Let’s take Lisa, for example. Lisa’s husband Stanley passed away recently, and now Lisa is feeling lonely and hopeless. She lives in Florida, but her only child lives in California, so she’s trying to decide whether moving to be near her daughter makes sense.
However, the answer may be more complicated than you’d think, even though the numbers all likely point one way.
The math is clear: A move would almost certainly cost more
In deciding whether to move, Lisa must come to terms with a fact she already intuitively knows. The financial math is very unlikely to make sense.
“It’s very important to understand how the expenses will change,” Clifford C. Cornell, a financial advisor at Bone Fide Wealth, LLC, told Moneywise. “Especially as a retiree, there is little potential to earn more money outside of returning to work. A move from Florida to California can have a significant impact tax-wise. I’d look to understand how this impacts any RMDs the retiree might be taking,” he said, referring to required minimum distributions (i.e., mandatory withdrawals) from retirement accounts.
The reality is that Florida has no personal income tax, while California has the highest state income tax rate in the country. California also taxes withdrawals from retirement accounts (including required minimum distributions) at your ordinary income tax rate. This means Lisa could go from paying 0% state income taxes to as high as 13.3% in the highest tax bracket.
And it’s not just taxes, either. “With cost of living anticipated to rise, along with the state tax bite, you’d want to have a really good understanding as to your nest egg’s ability to support you,” Cornell warned.
California is around 20% more expensive to live in than the Sunshine State, with restaurants, groceries, transportation, and housing all costing significantly more. This means that if Lisa was living comfortably on $70,000 in income in Florida, she’d need $84,000 in California to maintain the same standard of living. Even if some expenses might be reduced if Lisa is able to get some help with everyday things from family, that is still a lot more money to spend.
Life is about more than just math
If you look solely at the numbers, Lisa definitely shouldn’t move. But the reality is that she’s sad and lonely, and staying put means she’ll continue to be far away from her only child. So, before she writes off moving, she needs to do some math to see what her life would really look like.
“I would start off with going over all of your expenses and your ability to save while living in Florida. If you’re living paycheck to paycheck, the numbers probably won’t work. If you can save money and have accumulated a substantial nest egg, then you may be able to make the move,” Domenick D’Andrea, a financial advisor and co-founder of DanDarah Wealth Management, told Moneywise.
