Planning for retirement involves asking – and answering – a number of important questions. When are you going to retire? How are you going to save money for your post-career life? What investment vehicles (IRAs, 401Ks, money markets) will you use to insure the optimal amount of savings? Certainly, there are plenty of questions to ask and factors to consider whenever retirement comes to mind.
But while you’re busy answering the whens, hows, and whats of retirement planning, make sure not to forget an important but oft-overlooked question: the “where.” Specifically, where do you envision retiring when the time comes? You don’t need to have concrete and detailed plans, but it’s important to have a good conception of your retirement location when planning savings and spending during your work life.
The first step in addressing the “where” is to determine whether you plan to stay in your current home, move elsewhere (i.e. to a condo or smaller residence) in your local area, or move to another region of the country or the world altogether. Most people choose to stay in their local area out of contentment, familiarity, and family ties. If this sounds like a situation that you may find yourself in, you then want to determine whether you stay in your home or try to downsize your residence. My wife and I could never imagine leaving our home once our mortgage is finally paid off. Others, however, want to seek out a smaller living space or a more vibrant neighborhood once their careers are over and their children are grown. And still others, of course, will choose to move across the country in search of warmer weather and a more retiree-friendly lifestyle.
So what’s the value of figuring this all out now? While it’s always good to plan ahead from a logistical perspective, the real benefit of location planning is much more real: it allows you to answer the “how” question and determine exactly how much money you’ll need for retirement. The general consensus is that a retiree will need 70 to 80 percent of their annual income in order to retire comfortably. Use this number as your starting point. Then, factor in the “where.” If you plan to stay in your current home, expenses will generally be lower and you can bump down your estimate to as low as 60 percent. You may also be able to save less if you plan to move to a college town or to a rural area where the cost of living is lower. On the other hand, a move to a condo downtown or to a highrise in San Diego will likely push you to the 80 percent level and beyond. This isn’t simply the result of housing costs; it also reflects higher entertainment and meal expenses, two areas where retiree spending falls on all parts of the spectrum.
All this is to say that location matters when retirement is concerned, and that you can best plan and prepare by considering location sooner rather than later. You may find that your location allows you to save less than you originally thought. Or you may need to save more or retire later in order to live comfortably in your desired location. Either way, it’s good to ask the “where” of saving now so that you can enjoy the “where” of retirement later.
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