People planning retirement can and sometimes have to make important changes in the new phase of their lives. Not tied to a job any more, many consider relocation to an entirely different part of the country. Some are motivated to find a place with a friendlier climate, more opportunities for recreational activities, more excitement or more peace. Other retirees, especially those living on a fixed and reduced income, are searching for communities where everyday life is affordable.
Low cost of living is important for all seniors, even those with multiple retirement income sources as they prefer to spend more lavishly on special trips, vacations or hobbies and minimize ongoing living expenses. There are a handful of major factors that determine basic affordability.
Housing costs and trends
The cost of housing is one of the most important components. For renters, rental expense makes up the largest single expense item of the budget. Home-owners opting for financing will have mortgage payments as an ongoing monthly expense, while for those using mainly equity, the cost of the home is a significant upfront investment whose size has an impact on their remaining nest egg. Trends in property prices impact the value of the investment
Taxes
Taxes are a fixed expense that affect everybody’s budget. State and local tax laws vary significantly in the types of taxes that they collect, the rates at which they tax and the special concessions and exemptions that they offer for retirees. Seniors derive income from a number of potential sources, including social security, retirement income from investments and state or corporate pensions. There are very important differences between how states tax these sources of income.
Cost of living
The standard cost of living index provides a good proxy to understand the different communities’ relative affordability. When considering relocation, retirees prefer locations where the cost of living is significantly below the national average and compares favorably to the median income of the community. Retiree’s preference for affordable communities does not translate directly into low-income areas as those are least likely to sustain services and amenities, such as cultural institutions and medical care, that seniors value.
Other factors
In addition to the big items from above that are relatively easy to quantify, many other factors impact the choice of the ideal location. Easy accessibility of medical services, entertainment options and public transportation make life both more enjoyable and cheaper. Climate has an impact on energy needs, air and water quality matter for quality of life and general health.
Options in general
Since states control the tax laws that have the biggest quantifiable impact, popular choices cluster in states with the most retiree-friendly taxation systems, Georgia, South Carolina, Florida and other Southern states where the cost of living also tends to be lower than in the Northeast or the Pacific Coast. Although real estate is local, the general market conditions of widely available, affordable housing also favor the Southern and Western states
Retirees also tend to favor college towns as these communities often provide access to superior medical facilities, offer plenty of cultural and entertainment options and tend to have plenty of businesses offering affordable products and services. Communities located within 70-100 miles outside of a major city are preferred as they tend to be cheaper than towns closer to the heart of the metropolitan center, but still allow retirees to take advantage of the benefits offered by the big city.
Most affordable places to retire
Tyler, Texas
Tyler is a growing town of just under 100,000 people, 98 miles from Dallas in Texas. Taxes is one of the retiree-friendliest states in the country with no income tax and total tax exemption for almost all retirement investment income, as well. Average state and local sale taxes are also low, the 45th lowest from all US states. Generous homestead taxes are extended to seniors in most municipalities and in many communities school taxes are frozen for people reaching retirement.
Tyler is known as the “Rose Capital of the Nation’. With a median income of $45,644 and average home prices of $165,886, home ownership is very affordable. The cost of living index is 87%, well below the national average. With its 8 hospitals and major medical centers, the town is a major medical hub for the East Texas region.
Columbia, South Carolina
South Carolina has extremely generous exemptions for seniors. Social Security income is free from state taxation and the state allows significant tax deductions for retirement investment income, as well. Property taxes are generally low with senior homeowners qualifying for homestead exemptions on up to $50,0000 of property value. Sales taxes are reasonable, as well, with the state ranking within the top 10 states with lowest sales taxes.
South Carolina’s capital city of 124,818 inhabitants has been featured in several rankings of best retirement cities, including CNNMoney.com’s list of 25 best places and the US News and World Report’s 2009 America’s Mot Affordable Places to Retire. It is a vibrant, historical city with several universities and colleges, modern medical facilities and a public transportation infrastructure. The average home price of $152,388 and the a 79% cost of living index places it amongst the most affordable locations in the United States.
Gainesville, Florida
Florida has been a long-time favorite with retires due to its warm climate, no income tax laws and affordable cost of living, although sales taxes tend to be higher than in most other retiree-magnet states.
Gainesville is the 6th largest American college town. It is not the typical Florida town of palm trees and highrise condos, but has a distinct Southern charm, akin to that of the historical Georgian towns. Home prices average $144,842 in 2001 after having fallen significantly over the last few years. Cost of living is 15% lower than the national average and the city offers the best of Florida wrapped into an exciting, colorful college town.
Bowling Green, Kentucky
Kentucky’s tax laws favor retirees, too with no taxation on Social Security income and generous deductions extended for a wide variety of retirement investment income sources. Homeowners of retirement age can also take advantage of homestead exemptions up to $34,000 of the property’s value.
Kentucky’s third largest town of over 54,000 people is home to the state’s second largest public university., the city has been widely recognized as a top medium-sized economic development community. The city’s growth potential keeps home prices at a somewhat higher average level ($162,675 in 2011), but helps keep the median family income relatively higher at $40,000 and results in new infrastructure development projects benefiting the general population.
Athens, Georgia
Georgia offers preferential tax treatment to retires. No income tax is collected on Social Security benefits, retirement investment income is tax exempt up to $35,000 and homestead exemptions are granted to full-time residents.
Athens, Georgia’s cost of living index at 82% and average home price of $154,765 place it amongst the most affordable communities for retirees. As the home town for the University of Georgia, America’s first state-chartered university, it offers many cultural, entertainment and sports events year-around.
Additional resources:
Great Places To Retire: A comprehensive database of communities with key statistics also offers a ranking tool to help create top 5 lists using quantifiable criteria such as housing prices, growth, taxes etc.
Kiplinger: In-depth information on state taxation laws impacting seniors
5 Cheap Places to Retire in the US: MSN Money’s list