Last Week’s Question of the Week: According to the U.S. Consumer Financial Protection Bureau, between 2013-2017, seniors over the age of 70 lost an average of what dollar amount to elder financial exploitation? Is it $10,000 or $42,000?
HOST: I know when we think about retiring, we sometimes consider perhaps living somewhere else in retirement. What are some important considerations as we look for perhaps a different place, or a different state?
KLAAS FINANCIAL: Well, you are right that many of us begin thinking about where we might want to live during our retirement years and we hope to give people a good list of what they should be considering. Keep in mind that the average age of retirees in the U.S. is age 62. While most people plan that it will be age 65 when Medicare kicks in, the reality is still age 62. Women actually on average retire closer to age 60. So retirement may be coming sooner than you realize!
a) Remember that everyone has their own ideas about where might be a perfect place for you or you and your partner to retire, but ultimately you need to do your own due diligence. You need to decide which categories are the most important to your situation because everyone’s needs are unique.
b) We would suggest that you consider the taxation for your retirement accounts and pensions. Keep in mind that in 2020, there are only four states that exempt all or most retirement income which include, Illinois, Hawaii, Mississippi, and Pennsylvania. 27 other states tax some, but not all of your retirement income.
c) Other state retirement tax considerations include state income tax rates, or sales taxes, property taxes, and estate taxes. According to Kiplinger’s 2019 State-by-State Guide to Taxes on Retirees: Arizona, Florida, Nevada, and Wyoming are top tax choices whereas New York, New Jersey, Illinois, and Vermont come in at the bottom.
d) Consider other costs such as car registration, insurance and simply cost of living comparisons. Moving to a place where the cost of living is better for you can actually give a boost to your retirement savings. States that stand out in this category include Texas, Wyoming, Alabama, Arkansas, Tennessee, and Florida.
HOST: What about weather? Should that be a consideration?
Weather: Actually, it really is. For many of us who have loved the seasons but are finding that the cold and snowy winters, although not as bad as they used to be, are getting more and more difficult to tolerate perhaps need to look at other possible locations. Be realistic, as weather patterns continue to change. Remember that Florida may be nice in the winter, but spring and summer heat may not be what you are looking for. Hence, there are many snowbirds for this reason.
Health: Health conditions may help dictate the best place to be living. People with arthritis or asthma find that they often do better where the weather is perhaps warmer and dryer. Others are concerned with winter conditions of ice and become afraid of slipping on ice which is a real concern. Finding a place that offers great health care facilities is also important as we age.
Recreation: The ideal retirement spot should also have all the recreational activities you’ve been longing for including golf courses, a few lakes for fishing, and plenty of outdoor trails. We find that many of our retirees are looking at more three-season climates such as Tennessee, Texas or the Carolinas as being nice options. If you have been active most of your life, you probably need to either consider being a snowbird, or re-locating where you can enjoy your outdoor activities year-round.
HOST: What about living closer to family? And what about the “liveability” index we hear about, is that worth looking at?
Many people have children and grandchildren that perhaps have set roots in a different part of the country and they find that they would like to be close to them, or perhaps equidistant between two or more children. Going to little league games for the grandchildren may be high on the list. We have clients that have moved in retirement to Idaho and Montana to live right down the street from their kids. Others who have established strong community ties may choose to remain in their current towns due to the network of friends and medical doctors they have established over the years. In this case they may prefer to downsize and re-locate within their own community.
The Livability Index is put out by the AARP Public Policy Institute to measure the quality of life in American towns looking at a myriad of areas such as: housing, transportation, neighborhood characteristics, environment, health, opportunity, and civic and social engagement. Their last Index came out in 2018 which can be found at : livabilityindex.aarp.org/. When you bring up the first page look at the right side of the first page where it says View the 2018 Livability Index Findings.
Interesting to note, but not surprising, is that Madison made it on the Top-Performing Mid-Sized Cities list for 2018 (Population of 100,000 to less than 500,000), while Fitchburg, Sheboygan, La Crosse and Sun Prairie made it on their Top-Performing Small Cities list (Population of 25,000 to less than 100,000). So perhaps you have already found your retirement dream home right in your own backyard!
There is even a walkability index available from Walk Score that rates the walkability of cities and neighborhoods to find out which locations offer the best places to run errands by foot. New York, Boston and San Francisco remain at the top of that list in 2020. Interesting to see that Madison for example has a walkscore of 48, (dependent on cars), but a bike-ability score of 65. Visit walkscore.com to find the walkability score in the retirement town you are considering.
Cost of living is obviously important to consider. According to a survey put out by TD Ameritrade in 2019, one-third of Americans say they expect to work for pay at least part-time in retirement, so looking for places with low unemployment and a vibrant economy is important. Even if you’re not working, resale of your home in a thriving economy will do better.
Take into consideration the cost of your new home. According to the real estate sites such as Zillow, the median national price of a single-family home is about $287,000 in April of 2020. Looking at where location and price make sense for your own budget is important. Also consider how much moving costs will end up being.
HOST: Mike from our Money in Motion Listener Corner asks: We live in Illinois, we are in our early 50s, and make $200K yr. I am eligible for a Roth 401k, but I currently max out pretax at $26K. We will consider converting some of the pretax at 59 ½, since we don’t pay IL state tax when converting to the backdoor Roth. This seems like a better deal to me than paying the extra state tax now. Your thoughts?
KLAAS FINANCIAL: You are correct that by contributing to a Traditional 401k you are not paying taxes at the state or federal level on what is going into your 401k. So, what Mike is considering is doing Roth conversions in the future so he’s trying to decide if he should be contributing to a Roth 401k now or just convert traditional monies to a Roth in the future.
Obviously, if he were to contribute to a Roth 401k he would not get the tax deduction at the federal or state level so by contributing to a Traditional IRA now and then converting to a Roth later he would be saving himself a little bit of tax at the state level in IL (4.95% approx.).
However, the bigger focus for him on Roth vs Traditional should be on his tax bracket today vs tax bracket in the future. (Also, to his original question, what state he will be living in when he does the conversions) Which obviously if he’s making 200k now he will likely be in a lower tax bracket in retirement.
This Week’s Question of the Week: What is the average age that people retire the United States? Age 62 or age 72?
Catch C.J. Klaas and Maleeah Cuevas on Money in Motion every Thursday on Madison's 1310 WIBA from 8:05-8:35am.