation, consider a trial run to see how it goes. After the experience, you’ll be more likely to make the right decision for you and your family.

Regardless of where you end up living in retirement, it’s important to consider the implications that relocating may have on your financial goals in retirement. Consider meeting with a financial advisor to discuss this topic.


Forrest A. Johnson III, CFP, is a financial advisor with Ameriprise Financial Services Inc. in Natchez. He can be reached at 601-442-6292 or 319 Main St. Natchez, MS.