Should Relocation Be Part of Your FI Plan?

I had no buys or sells for the week as I am always low on funds in the last week of a month so I decided instead on posting my opinion on a topic that occasionally crosses my mind. Should relocating to an area with a lower cost of living be part of my financial independence (FI) plan?

Quick backstory, I live in Connecticut which as many know is one of the highest taxed states in the U.S. and they tax nearly everything including most forms of retirement income (social security, 401K & IRA distributions, pensions, and dividend income). Moving to another state would save me anywhere from $2,000 to $8,000 annually in taxes depending on which state I choose to relocate to making relocation a tempting option.    Before anyone turns this political (i.e., blue state versus red state) I’ll just say CT’s high taxes are primarily attributable to pension obligations from years of pension fund mismanagement & neglect at the local city & state level.  State pension obligations are something that can plaque any state regardless of political affinity and is more attributable to past politicians who spent money to win votes than doing the right thing 20 or 30 years ago.  The lesson here is to make sure the state you plan on moving to has a well-funded pension fund or else you may see your taxes grow down the road.

With potential tax savings of up to $8,000 it really begs the question if I should make this part of my financial plan.  To generate $8,000 of annual income I would need $200,000 of investment savings.  $200,000 is not a small amount and not having to save that additional money would allow me to retire much earlier than I originally planned.  I have read quite a few stories of people who accelerated their FI via relocation and some, such as Jason Fiber, have even achieved this even faster by using geo-arbitrage where you relocate to a foreign country with living expenses extremely below that of the U.S.  I enjoy reading their stories about how their quality of life has improved because of it and inspired by their stories.

If you are single and with no children, the decision to relocate is simpler and more a matter of personal choice but if you are married and have family it suddenly becomes a bit more complicated as you must take in several different views and get buy-in from at a minimum your spouse.  In my life, my wife and I both agree relocating is a desirable option however we choose not to make it part of our FI plan and instead are planning FI based on our current expenses.

The reason we do not factor it in is because we do not know what the future holds.  My wife’s father is in his 90s and needs care, what if he lives another 10 years or more?  My children are now young adults and if they have children, I am sure without a doubt my wife would want to be as close to the grandchildren as possible.  And then of course you have the extended family (sisters, brothers, etc…) as well as friends.   All of these are factors that can change mine or my wife’s opinion about relocating. 

My wife & I have had a long and happy marriage and much of that is contributable to each of us compromising with the other but something like this I believe both need to be on the same page with only minor compromises. Of course, by doing this it raises the bar I have to achieve but at least we will have peace of mind that if we decided to retire-in-place it is achievable. If we do relocate then it is just an extra cushion that can be used for other unplanned events that life throws at us.  Thankfully we both have jobs we enjoy so working a little longer won’t be that much of chore.

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