If you’re considering buying a home in a new area for retirement, the cost of the house itself shouldn’t be the end of your analysis. You can’t assume that your daily living expenses will be the same as they are now. Since retirement usually means a fixed income, gauging cost of living is especially important. Your choice of state or even town could make a difference of thousands of dollars every year.
Here are some cost-of-living indicators to look into:
- Food and groceries. Your basic living needs can cost you a pretty penny, particularly if you retire to Hawaii, Alaska, or any other area that has to ship in the majority of its food from afar. Even in some less remote areas, food prices run on the high side. A quick, nonscientific way to compare food prices between various areas is to call a major grocery store in each location. Ask for the prices of a handful of basic items such as one gallon of whole milk, one dozen large brown eggs, and a pound of 85% lean ground beef. Then consider how those price differences will add up and affect your monthly budget.
- Utilities. Electricity, water, natural gas, and oil are vital to keep your house operating. Other utilities, such as telephone and cable, are a staple in most people’s lives. Utility rates are usually, though not always, regulated by individual states. Either way, you’ll find dramatic price differences across the states. Do some online searching, or contact the providers in the town in which you might buy.
- Transportation. Whether it’s the cost of a bus ticket, a taxi fare, or the gas you pour into your car, this will be another important part of your living costs. Gas tends to account for the lion’s share of most people’s transport costs. A 50-cent-per-gallon price difference between the highest and lowest regions of the United States is not uncommon. If you drive 10,000 miles a year and your car gets 20 miles to the gallon, that difference can mean an extra $250 a year in gas alone. To compare average gas prices by state, visit the “Gas Prices” page of the Department of Energy website.
- State income tax. Seven states (Alaska, Florida, Nevada, South Dakota, Texas, Washington, and Wyoming) don’t tax your income at all. The income tax rates vary in all other states. Before you’re lured to a state because it has no income taxes, check into the host of other taxes (such as property and sales taxes) that such states often charge, which might have an even greater impact on your finances.
- Property tax. Imposed by local governments and used to fund schools, libraries, police and fire departments, and other community services, property taxes can vary dramatically by locale, especially as cash-strapped towns look for ways to generate more revenue. Buying a property just over the border from a high-tax town may save you thousands of dollars a year. Call or pay a visit to the town hall and ask how much the taxes have increased over the past five to ten years. (This is usually tracked as a percentage increase based on the median home price.) Also make sure you understand the town’s policy about raising property taxes (for example, is there an annual cap?) and whether any changes are pending, such as overrides (allowing the town to increase property taxes beyond the annual cap, usually after approval by voters).
- Sales tax. Also called a purchase tax, sales tax is collected by state and local governments. It’s usually calculated as a percentage of the selling price of goods or services. Sales tax too can vary significantly based on location. A high local sales tax can take a significant bite out of your wallet.
For more information on state taxes, see , Bankrate.com’s “Tax Center,” which offers a state-by-state summary of income, personal, and state sales taxes; simply click on the state that interests you.
And for practical tips for buying a house in which to enjoy your retirement years, see Buying a Second Home: Income, Getaway or Retirement, by Craig Venezia (Nolo).