Where is the Best Place to Retire?

image006In the fall of 2019, if things go according to plan, we’ll be down to $4,900 in monthly expenses. After we fold our work retirement accounts and Roth IRA into a dividend-growth style portfolio, as well as increase our side hustling (freelance financial writing), we’ll still only be generating about $3,900 in passive + side hustle income. Not too shabby, but this would mean we’d have to work at least another year (probably two, for safety) before we can cover $4,900 in expenses.

 

However, we have an ace up our sleeve.unnamed (5)

That $4,900 in expenses is largely made up of housing costs ($2,800). Those housing costs are based on living in the DC ‘burbs of Northern Virginia. We don’t have family in Northern Virginia, nor will we have children with roots there (our oldest will be 5). As such, if we’re slated for retirement, then simply moving to a lower cost locale should drastically cut those housing costs and enable us to retire right then, rather than wait.

The numbers are just too compelling to make a case for staying:

Option 1: Refi NoVA Home and Continue Living in NoVA
Expenses$4,100
Passive$2,700
Passive (Rentals)$400
Hustle$800
Surplus (Deficit)($200)

 

Option 2: Refi NoVA Home, Rent NoVA Home, and Move
Expenses$3,200
Passive$2,700
Passive (Rentals)$700
Hustle$800
Surplus (Deficit)$1,000

 

As you can see, we’ll refinance our home in either case (we are strongly in favor of mortgage debt). However, because property taxes and home prices are so high in NoVA, moving to a better cost-of-living area makes too much sense. There is a third option: to just sell our home, take what we expect to be about $170k in equity and just buy another home, but we’d rather maintain a stream of rental income from that home.

Okay, so that’s the preface of the article. Here’s the meat. Where do we move to? The world is our oyster, essentially, and judging by our recent “let’s live in Manhattan for a year” itch, we are very open to just going somewhere. So, this summer, the family and I plan on taking a plane/roadie hybrid vacation to explore a half dozen or so candidates for where we’ll move to in 2019. We very much want this next place to be the place where we raise our kids all the way through college. We have dreams of all the children having the same doctor for their adolescent years, going to “town” on weekends, visiting the “market,” knowing the teachers and other parents, running for city council, and your basic “white picket fence” lifestyle (just without the whole “job” thing).

So, what are the finalists? At first, we figured we’d just visit every spot mentioned in Johnny Cash’s “I’ve Been Everywhere,” but thought that might get expensive. So, we developed a methodology.

Using Zillow’s database of every zip code in America, this is how we narrowed down the potential candidates to visit (the % is the weight given to that factor):

Median Home Price (60%)

There’s just no need to have a ton of money tied up in a house. Our home today (market value of about $490k) allows us to live in a great house that is close to our jobs. But, bottom line, our same home in other zip codes of the country would cost one-third of what it costs in NoVA. Why overpay for a location when one location is no better than another in most cases?

Taxes (30%)

WalletHub ranks each state by the tax burden on taxpayers. Between sales, property and income tax, we want a state that isn’t prohibitively expensive from a tax standpoint. This isn’t a huge concern, so we’ve only ruled out the worst third of the states.

Cost-of-Living (15%)

This is the BLS number that ranks the states by cost-of-living. This number is pretty highly correlated with Median Home Prices, so this metric alone was not too binding.

Rent Ratio (5%)

We plan on trying to be landlords in our next phase of life. Therefore, we’d like to see a strong rental market. We didn’t screen out potentials on this metric, though.

With those elements in mind, we developed a composite number ranking every zip code in the nation.

Also…

Lifestyle Considerations: We also ruled out, for our own rankings, a few states based on location. We want to live in a warm(ish) climate. So, we sort of cut out states that resided above the Mason-Dixon line. We also ruled out the gulf coast states. Arkansas, Alabama, Louisiana and Mississippi ranked 45th, 46th, 49th, and 50th  in statewide school rankings. Those four states also ranked 49th, 47th, 48th and 50th, respectively, in terms of health. Even though I think that a child’s education begins and ends in the home (rather than the school), terrible schools and terrible health aren’t exactly conducive to our retirement mentality.

We also would give deference to living near a military installation or university. University areas often have a solid public infrastructure and sense of community. And both my wife and I were in the military and not only would that allow a familiar crop of rental tenants, but there are a lot of community-military relationship events that we think would make for a good environment to raise a family.

Note: I didn’t “screen out” any place on these lifestyle considerations—everyone is different, so the rankings below to reflect just the numerical data.

Results:

Here are the top 100 localities in the U.S. for retiring early—financially speaking. Once again, these are ranked with a composite number that is derived from a formula that weights Home Prices (60%), Taxes (30%), Cost-of-Living (15%) and Rent Ratio (5%). I also placed flags on the entry if their state was listed as top or bottom 10 in terms of health or schools.

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A few trends I started seeing was that even though the home and rental weights were by zip code, a lot of states saw congregations at the top (IN, FL, OH) and the bottom (CA, HI, NY). We’ve highlighted in yellow those localities that we will try to visit this summer. Florida looks like a strong candidate given its low taxes, good weather, and cheap housing. Texas is all across the map, with some places like Houston and Austin being worse than average, but others like Waco, TX being near the top. Pensacola, FL ranked very high, and has a large military installation—so we thought it’d be worth visiting. North Carolina was a surprising repeater; if you move away from Raleigh-Durham and coastal areas, you find that a lot of mid-sized metro areas ranked very well.

We’re particularly excited about visiting Colorado. Very healthy, good schools, low taxes and good house prices outside of the big cities make Colorado an appealing dark horse in this race.

We ruled out great options in Indiana, Ohio, and Missouri because they’re a bit farther north than we’d like to live. And, as discussed previously, the gulf coast is littered with great options, but when looking at lifestyle factors like schools and health we eliminate those as options.

Here is a map that shows the ten places we’re looking to visit. Ideally, we narrow this down to a final four (or so), and look more closely at those over the next couple years.

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One last thing…

This is a big country, and I’m 100% certain there are small pockets of Utopia right next to absolute disasters. I don’t mean to rag on the Gulf states or tax nightmares like CA, NY, or NJ—I’m certain there are a thousand places across this great land (yes, even in Mississippi) that we would love to live. Unfortunately, we can’t know everything, so this is how we’re starting our search. For instance, I ruled out Las Vegas even though it ranked 41st overall (higher than Grand Junction or Tampa). Why rule it out? Because I’m ignorant and I “think” that it will feel like I live in a gambling Mecca. I could be (and probably am) wrong—but I don’t know any better and I have to focus my search.

I would love to get more ideas. Nothing is set in stone. Where do you think makes for a perfect, economic and long-lasting retirement? I’m sure I’m missing a lot. Thanks for reading!

Eric

P.S. Here were the bottom ten locations…

I admire you if you can retire in California.

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11 Comments

  1. Relocating to retire is a tough one. One can look at all the stats that are out there, but until you visit each place, you can’t really get a sense of what it’s like to live there.

    I grew up in Texas, and have you been to Waco? I know people who live there and they like it, but most grew up there, as an outsider, it might be a tad different.
    Grand Junction, CO…my mom and her family grew up there; it’s one of those places people try to leave. One of my wife’s co-workers is from there as well. Others might find it appealing, but having been for a few funerals, it’s dry, depressed, and sorta out in the middle of nowhere.

    We are taking a scouting trip to our potential retirement location this Spring (FIRE is around 6 years away for us). I’ve been there a few times, but in different parts. We’re going to try to be as “local” as possible while we’re there checking out the environment, neighborhoods, parks, and things along those lines.

    You also have to take some of those state rankings with a grain of salt, esp for the larger states. Example: in Washington, Yakima and Bremerton are VERY different places in the same state; I have friends in both, and most would take Bremerton over Yakima every day of the week. Good luck.

    • DH,
      You’re absolutely right. And we are planning on doing exactly as you’re recommending–visiting a bunch of places and seeing what we think we like. We will visit five or six places this year and another handful next year.

      Regarding the intra-state disparity, I can totally understand. I think we’ve all seen that over the course of our lifetimes. I’m sort of just making some educated guesses and doing some hoping and praying that we find our place in the world.

      Eric

  2. Just ran across your blog and was reading on a Tablet. Have a keyboard now, so will be commenting.

    Where to retire? This is a question I’ve thought about a lot. As a 26 year old ex-NY finance industry guy (like you) who saved up a nice nut from the high salaries there, question was what to do next. I ended up moving to Latin America and reducing my living expenses to under $2k/month, which puts me into a different category of early retiree…

    But for folks such as yourself who are content in the US, where’s your best geographical arbitrage? Your list is interesting, but I think flawed. Just from experience (I’ve traveled in 41 of the US states, lived in CO, NY, and IN).

    CO for example is a nice place to live. Kinda boring at times — particularly when the weather isn’t good enough for outdoor activities but not snowy enough to go skiing yet. But it’s pretty good. Low(ish) taxes, pretty, reasonably good social services. That said, Pueblo is an absolute trainwreck. It’s economically depressed, lacking in opportunity, and is heavily made up of Hispanic immigrants (not said as a judgement, just a fact — I live in Guatemala…) Pueblo, like, say, Ohio, was ruined after the decline of the steel industry, and only a sad carcass of a city remains. Having lived 7 years in Colorado Springs just 40 miles up the road, I can assure you that the phrase “night and day” falls far short of describing the livability difference between the two cities. And don’t get me started on Grand Junction, it’s worse yet.

    On the plus side, a place like #7 Evansville on your list (which is in IN, not KY) FYI, is a fine place to live. Also boring, but if you like nature, there’s plenty of hiking and rivers and stuff like that. Cost of living is dirt cheap, private schools aren’t so expensive if the public ones aren’t to your liking, and the health rating is low I’d guess because the average person there is morbidly obsese — the actual health infrastructure was throughly satisfactory. It’s right at the southern tip of Indiana, so the weather is pretty amazing, not crazy hot like the south, but hardly snows in the winter either.

    All this to say, places that looks nice from a statistical approach actually aren’t — as you’ll see if you visit — and places that you might disregard could actually work out. Side note: Pensacola FL, I can’t possibly imagine raising a kid there, and Tucson AZ is equivalent to living Mexico for better or worse. I’d also put in a favorable word for Ogden and Albuquerque from your list as potential sleepers.

  3. This would have been extra helpful if you weren’t a sissy and excluded states in the north-east just because of some snow flurries every now and then.. 🙂 Personally I can’t stand hot and humid so just the idea of Florida makes me sweat, ugh. But to each their own. I love the idea and methodology so plan to make my own, focused on cheap places in VT, NH, ME etc.

    • Sissy?! Well, maybe. I did spend the first 18 years of my life in Minnesota, and then another couple years in Alaska. I love the cold, but my wife hates it with a passion. And, I don’t so much mind the heat (much cheaper utility bills, since we never run the A/C).

      We’d rather live in hot, vacation in cold, rather than the other way around.

      You have some great options there, and I wouldn’t fault you for choosing the rural northeast.

      Eric

  4. Nice analysis. It’s nice to see how you defined your criteria and went through the process. Your list of worse places to Retire Early made me chuckle because we live in the worst, might consider retiring here, and like other locations on your list! (We are suckers for temperate weather, nice coasts and mountains, and no humidity). I wonder if your list of “worst places” isn’t a direct proxy for high COL in terms of housing costs.
    I’d have to reconsider the tax burden, because state income tax doesn’t seem as big a deal in your non working years, if you can keep your retirement “income” low and mainly capital gains right? (Though IIRC, California taxes capital gains as ordinary income.. California…)
    Freedom35 recently posted…Progress to Freedom 35: 2015 Annual UpdateMy Profile

    • Hey FI35,
      Really glad you stumbled on this older post. At this point, we’ve basically settled on Florida or Colorado. Weather is really important to us, but cost of living still tops out our list of importance.

      It’s awesome that you guys are trying to make it work in SoCal–we’d have to work a few extra years to swing that locale.

      Eric

  5. Florida is expected to be under water eventually. Did you take that into consideration? I’ve lived there for 43 years but now live in NW Arkansas (closer to family).

  6. Very informative article, thanks for sharing. I noticed Colorado was mentioned in the rankings quite a bit. Having traveled there multiple times, I would love to one day call that place my home, retirement or not.

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