Despite the Funny Accents, Y'all ... 5 Reasons to Retire in the South
It’s true: Retirement planning requires many financial decisions based on your investments, your spending habits and your income. But there are outside factors that are just as important, such as where you plan to spend your retirement years.
In a recent blog post, we looked at how long $1 million will last. Let’s take this concept a step further and examine how long $1 million could last if you decide to retire in the South, specifically looking at retirement planning in Houston, TX; Atlanta, GA; and Birmingham, AL.
There are many benefits to retiring in the South. With financial advisors in Texas, Georgia and Alabama, the Linscomb & Williams team has compiled the 5 top reasons retirees may want to consider these states to spend their Golden Years. Elements such as taxes, cost-of-living differences and housing prices can add tens of thousands of dollars or more in savings to your retirement – or cost you that much more if you were to retire somewhere else.
If you are one of the many pre-retirees (or current retirees) who are considering the South for retirement, namely in Texas, Alabama and Georgia, let’s talk. Working with a financial advisor who understands retirement planning in these areas can be a huge benefit. Start the conversation early, so you can plan accordingly.
Lower Tax Rates
Uncle Sam can take a big bite out of your retirement income, so it makes sense that your income can stretch further in southern states where state income taxes are lower. The income tax rate in Texas alone is 0 percent, and remains low at about 5 to 6 percent in Alabama and Georgia. These rates are considerably lower compared to other states like New York and California, where the tax rates can reach levels of 8 to 12 percent, and even higher.
In fact, the favorable tax environment in the South is one of the reasons many families consider spending their working years here as well.
Another simple but extremely powerful boost to the tax environment for Alabama and Georgia applies to Social Security. In these two states, Social Security benefits are not included in your income, enabling you to keep even more of your retirement benefits.
What’s more, your pension income is not taxed in Texas and Alabama, helping you save more of your monthly income. Georgia provides a partial offsetting deduction against this kind of retirement income.
Housing often takes the lion’s share of a retiree's cost of living. While it’s certainly an important factor during career and family planning, your location is a vital part of retirement planning as well.
According to the Employee Benefit Research Institute (ERBI) housing is the biggest expense for retirees. Therefore, your ability to save on housing costs in retirement can keep your nest egg intact for longer.
Housing prices have increased overall nationwide, but they still tend to be lower in the South than in other regions. In Texas, Alabama and Georgia, the median home prices are $274,300, $141,000, and $250,000, respectively. With the median sales price of all homes in the U.S. reaching $346,000 in 2020, home prices in these three states are well below the average compared to the rest of the country.
Another plus: Homeowners over the age of 65 in Alabama don’t pay property taxes! Property taxes in Texas also enjoy moderate protection from increase for those over 65.
Appealing Cost of Living
After accounting for taxes and housing, there are a few other appealing factors in the southern states related to cost of living. For the most part, the cost of living in Texas, Georgia and Alabama is at least 20 percent lower than a city like Los Angeles.
One common justification for a high cost of living is that bigger cities tend to offer higher earning potential. However, the higher income you may potentially earn in a bigger city can be met with higher income taxes, property taxes, more expensive food and shopping, and higher fees for government services. It’s important to compare and crunch your specific numbers as they specifically relate to your standard of living.
Services for Retirees
Healthcare is another important, and often overlooked, consideration in retirement.
In reports that rank the average healthcare costs for a retired couple, including needs like in-home care, assisted living and Medicare premiums, the South fares well. The average healthcare costs for a retired couple in the South are also recorded at below the national average.
Activities for Retirees
We’ve said this before, and we’ll say it again: Retirement planning is not just about your investments. It’s important to have a plan for how you’ll spend your days when you’re no longer working, so you don’t get bored, become lonely or suffer from depression.
The South offers activities for seemingly any interest, from professional sports and outdoor activities (and mild temperatures to enjoy these outside activities) to historical landmarks and museums.
Georgia, specifically, is a top choice for golfers, with not only many golf courses to choose from but it’s also home to the Augusta National, where the most prestigious tournament in the sport is played.
Alabama is home to great beaches and fishing, as a bonus to its rich historical significance that includes important civil war locations, Tuskegee Airmen monuments and much more.
Texans also enjoy a strong mix of modern and historic attractions. Texas’ strong historical footprint cannot be understated, with landmarks like the Alamo and the Apollo space museum.
Don’t Ignore Your Locale During Retirement
Managing your retirement portfolio can be challenging enough. Spending your retirement in an unnecessarily expensive city can deplete your retirement savings quickly. Remember, your retirement might be 20 years or longer!
Relocating in retirement isn’t always easy, and there are a number of factors to consider. If you are thinking about moving to the South, Linscomb & Williams can help. Our fiduciary financial advisors in Atlanta, Houston and Birmingham can help you determine accurate projections and translate your savings needs based on retirement planning in the South.