In this week’s podcast, Tom, Brendan and Casey discuss why a move in retirement is not a silver bullet that fixes high cost of living. What lifestyle your investments have to support is THE BIGGEST factor in the retirement equation.
Moving in retirement is about more than just avoiding income taxes. It requires consideration of property taxes, moving expenses, lifestyle adjustments and more.
Check out our recent video on how to best save for a down payment!
Is $1 Million Enough for Retirement in America? – Visual Capitalist
Should You Move in Retirement? – Full Transcript
**Click here for a downloadable PDF version of this transcript**
Casey Mullooly : Welcome back to the Mullooly Asset Podcast. This is your host, Casey Mullooly. Brendan, Tom, and myself get into an interesting discussion based off an article that we found, which broke down how much a million dollars would last in retirement in 50 different cities around the United States.
This is something that we hear quite frequently where people want to move in retirement because the cost of living is less. So, we break down some myths about that, and we have some really good talking points in this week’s episode. So we’re just going to get right into it.
Tom Mullooly: We’ll talk about, well, I want to relocate to a state where we have lesser income tax. Are you insane? That takes into no consideration anything about property taxes whatsoever and property taxes are just going off the charts.
Just think about a home that two years ago was worth $400,000 in New Jersey is now worth $700,000. What do you think the zoning inspectors in every town are doing? They’re licking your chops saying, oh, we can now go around and re-rate the entire neighborhood. Wait till you see the property tax bills, then. What’s going to happen to rents then? Biggest part of the CPI? Rent.
Casey Mullooly : Yeah.
Tom Mullooly: What do you think is going to happen over the next couple of years? As we see property taxes explode and then rents continue to move higher. They’re going to have to deal with these inflationary pieces in some other way, as one part of CPI is going up, something else is probably going to drop, hopefully, but that’s a real issue. And so these folks-
Brendan Mullooly: Cars, cars, and gasoline.
Tom Mullooly: Sure.
Brendan Mullooly: Right, and we’re dealing now with noise from the eviction moratorium ending. So that’s feeding into the CPI read. So, yeah, it’s-
Tom Mullooly: Yeah. So, we have all of these things that are kind of all happening at the same time. And I just-
Brendan Mullooly: That’s how it works. That’s why it’s tough to guess where it’s going to go.
Tom Mullooly: It is. It is.
Brendan Mullooly: Right? You take one trend and you latch onto it and say, well, if this continues for the next decade, we’re going to be in bad shape. Well, you forgot about the other thing that’s going to cancel it out. So…
Tom Mullooly: Yeah, I just, internally shake my head when we get sucked into these conversations with folks that say, “I want to move to a state that has a lower income tax.” And I’m like…
Brendan Mullooly: Or just cost of living in general. I think more what people are getting at, especially when they’re leaving the area that we’re in and going to someplace else. I think they get this wealth effect from, let’s say, I’m assuming some things here, but, if they’re a homeowner in this area, they’re selling what they believe to be a nice reasonable home and probably taking that someplace else.
And they could buy a mansion for that amount of money. That doesn’t actually speak to what their month to month cost of living is going to be in that new place. It just makes them feel richer because they took the same pile of money and got a nicer house for it.
Brendan Mullooly: So it doesn’t mean that groceries are going to be cheaper there or that the property taxes are necessarily going to be lower or all of the things that they’re going to have to pay on a month to month basis.
I think there’s just some wealth effect there of… especially with homes, that the dollars go further in a different location, but that’s just a one time, that’s a one time purchase that you’re doing. I don’t know how much that should factor in to the decision. You also need to want to be in that place.
Casey Mullooly : Yeah. I think the thing that a lot of those types of articles where it’s like, oh, you should move to Florida because you won’t, you’ll pay way less in taxes. The thing that those articles don’t take into account is, and I think we did a video about this back over the summer, where it was, what it costs to move, what it costs in terms of an intangible thing to your family.
You have kids? Good luck. A lot of these articles are geared towards people in retirement that are probably empty nesters. Now their kids are either grown with kids of their own or out of the house.
Casey Mullooly : And… So, we started talking about this because we came across an article that asked, how long would a million dollars last in retirement? And it looked at 50 different cities across the United States.
Tom Mullooly: So it was Wall Street Journal?
Casey Mullooly : I saw it on Visual Capitalist.
Tom Mullooly: Okay.
Casey Mullooly : It might have been on Wall Street Journal first. So, just broadly across the different regions of the United States, $1 million in retirement. And, it didn’t assume any growth in the million dollars. And it also assumed a constant rate of expenses, which we know here by building financial plans, not really realistic.
Tom Mullooly: Unrealistic.
Brendan Mullooly: It’s probably the way to do this best-
Tom Mullooly: Interesting.
Brendan Mullooly: Apples to apples though. So it just takes the average cost of living in that city right now, divides it by the million dollars and tells you how many years it’s going to last.
Tom Mullooly: So no return on the investment and expenses stay the same.
Brendan Mullooly: Yeah.
Casey Mullooly : So where do you guys, I don’t know if you know, but where do you think the best city would be to live?
Tom Mullooly: Hilton Head, South Carolina.
Casey Mullooly : Good answer.
Casey Mullooly : Bren?
Brendan Mullooly: Scottsdale.
Casey Mullooly : Memphis, Tennessee. $1 million would last you about 45 years there. What do you think the worst place, the worst city to live in would be?
Tom Mullooly: New York.
Casey Mullooly : New York is towards the bottom.
Brendan Mullooly: LA.
Casey Mullooly : San Francisco,
Brendan Mullooly: Right.
Casey Mullooly : 8.3 years.
Tom Mullooly: Wow.
Casey Mullooly : Yeah.
Tom Mullooly: A million dollars only lasts eight years.
Casey Mullooly : Right.
Tom Mullooly: That’s outrageous.
Casey Mullooly : That is crazy. San Francisco, eight years is 19 years sooner than the average city on the list. It assumed a constant for social security and then assumed an average rate of spend based on the cost of living index over that. So social security works out average in 2021 was about $1,500 a month, which works out to about $18,000 per year.
Brendan Mullooly: That can be another component of wealth effect of relocation. Because if you work your entire career in a higher cost of living place, like where we live, your monthly benefit on social security is probably going to be a lot higher than that.
We have clients who get double that in social security and you take that and pick up and move. They don’t adjust it for Memphis, Tennessee. So then you’re just the rich person who’s there because you earn higher wages than somebody doing the same job living in Memphis, Tennessee probably would’ve earned for their entire working career. So…
Tom Mullooly: Yeah, I think to your point basically said in another way is, if you worked somewhere like in New York and then retired to Memphis, probably be in pretty good shape.
Because you bring that New York income with you and the social security benefits along with you. But if you had worked and lived your entire career in Memphis, it kind of depends on what you did for work through your career.
All else equal, I would assume that you probably made less money than the person doing the same job did in New York.
Tom Mullooly: Right.
Casey Mullooly : So just to put some numbers behind that, if you-
Tom Mullooly: Wait a second, Memphis Grizzlies player make the same as someone on the Nets?
Casey Mullooly: Probably not.
Tom Mullooly: Or the Knicks.
Brendan Mullooly: Probably not
Casey Mullooly: But they probably have a bigger house.
Brendan Mullooly: Yeah.
Tom Mullooly: Oh Yeah
Casey Mullooly : They probably have more property.
Brendan Mullooly: Yeah.
Casey Mullooly : So, annual expenses, this is including social security in, this is actually in Memphis, Tennessee for this, they assume an annual expenditure of around $40,000 a year.
Tom Mullooly: So, just almost $3,500 a month.
Casey Mullooly : Right. Now in New York, the spending rate is about $95,000 per year, which again lasts you about 13 years.
Brendan Mullooly: I think in practice though… I mean, it’s a cool exercise to do this, to say in general, here’s where it costs less to live versus more. We’re in a high cost of living area and we see people, I mean, you just threw out that number. On top of social security, you need another $95,000 per year to live in New York city.
Casey Mullooly: Yeah.
Brendan Mullooly: We have clients who spend more than that in retirement per year and clients who have less than that in retirement per year. And that’s only part of the equation because we, again have to take that and then consider their asset base.
So you could have somebody with a small asset base and lower than average cost of living that they could spend like the person in Memphis, Tennessee does and see the million dollars does just fine. I don’t think geography is destiny in this scenario, I guess. It’s like you’re… The odds are that you’re going to spend a little more based on the location.
However, I wouldn’t use that as a way to just say “ah, screw it, it’s out of my hands.” Because it isn’t out of your hands. You do have control over how you spend your money, regardless of which city you live in. That’s not the be all, end all.
Tom Mullooly: I think that raises another interesting point and I hope I’m not hijacking the podcast, but I think it’s fair to say that people who are thrifty during their working careers usually stay thrifty in their retirement years.
Even when we tell them you can spend a little money, they… It’s just not in their nature to do that. Sadly, on the flip side, we get some people who just no matter what their income is, they always spend $5 more than what they’re bringing in.
Brendan Mullooly: It’s tough to do the retirement equation at any point for that person, even if they have a large asset base, because more or less you become addicted to the income, because the income is the enabler in that scenario.
Meaning if you earn a lot of money, then sure you can spend a lot of money, but you’ve got to consider the point in time when that ends and what kind of an adjustment there’s going to be unless, I mean, if you, because if you’ve been spending that way all along then, you’d imagine the savings rate has been somewhat lackluster as a result.
So you might have a big bottom line number or so it seems, but when considered in the context of the current annual spend rate, it may not be enough.
Casey Mullooly : Especially in retirement. I mean, retirement, at least the way I think about it. It’s supposed to be when you enjoy the fruits of your labor. When you want to go on trips or you don’t want to be pinching pennies and worried about how much you can spend. I mean, that’s why you work is to get to that point in your life. And then you can kind of reap the rewards of that.
Tom Mullooly: I’ll agree with that, but I’ll also add that a retiree at 67 is going to spend differently than a retiree at 87.
Casey Mullooly: Totally agree.
Tom Mullooly: So, it’s a… You can’t just paint everybody with the same brush.
Casey Mullooly : Yeah. So what you guys are saying is that it’s not necessarily about getting to a certain number in your retirement account. It’s more about the bigger factor in how much, how long your money is going to last is how much you spend on a year to year basis.
Brendan Mullooly: Right. Which-
Tom Mullooly: Cash flow is just so, so important.
Brendan Mullooly: And that can be impacted by where you live. But I’ll say anecdotally, at least, I’m sure these people do exist, but I’ve yet to come across a person in practice who had a financial situation that didn’t work because they were here, but that would hypothetically work if they picked up from here and dropped down in one of these lower cost of living areas.
That arbitrage that does exist. I’m not saying it doesn’t. I don’t think that it’s been enough ever to move the needle for somebody in practice for me. To say, wow yeah, that solves all the problems. The problem if the numbers don’t work, isn’t that you need to pick up and move to Tennessee, it’s that you’re just spending too much.
So one solution might be changing where you live. However, there are other components of your monthly spend that have nothing to do with whether you’re in New Jersey or Tennessee and have everything to do with priorities and where the cash is going. So it’s only a part of it. And so I just wanted to chime in with that.
Brendan Mullooly: Again, it’s cool to look at the maps here and think about where some arbitrage may exist, but I don’t think it’s going to solve anybody’s retirement crisis if they’re not looking like they’re in good shape.
Casey Mullooly : Yeah, it’s still going to be you in Memphis, Tennessee.
Brendan Mullooly: Yeah. You’re still going to-
Casey Mullooly : You’re still going to be the same person.
Brendan Mullooly: You’re still going to want the things that you want now. And so a lot of those fixed costs are going to continue existing unless you make some sort of a lifestyle change, which you might be capable of doing without moving several states across the country. If that’s on… Obviously if you want to move, then be my guest. But I don’t think it’s a solution.
Casey Mullooly: Right.
Brendan Mullooly: And I think some people view it as that. Well, I’ll just pick up and move somewhere cheaper and then I’ll have enough. I don’t know that that’s going to be the case.
Casey Mullooly: Yeah.
Tom Mullooly: I think it really comes down to the individual case, by case situation of how you manage your expenses, your cash flow. We spend a lot of time talking to clients about their balance sheet and about their cash flow.
And people want to, they just want to skip ahead to the next chapter and talk about investments. What stocks are you going to buy? What, where are we going to be in the market? How come the market so high, should we be doing this? Really, let’s get a grip on your balance sheet, on your cash flow. That is so, so important. And people just want to skip through that step, and it’s a mistake.
Casey Mullooly : I think it’s, sometimes it’s even though it is the one… Stock returns, aren’t in our control, how much we spend is within our control. And I know that is something that we always talk about, where, what can we actually control, what is outside of our control. Should only focus on what’s in your control.
But sometimes people don’t want to do that because that’s the harder thing to do. It’s easier to want to move to Memphis, Tennessee, or it’s easier to lever up your stock portfolio and try and out earn bad habits. But that is-
Brendan Mullooly: At best, it’s kicking the can. It’s not, it’s not going to work-
Casey Mullooly : You’re not fixing the problem.
Brendan Mullooly: It’s not sustainable.
Casey Mullooly : You’re not fixing the problem. And you’re not really, like you said, you’re just kind of covering up and potentially making it worse. So…
Tom Mullooly: So I’ll throw in a bad rejoinder. In the diet world, they tell you, you can’t outrun a bad diet.
Casey Mullooly: Yeah.
Tom Mullooly: You can’t out exercise a bad diet.
Casey Mullooly: Yeah.
Tom Mullooly: You can’t outrun a bad diet. You also can’t outrun out of control expenses or poor cash flow management.
Brendan Mullooly: Both. Your situation might incrementally improve for a short period of time. If you pick up and move to a lower cost of living area and net. Let’s say you sell your house, you buy a new one and you’ve netted some profit there. You’ve boosted the bottom line of what you have to live on.
But, eventually you’re probably going to be in the same situation that you were just at a somewhat later point because the expenses, if they continue running the same way that they were, will rear their head again. And maybe buy yourself a few years where things on the surface seem better, but then as the expenses begin to compounding and you settle into the new situation.
Yeah. It’s, I don’t think it’s fixing anything. It’s not as if people in these lower cost of living cities that they have identified, it’s not as if you go to those cities and there aren’t people struggling with expenses. That happens in every state, in every country, across the world.
Brendan Mullooly: There’s always going to be people who don’t have enough or are struggling with costs or things like that to some degree. So, I don’t think that, that doesn’t fix the problem. It can be part of a solution, but it’s not the silver bullet.
Casey Mullooly: Yeah.
Brendan Mullooly: Because nothing is.
Casey Mullooly: Like the diet, it’s diet and exercise and in the financial world, it’s cashflow, and saving, and investing. It’s both of those things at the same time and you do that and you’re probably going to be all right.
Casey Mullooly : All right. That’s going to wrap up the Mullooly Asset Podcast. Thanks as always for listening. And we hope you got some good takeaways. Some things to think about if you’re approaching retirement or are dreaming of warmer weather down in the Carolinas or Florida. And if you have any questions about anything that we discussed, as always feel free to get in touch with us here.
Casey Mullooly: Tom Mullooly is an investment advisor representative with Mullooly Asset Management, all opinions expressed by Tom and his podcast guests are solely their own opinions and do not necessarily reflect the opinions of Mullooly Asset Management. This podcast is for informational purposes only, and should not be relied upon as a basis for investment decisions. Clients of Mullooly Asset Management may maintain positions and securities discussed in this podcast.