I am 54 and want to retire next year. I plan to move from expensive New York City to Florida, where I will buy a home for $600,000 to $650,000 cash (financed by the sale of my home last year). In addition, I have a 457(b) plan with a $1.4 million balance and a Schwab investment account with $515,000 invested in a basket of stocks and about $40,000 in cash. I expect to receive a cash payment in 2025 from a real estate sale of $130,000. In addition, I have a $75,000 pension and a small K1 real estate partnership that brings in $7,000 per year.
I am currently working Part-time for a cash income of $35,000 to $40,000. I hope that with a fully paid-off house in Florida, where I’m no longer renting for $3,000 a month and the cost of living is lower, I can afford not to work or only work 15 to 20 hours a week. I’m entitled to full health insurance for life, but not vision or dental insurance. By my calculations, I should be able to afford to stop working by withdrawing about $20,000 to $30,000 annually, but I can adjust that based on market conditions, plus Social Security at 67.
– DJ
Moving to an area with a lower cost of living and no state income tax can certainly help make early retirement a reality. If you have the opportunity and aren’t tied to New York for family or other reasons, you may be able to stretch your money significantly by moving to Florida. Based on the information you’ve shared, you seem to be in a solid position and may be able to afford to withdraw even more from your savings each year. (And if you need help figuring out when you can afford to retire, consider talking to a financial advisor.)
Your payout plan
Overall, I think the withdrawal plan you mentioned is one you can reasonably follow without putting too much stress on your portfolio and risking running out of money too soon. If we add up the $1.4 million 457(b), the $515,000 investment account, and the total cash balance of $170,000, you have about $2,085,000 to withdraw from.
Even the upper end of your withdrawal estimate ($30,000) represents a withdrawal rate of less than 1.5%. Assuming you’re properly diversified and have a reasonable asset allocation with somewhere between 50% and 75% stocks, this withdrawal rate is very conservative and should leave you with little chance of depleting your savings. And that’s before we consider the fact that you may be able to reduce it once your Social Security payments begin.
How you withdraw money from each account will affect your tax bill, so think strategically and consult a financial professional if necessary. Your 457(b) withdrawals are fully taxable, and you may trigger either long-term or short-term capital gains taxes when you sell assets to withdraw from your investment account. The good news is that Florida does not impose a state income tax. Plus, your 457(b) withdrawals are not subject to an early withdrawal penalty.
Your income and expenses
You currently make $75,000 from your pension, $7,000 from your real estate partnership, and up to $40,000 from part-time work, for a total of $122,000. You didn’t mention any savings, so we’ll assume you spend all that on living expenses, leisure, and taxes.
First, let’s subtract the $3,000 you spend each month on rent in New York, since you won’t be paying that anymore, and that brings your annual expenses down to $86,000.
Next, we’ll consider Florida’s lower cost of living. Depending on where you move to in the Sunshine State, the cost of living compared to New York can vary significantly. SmartAsset’s cost of living calculator allows you to quickly compare local costs in New York to those in your new Florida community. You can click on the tax, housing, and food tabs to see how costs break down across each category.
If we assume your cost of living is 20% lower than in the Big Apple, you would end up spending about $68,800 per year.
Now add up all the expenses you don’t have now, but will have when you move to Florida. Two that stand out to me are property taxes and home insurance. You can look these up to get exact numbers for the home you’re buying, but this Florida property tax calculator can help you with an estimate. For a $650,000 home in Miami Beach, property taxes are about $5,800 per year. Then we’ll assume $2,200 per year for insurance, leaving you with a smooth $8,000.
That brings your potential annual expenses to a total of $76,800. This is a very rough estimate, but considering that your pension alone is about that much, I think you’re in a pretty good spot if the assumptions we’ve made are close to your actual situation. Of course, you can adjust this estimate with any specific details you have. Also keep in mind that your pension is likely not adjusted for inflation, meaning it will cover a smaller percentage of your total expenses each year. (Consider contacting a financial advisor who can help you with the calculation and create a comprehensive financial plan for you.)
Don’t forget income tax
I want to make one point in case clarification is needed. You mentioned “working for money.” Often people phrase it that way to convey that it’s better than getting a check and thinking they don’t have to pay taxes on the income.
That’s not true, of course. Income is income, whether it’s in cash or on a document like a 1099 or W2. You should still report it as income and pay taxes on it. If you plan to continue working part-time in Florida, you’ll want to factor those taxes into your budget.
Bottom line
Moving to an area with a lower cost of living in retirement can help you boost your retirement savings and even retire earlier. Comparative living costs can help you estimate the amount needed to maintain a certain lifestyle when moving out of one area. A $75,000 annual pension and another $2 million in projected assets should provide a solid foundation for your Sunshine State retirement.
Tips for finding a financial advisor
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Hiring the right financial professional can be a daunting process, which is why we’ve created this comprehensive guide to finding and selecting a financial advisor. While there’s a lot you can and should consider in your search, it’s important to first understand what financial advisors do and what type of service you need.
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Finding a financial advisor doesn’t have to be difficult. SmartAsset’s free tool matches you with up to three vetted financial advisors who serve your area. You can also schedule a free introductory meeting with the advisors you’re interested in to help you decide which one you think is right for you. If you’re ready to find an advisor who can help you reach your financial goals, get started now.
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Have an emergency fund ready in case you have unexpected expenses. An emergency fund should be liquid – in an account that is not exposed to the risk of large fluctuations like the stock market. The downside is that the value of liquid cash can be eroded by inflation. However, a high-yield account allows you to earn compound interest. Compare savings accounts from these banks.
Brandon Renfro, CFP®, is a financial planning columnist for SmartAsset and answers reader questions about personal finance and tax topics. Have a question you’d like answered? Email [email protected] and your question may be answered in a future column. Questions may be edited for clarity or length.
Please note that Brandon is not a participant in the SmartAsset AMP platform or an employee of SmartAsset, and he received compensation for this article. Questions may be edited for clarity or length.
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