Making the switch. When you are no longer tied to a job, there's plenty of appeal in choosing your own corner of the globe. Even if money is an obstacle to relocating, you may be able to make it work. Choosing a lower-cost locale is one option—and in some cases, it can give your nest egg a boost. "If you sell an expensive apartment in Manhattan and move to a state with less income tax or to a more rural area, you can cut your overhead substantially and increase the amount of your portfolio," says Michael Goodman, a certified financial planner and president of Wealthstream Advisors in New York. If you don't have a penthouse to sell, downsizing to a smaller house or condo can still help improve your retirement prospects.
Marti Hurley, 62, is a retiree with a sense of adventure. In 2007, the former executive assistant sold her San Francisco home and relocated to Jalisco, Mexico, where her dollars stretched further. Hurley, who does not receive a pension from her former job, was able to retire early by moving abroad. "I could have worked until 67 and kept up the lifestyle I lived in San Francisco," she says. "But I was really tired of working, and in Mexico I could live quite well and be happy and not have to work." She purchased a three-bedroom, two-bathroom house with a swimming pool about six blocks from Lake Chapala, Mexico's largest lake. She now lives off the proceeds from the sale of her San Francisco home, Social Security payments, and savings and investments.
Another way retirees can afford a change of scenery without breaking the bank is to consider low-tax places to retire. "The pattern of retirement mobility usually goes from expensive places to cheaper places, and lower taxes is a big plus," says David Savageau, author of Retirement Places Rated. The state and local tax obligations in the United States vary considerably by location: Seven states have no income tax, two states tax dividend and interest income only, and five states don't levy a sales tax. In addition, look for tax breaks on pension income and age-related property tax exemptions or deductions.
Clearing the hurdle of finding a destination that makes financial sense is the hard part, but it's not the only challenge. Your first priorities will probably include things like finding a place with a low crime rate and access to high-quality medical facilities. But you will also need to forge new connections with friends and associates. "You have to cut social ties [from your former community]," cautions William Frey, a Brookings Institution demographer. "When you're a senior, you have your whole lifetime invested in your community, and you have to make a break with your barber and your doctor and the people you go to social clubs with."
Patty Wirtz, 50, did her research. She visited Hot Springs Village, Ark., eight times before she relocated there in 2008 from Colleyville, Texas, with her husband, Douglas Verke, a retired computer consultant. "We wanted to be in the mountains with trees and to be someplace a little bit more rural," Wirtz says. The couple bought a home there in 2007, which they rented out for a year before moving. Although it has taken Wirtz a while to adjust, she eventually established ties and all the comforts of home in her new community. "I found someone who I really like to do my hair. We both found new doctors that we like and great dentists," says Wirtz, who continues to work part time as a voice actor on the kids TV show Barney & Friends.
The reality is that most Americans will retire among friends and relatives in the town they already know, which is predictably comfortable and likely to keep their nest egg intact. But some still strive for retirement that's more of a permanent vacation. With a little creativity and flexibility, that can work for almost any budget.