Occam's Razor

New retirees seem to be flocking to cheap retirement communities like rednecks to a Waffle House. For a long time retirees moved to Florida, but not so much anymore. The Sunshine State has a malodorous stench to it these days. Something is broken in Florida and government seems clueless on how to fix it, but apparently cutting taxes and social services is enticing people to leave, not to stay. The whole state may be on the way of becoming the new Detroit.

For a couple of decades now Arizona has been the preferred destination for retirees. The Phoenix area is now a huge valley of sprawling concrete block and faux-adobe houses, many of them occupied by retirees. As retirees’ income and savings decrease, retirement options are becoming more interesting. The late writer Joe Bageant found it convenient to spend much of his retirement years in a Mexican village. There was not much in the way of air conditioning but it was cheap. In fact, Americans have migrated south of the border in sufficient quantities to create their own retirement communities. We saw some of these on the Yucatan peninsula in early 2012 on our way to visit some Mayan ruins. Some of the more interesting and exotic (but cheap) countries for retirement include the Philippines and Panama. The general thrust seems to be to a K-mart blue light special. Doing so involves moving somewhere where the people earn a lot less than you do, so they don’t charge you much to live there, but where there are some amenities, like palm trees. If the crime rate is too high, in many cases you just stay safely inside your gated community, often to be waited on by maids who by American standards earn a pittance.

Retirement is definitely on my mind. If you are a regular reader you have traveled with me to places like Ithaca, New York and Northampton, Massachusetts to assess these places for retirement. After paying off their houses many people find the best place to retire is to retire in place. This is fine if you are happy at home. However, our house is now too big and like many people our age we are wearied with the hassle of maintaining a house. In addition, the cost of living in Northern Virginia has always been near astronomical, the air quality index is often marginal and for much of the year it is either too hot or too sticky to want to venture outside. I can say that living in Northern Virginia has been good for us. Its steady growth and clean industries have made finding white collar employment easy. There is never a lack of things you could do, but actually getting there in our gridlocked traffic is not worth the effort.

If saving money in retirement were our only focus, I’d move to Tallahassee, Florida. Housing is ridiculously cheap. You rarely have to walk more than a block before bumping into at least one fast food joint. It’s so cheap that after moving there I would probably spend most of the year actually living somewhere else, because I’d have plenty of money in my travel budget. I’d see my house in Tallahassee as something like a storage unit – a place to store a lifetime of accumulated crap. Many of those houses can be rented for less than you pay for a storage unit in my area. It’s a good idea to have bars on your windows, however.

Of course, retiring should not just be about cost. It’s about value. Cost is typically a significant part of deciding where to live, but there are many intangible factors as well. Can you find a specialist nearby if you need one? Is the air healthy to breathe most days? Is the tap water safe to drink? Does the community offer opportunities to engage your mind? Can you easily meet people you will enjoy spending time with? Can you find meaningful work, assuming you want to work full or part time in your golden years?

To help sort it out there are all sorts of books and web sites out there. I have found two web sites most useful. Sperling’s Best Places is not so much a retirement resource as a quick snapshot of a place which fills in a lot of question marks. It does this by aggregating a lot of information, mostly from government sources. Its cost of living index is particularly useful when you compare it with the cost of living index where you live now. Some of the statistics from this site that I am finding useful to winnow in on acceptable communities:

• Median home price
• Air Quality Index
• Number of physicians per 100,000 people
• Unemployment rate
• Violent crime rate
• Annual snowfall
• Sunny days per year

Retirees tend to be obsessed about taxes, which is understandable if you are on a fixed income. However, nothing comes free so low taxes by itself are hardly indicative of a community’s quality. Low taxes tend to lead people toward gated communities where a whole lot of misery exists just beyond the gate. What I find more interesting is to see what a community chooses to tax. Washington State, for example, does not tax income at all. That’s a big savings if you are used to a lot in state income taxes. On the other hand, it has a high unemployment rate, and the sales tax is a killer. Tacoma, for example, has a 9.5% total sales tax (including local sales tax). The property taxes on a middle range home can easily run $6,000 a year, which is actually not too bad, but probably higher than most communities. Gas taxes can also add up. New York State, which we are considering, taxes gas at a staggering 69.7 cents a gallon.

Ultimately, you have to ask who is paying the bulk of the tax burden. If it is mostly from sales taxes, the cost is disproportionately on those who spend. If it is on property, it is disproportionately on those with assets. If it is on incomes, it is mostly on wage earners, and if the income tax is progressive, disproportionately on high wage earners. In general, I believe that taxing property and income is better because it reduces taxes on those of modest means, allowing their money to be used more productively and letting them enjoy a better standard of living. This I believe helps create a wealth effect that enriches a whole community.

Retirementliving.com is another great resource to help sort through these various issues, but it discusses all these aspects from the perspective of a retiree. Many states don’t tax pensions, or put some cap on taxable pension income, which can help considerably with managing disposable income. Others have caps on withdrawals from 401-Ks and IRAs. Most won’t tax social security income. Their helpful taxes by state reports help sort through a lot of these issues. However, its information is not necessarily current. It hasn’t picked up that Virginia, for example, no longer has a retail gas tax, although it does tax gasoline at the wholesale level. When you get down to the county and local level, you basically have to do your own research. There it can become quickly confusing. Some states allow county sales, property and personal property taxes and some don’t. You generally have to scour local government web sites for this information. The most valuable source of information is from a local realtor.

Taxes are hardly the only costs in retirement. How much does food cost, in general, compared with other areas, like your own? The Best Places site has a food index that can help. How much are utilities? The utilities index can help. Is sewage and trash pickup provided by the town or city in your taxes or is that paid for separately? Most likely you will have to research this yourself, along with some of these other questions. How is water usage billed? What are the water rates? It’s best to save those detailed questions for when you have zeroed in on a couple of communities, because researching this information is time consuming. Even after all this research, you will still have to take something of a leap of faith. You won’t know everything until you are settled in your house and pay bills for a year or so.

Like everything else in living, retirement living is a set of tradeoffs based on your priorities. There is no best place to retire, but there are places that will work well for you. Our approach of asking friends and family with similar interests and values, as well as seeing many communities over years of vacations, have helped us limit our frame to a dozen or so communities, and to winnow them down to just a couple.

For us, it will be a decision of how close to nature we want to be. Currently Ithaca, New York and Northampton, Massachusetts are the two areas we are seriously pondering. Although sources like Kiplinger Finance says New York State is a bad place (tax-wise) to retire, when we run community against community Ithaca comes out less expensive than Northampton, mainly because property is significantly cheaper. In addition, the air quality is far superior. What we would get in Ithaca is a more rural area and considerably more snow. What we will lose is a larger community, faster access to a major city and the ability to cheaply travel by air.

These issues will be the topic of numerous discussions in the months and maybe years ahead. Spending more time in both places will help us sift through intangibles like community versus the cost of living. While all this sounds like a hassle, it’s actually fun and quite interesting. It sets the frame for the next and perhaps the last phase of life, which with luck and good research can also be the best time of life.