3 Reasons to Think Very Carefully About Where You’ll Retire

Knowing when you'll quit the workforce is a crucial part of retirement planning, but few people give as much attention to where they're going to retire. Yet it's worth thinking about if you haven't already.

Where you live can drastically affect the cost of your retirement and how far your savings will go. Here's a closer look at three ways your home can affect your retirement expenses.

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1. Some states tax Social Security benefits

When calculating your retirement income, you may assume that all your Social Security checks will go directly into your pocket. But that's not always the case. The following 13 states tax some of their residents' Social Security benefits:

New Mexico
North Dakota
Rhode Island
West Virginia

But living in one of these places isn't a guarantee that you'll owe anything. Each state has its own rules, but most only take a cut of your benefits if your annual income or Social Security benefit exceeds certain thresholds.

If you live in one of the above 13 states or you intend to do so in retirement, you may want to check with the state department of taxation to learn which seniors owe benefit taxes. These rules may change between now and your retirement, so be sure to check on this every few years so you know what to expect.

If you don't want to deal with Social Security benefit taxes at all, you could consider retiring in one of the 37 states that don't tax seniors' Social Security benefits. But even if you do this, you could still owe federal taxes. The only way around these is to limit your taxable income. If that's not possible, you'll have to account for Social Security benefit taxes in your retirement plan.

2. Some places have a higher cost of living than others

Urban areas tend to have a higher cost of living than rural areas, so retirees living in cities will often have to save more to cover all their retirement expenses. Even among cities, though, there's a lot of variation in terms of cost.

If you plan to remain in your current city during retirement, you probably already have an idea of how much your expenses will be. But if you plan to move, it's a good idea to look at how the average cost of living in your chosen retirement city stacks up to the cost of living in your current city.

You should especially pay attention to the basics, like food and housing. But medical care should be high on your list, as well. People often see their healthcare expenses rise as they age, and this can take a significant bite out of your retirement savings.

3. Staying put could save you money if you own your home outright

A monthly rent or mortgage payment can take up a significant portion of your budget, but it's not something all seniors have to deal with. Those who own their homes outright may find it's more affordable for them to remain where they are, rather than move elsewhere and take on a new housing payment

Even if you owe money on your home, staying where you are could still be the right choice. This is especially true if housing costs have risen in your area since you first bought your home. If you try to move elsewhere, you might find that you're paying a lot more per month than you would have to if you remained in your current home.

But sometimes, moving could be the best decision. If you're downsizing, for example, you might end up with a more affordable monthly payment. Or if you sell your home for a sizable profit, you may be able to buy a more affordable home elsewhere and actually make a little money.

Ultimately, you have to base your decision on what you feel would make you the happiest in retirement. But once you've decided on that, make sure you've tailored your retirement budget to where you're going to be living. Things like cost of living and tax laws can change over time. So when you review your retirement plan annually, make sure you're reviewing these things, as well, to see if you need to make any adjustments.

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