Though most people who plan for early retirement focus mainly on accumulating a large investment portfolio to create income, lowering living expenses is equally important.
One of the best strategies for doing this is relocating to a different community or state where the cost-of-living is lower.
After all, living expenses are generally the biggest line item on our budgets. And reducing our housing and overall expenses reduces the amount of money we need to be able to retire.
But there are pros and cons of relocating for early retirement, and you need to consider both equally. That will cut down on the possibility that you will make a costly mistake.
The Pros of Relocating for Early Retirement
There are good reasons to relocate, particularly in the case of early retirement. And the reasons even go beyond creating a less expensive lifestyle.
Lower Cost of Living
If you are planning to be retired at an early age, a mission-critical part of your plan will be to keep expenses to a minimum. Geography will figure significantly in that effort. Some areas are just more expensive to live in than others.
Though it’s certain that the cost of living is lower in some states than in others, it can also come down to individual cities within a given state. For example, within New York – one of the most expensive states in the country – the cost-of-living in New York City is prohibitive. But living expenses in the more remote communities of upstate New York are considerably lower.
You can compare general cost of living levels between US cities using a tool like Expatistan Cost of Living Index.
As a general rule, interior regions will be less expensive than coastal areas, particularly in regard to house prices and rents. Taking it a step further, small communities and rural locations are less expensive places to live than large cities.
More Recreational Opportunities
Since early retirement will bring more free time to your life, you may choose to relocate to an area that provides more recreational amenities. This can be especially true of areas that have natural amenities, such as beaches and mountains. Natural recreational amenities can enable you to enjoy your life without spending a lot of money on higher cost forms of entertainment.
More Employment or Business Opportunities
Though on the surface it doesn’t seem as if this should be a factor in planning for early retirement. However, since you will be retiring at an early age, that holds open the possibility that you may need to return to some form of earned income situation, at least on a temporary basis. Think of it as an early retirement back-up plan. You may also see your early retirement as a temporary break to enable you to transition into a new opportunity, which is hardly unusual when early retirees get bored.
That being the case, you may want to relocate to an area that has at least some employment and business opportunities that are related to your career skills. Unfortunately, those are typically the opposite of locations that are built around recreational amenities, particularly beachfront communities. The fact that they mainly attract retirees and tourists generally limits other forms of income generation.
Lower Healthcare Costs
The general cost of living is an important consideration if you are relocating for early retirement. But there may be specific expenses that have a greater impact than others. Health insurance will almost certainly be one of those expenses.
Health insurance is a particularly important issue for early retirees. You no longer have an employer sponsored plan, you’re too young for Medicare, but you’re at that age where the relatively inexpensive plans available to 20-somethings aren’t there. What state you live in can have a major impact on how much you must pay for health insurance. You can choose a state with lower premiums than where you’re living now.
For a single 40-year old, non-smoker the average monthly health insurance premium nationally is $314 (silver plan). However, that ranges from a low of $206 in Hawaii and $232 in Minnesota, to a high of $583 in Alaska, $456 in Wyoming, and $455 in Vermont.
Building a New Life in a New Place
One of the best arguments for relocating for early retirement is emotional. Since your life will be taking an entirely new direction through early retirement, you may want to consider moving to a location that is more consistent with that lifestyle.
As an early retiree, you have the luxury of considering the question where would I live if I’m not dependent on a job? This could be one of the really fun parts that makes early retirement worth all of the extra effort.
The Cons of Relocating for Early Retirement
Despite the many advantages of relocating for early retirement, it’s not without its drawbacks:
Leaving Behind Family and Friends
This can a tough decision, even if all the numbers lineup in favor of making a move. If most or all of your extended family live where you do now, relocating may bring emotional trauma. And if you’ve lived in an area most of your life, it’s likely that you have a large number of friends who you will also be moving away from.
Abandoning a Place With Deep Roots
This factor goes beyond family and friends, though it can certainly include them. It can be very difficult to leave an area where you have lived all of your life. The decision can be even more complicated if your family roots go back generations.
A community is more than simply a place where you live – it’s also a place where you put down roots, where you know the “lay of the land,” and where you probably have a large number of very familiar, very comfortable favorite spots. If you move to a different community, particularly one far away, you’ll be leaving all of that behind. Some people can handle it, but for others it can be a huge emotional barrier.
Fewer Employment or Business Opportunities
If after analyzing all of the factors surrounding a new location, you decide on a place that does not have employment or business opportunities in your career field, you could be setting yourself up for a second move in the event that you need to take a break from early retirement. You should be careful about moving to an area that might reduce your options in the event of a change in plans.
Your Spouse May Not Like the New Community
You may think that a new location is the best place on the planet, but your spouse may not agree. He or she may like the new location, but not be comfortable with leaving family, friends, and familiar locations behind.
If your spouse isn’t on board, either with the location or with the whole idea of the move, it might end up being a temporary venture, and an expensive one at that.
A Permanent Move is a Lot Different Than a Vacation
When people relocate for other than business purposes, they often go to places where they take their vacations. While that may seem like a natural progression, it’s important to understand that living in a place can be vastly different than visiting it.
It could well be that all of the reasons that make the area an excellent vacation destination, also make it a less than desirable place to live. As one example, many vacation communities tend to cater to a transient population. In that environment, you may find it very difficult to develop lasting relationships. And that can make it tough to ever think of the place as home.
Relocating can be an excellent early retirement strategy. Just be sure that you consider everything involved, including the negatives. Since capital preservation in a fundamental component of early retirement, the last thing that you need are boomerang moves that may see you dip deep into savings to pay for costly multiple moves.