Boomers, Retirees Should Carefully Consider Relocation

Before you move, research the tax consequences, evaluate taxes, retirement plans and whether you'll want to leave behind a familiar community.

By Jack Hillis, President of Hillis Financial Services

Our homes are our most valuable asset -- both sentimentally and financially. But as we grow older, children move out, friends relocate, and we have greater flexibility to determine where we wish to spend our lives. Many Baby Boomers and near-retirees go through considering whether to stay in their current home or to relocate for financial or personal reasons. It may seem tempting to pack up and move, but before you decide to relocate, there are key issues to consider – both financially and non-financially.

First of all, it’s important to research the tax consequences of a move. Anyone considering a move out of state should meet with their accountant to go over the tax ramifications for both income tax and estate tax. After performing specific calculations with your accountant, you must then decide if the cost is worth it or if the move is unwise.

You’ll also need to evaluate property taxes and sales taxes as well as the tax consequences if you continue to own property in two states. Overall, lower state taxes should not be the main consideration when considering relocating. Taxation rates are always subject to change, especially in light of the financial difficulties of many states. You also need to evaluate energy, food, and other utility costs.

Next, you’ll need to review your retirement plan subjections. Moving to a state with steep income and/or estate taxes could wind up taking a big chunk out of your 401K.

Non-financial considerations you need to weigh include the fact that you will likely be leaving a familiar community you’ve built for several years. Relocating involves emotional issues such as leaving family and friends, long-time doctors and healthcare providers, and possibly a climate and lifestyle that you’ve grown accustomed to. You’ll need to develop a new social circle, find new healthcare and service providers, and check if your financial advisor is licensed in the state to which you are moving. If you are moving closer to your children, consider how stable their living situation is. Could they be transferred to another city? How comfortable are you really in new situations? Are you emotionally ready for the change?

In our area of San Jose and the Silicon Valley, many retirees move to other states because the cost of living is lower and they want to avoid the high California state income tax. However, lately we have seen a decrease in the number of clients considering moving completely away. Many have chosen to live part-time in one place and part-time in another. For example, several clients choose to reside part-time in San Jose and part-time in Las Vegas. If you choose this route, it’s important to be careful when splitting time between two cities. Some San Jose residents had been living part-time in Nevada and claiming it as their primary residence for tax reasons, and the Franchise Tax Board got very involved and required detailed proof of residency.

In general, relocating during retirement is a tough transition. The cost of uprooting is not as cheap as you actually think, and you have to leave the infrastructure you spent 30-50 years building.

Jack Hillis is the Founder and President of Hillis Financial Services in San Jose, CA. He can be reached at 408-282-7991 or john.hillis@lpl.com. The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.  This information is not intended to be a substitute for specific individualized tax advice.  We suggest that you discuss your specific tax issues with a qualified tax advisor. Jack Hillis is a Registered Principal with and securities are offered through LPL Financial. Member FINRA/SIPC.

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