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KEY TAKEAWAYS

• Moving in retirement can result in significant cost savings but the cost to happiness may offset the material gain.
• Health and your spousal relationship the most impactful items on your happiness.
• Being close to friends has been found to be more correlated to happiness than material possessions (and being close to grown children!).

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Sunny weather, a lower cost of living, with lower taxes as the cherry on top.

Many people in their last few years of work dream of sunny skies and lower taxes, pursuing them by moving in retirement. In fact, a study by HireAHelper found that 400,000 retirees moved in 2020 and were more than twice as likely as nonretirees to move to a different state. No doubt chasing those skies and lower taxes.

Cost Savings

The cost savings from moving can be huge. First look at state income taxes, in WJL Financial Advisor’s home state of New Jersey we have a progressive state income tax starting at 1.4% and increasing to 10.75%. A married couple household making $150K has an estimated income tax bill of $5,400. Combined with an estimated property tax bill of $6,500 for property valued $250K, and the tax bill is already at $11,900 before considering the higher cost of living generally in the area.

Compare that to Florida and Texas, two of the lower cost states many people are flocking to. Neither state has income tax:

Saving cash and getting more sunshine sure sounds great. That must equal happiness, right?

Saving between $7K and $9K per year each year is not a bad deal. The property value is probably low, but $250K (the national average for a house) buys a lot more house in both locations. If your house costs more than national average, the amount of savings increases because of the lower property tax rate. Save money, enjoy better weather, and a nicer house! It’s easy to see why those 400,000 retirees moved in 2020.

Happy Is a Warm Place

Well, in 2018 the academics Finke, Ho, and Huston did a fancy study titled Spending, Relationship Quality, and Life Satisfaction in Retirement. It includes a solid 23 pages of methodology, data, and charts if you are interested but I’ll give you the shortest recap I can here.

Starting in 1992, the authors surveyed more than 26,000 Americans over the age of 50, asking them every two years about their use of money and time, their personal characteristics, and their happiness. They then applied some even fancier math to determine which characteristics correlated most to happiness and which detracted from it.

Drum roll, please.

Health

The item with the highest correlation to happiness should not surprise anyone: it was health. Reporting “excellent health” was the highest scoring metric at 1.674 (the higher the score, the more correlated with happiness). In fact, reporting being in “excellent health” or “good health” were the only characteristics above 1.0 on the scale. Health is by far the most important factor in happiness.

Takeaway: Spend time/energy/money on your health now. Future you will thank you.

Spouse

The next highest scoring item was relationship with spouse. Having a “very close” relationship with your spouse scored a 0.795, but unlike health, the correlation between spousal relationship and happiness dropped quickly. If you’re only “Quite close” it drops to 0.246, and if you’re “Not very close” or “Not close at all” it turns negative (-0.603). Not having a good relationship with your spouse is quite a bit worse than even being in poor health.

This is very, very important in the context of deciding to move because if the decision to move creates tension in your marriage, it is likely going to make you less happiness. Much less. If you’re not on the same page with the move, talk with your spouse about possible compromises. Are there other locations that might interest both of you?  

Takeaway: Go on those date nights and put time in building a strong relationship with your spouse.

Money

In 1966 on Gilligan’s Island, Mrs. Howell told the professor, “Anyone who says money doesn’t buy happiness doesn’t know where to shop.” And, yes, I watched Gilligan’s Island as a kid. On sick days from school in the 80s it seemed to be the only thing on syndicated television.…

So, was Mrs. Howell right? The study asked about spending on quite a few categories. The metrics are based on how much happiness increased when each additional percentage of total budget was allocated to the spending category. Here are the results.

Almost nothing moved the needle. This did confirm, however, that if you are going to spend money on anything, it should be on experiences (Leisure). The next category, Clothing & Personal Care, is noteworthy because Personal Care products could overlap with Health. It’s hard to parse that out, but what is certain is that just buying more stuff, i.e., Durables, will make you less happy.

But what about <insert your favorite item(s)>? They didn’t ask about that! Surely having more financial resources to fund <insert your favorite item(s)> will make you happier. And that additional $7 to 9K per year gained from moving to a lower cost state will add to that.

Wrong again. Neither additional income (+0.00122) nor additional total wealth (+0.00009) did much to move the needle.

Takeaway: Moving for money as the only goal will not lead to greater happiness. 

Relationships (Other Than Spouse)

After cost savings, the most cited reason we hear for moving is to be close to grown children and grandkids. The authors of the study considered it as well and looked at the impact on happiness of relationships with children, other family, as well as friends.

These survey results leave a lot to unpack.

First, starting with children, more was not better. Having children, I can understand the amount of work each additional child creates, but I was surprised by the happiness created by degree. It appears very little additional happiness is created by close contact with your children in retirement.

The study does not go into the reasons for the lack of correlation, but based on interviews with retirees, other reviewers (including one of the authors, Michael Finke, in this interview) have speculated that retirees who have moved to be near their children may run into issues with expectations. They may believe that moving closer means they will see their children more, but often find the children have busy lives and don’t have as much time to spend with them as they thought. Other problems identified include being relied on for childcare more than the retirees wanted or conflicts regarding how grandchildren should be raised. Each generation has its own parental norms, and differences of opinion can create strife.

More than 10 times as much happiness can be derived from close interactions with family members other than your children. My assumption here is that these are brothers/sisters with whom you, the retirees, already have a strong relationship. Having a shared past with the expectation of a shared future may create some comfort.  

But almost twice as impactful, and 20 times more impactful to happiness than close contact with children, is having close interactions with your friends. Friends bring more happiness than family and certainly children (we still love you though, kids!).

Takeaway: If your close friends are nearby, you should stay where you are. Conversely, if you don’t have many close friends in the area, consider moving to where your close friends are or to a place with many retirees where it is easier to make friends.    

I Don’t Care, I’m Moving!

The data presents a lot of information that may seem like it’s saying moving is a bad idea, but there are certainly situations where it makes sense to move. The first would be if you and your spouse are 100% in agreement on where you want to move (bonus points for places that get you outside and living a more active, healthier lifestyle).

If you are on the same page and want to move, it could be an adventure that deepens your relationship. And with that stronger relationship, if the move doesn’t work out, you can go on another adventure to a different place!

Avoid moving only for money, only to be near your children, or—worst of all—if your spouse is not 100% on board. Those moves are likely to bring more unhappiness than happiness.   

What are your thoughts? If you have any thoughts or opinions about this, please drop me an email or leave a comment below.

Until next time, spend less than you make, invest the difference in low-cost index funds, be kind to your neighbors, and you will succeed in reaching your financial goals and in making the world around you a happier place.

Written by Sean Lovison, CPA

Email at sean@wjladvisors.com

Follow on Twitter @SeanLovison