I am 54 years old and would like to retire next year. I plan to leave expensive New York City for Florida, where I will purchase a house in cash for $600,000 to $650,000 (financed by the sale of my house last year). Additionally, I have a 457(b) plan with a balance of $1.4 million and a Schwab investment account with $515,000 invested in a basket of stocks, as well as about $40,000 in cash . I expect a cash settlement in 2025 on a $130,000 property sale. Plus I have a pension of $75,000 and a small K1 real estate company that generates $7,000 per year.
Currently I am working part time for money winning between $35,000 and $40,000. I’m hoping that with a fully paid off house in Florida and no longer renting here at $3,000 a month plus a lower cost of living, I can afford to not work or only work 15-20 hours per week. I have full lifetime medical benefits, but no vision or dental benefits. By my calculations, I should be able to afford to stop working by withdrawing about $20,000 to $30,000 per year, but I can adjust this amount based on market conditions, plus Social Security at age 67.
– DJ
Move to an area where the cost of living is lower and no income taxThe measures can certainly help make early retirement a reality. If you have the opportunity and are not tied to New York for family or other reasons, you may be able to significantly increase your money by moving to Florida. Based on the information you’ve shared, you seem to be in a strong 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 speak with a financial advisor.)
Your withdrawal plan
At a high level, the withdrawal plan you mention is one that I think you can reasonably follow without putting too much strain on your portfolio and without risking running out of money too soon. If we combine the $1.4 million 457(b), the $515,000 investment account, and a total cash flow of $170,000, you will have approximately $2,085,000 from which you can withdraw.
Even the upper limit of your withdrawal estimate ($30,000) amounts to a withdrawal rate less than 1.5%. Assuming you are properly diversified and have a asset allocation with a stock between 50 and 75%, this withdrawal rate is very conservative and should give you little chance of exhausting your savings. And that’s before we take into account that you may be able to reduce it once your Social Security payments begin.
How you withdraw money from each account will impact your tax bill. So, make sure you think strategically about this and consult a financial professional if necessary. Your 457b) Withdrawals are fully taxable and you can trigger long or short term withdrawals capital gains taxes when you sell assets to remove them from your investment account. The good news is that Florida does not levy an income tax. Additionally, your 457(b) withdrawals are not subject to an early distribution penalty.
Your income and expenses
Currently, you earn $75,000 from your pension, $7,000 from your real estate partnership and up to $40,000 from your part-time job, for a total of $122,000. You didn’t mention savings, so let’s assume you spend all of that between living expenses, hobbies, and taxes.
First, let’s subtract the $3,000 you spend each month rent in New York since you won’t pay that anymore. This brings your annual expenses down to $86,000.
Next, let’s take into account the lower cost of living in Florida. Depending on where you move to in the Sunshine State, there can be a dramatic difference in the cost of living compared to New York. Smart assets cost of living calculator can help you quickly compare local costs in New York to those in your new community in Florida. You can click on the tax, housing and food tabs to see how it breaks down between each category.
If we assume your cost of living will be 20% lower than the Big Apple, you’ll end up spending around $68,800 every year.
Now add in any expenses you don’t have now that you will have if you move to Florida. Two things that come to mind are property taxes and home insurance. You can search them to get the exact numbers for the house you are buying, but this Florida Property Tax Calculator can help you with an estimate. For a $650,000 home in Miami Beach, property taxes are around $5,800 per year. Then assume $2,200 per year for insurance for another $8,000.
This brings your total to $76,800 in potential annual expenses. This is a very rough estimate, but given that your pension alone is close to this, I think you’re in a pretty good position if the assumptions we’ve made are close to your actual situation. Of course, modify this estimate with the specific details you have. Also remember that your pension is probably not indexed for inflation, meaning it will cover a smaller percentage of your total expenses each year. (Remember to connect with a Financial Advisor who can help you crunch the numbers and develop a comprehensive financial plan.)
Don’t forget about income tax
I want to point out something in case clarification is needed. You talked about “working to earn money”. Often people phrase it this way to imply that it’s better than receiving a check thinking they don’t have to pay income taxes.
Of course, that’s not true. Income is income, whether it is in cash or recorded on a document such as 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 will need to factor these taxes into your budget.
Conclusion
Moving to an area with a lower cost of living in retirement can help you maximize your retirement savings and even retire early. Comparative cost of living figures can help you estimate how much money is needed to maintain a certain lifestyle when you move from one area. An annual pension of $75,000 and an additional $2 million in projected assets should provide a solid foundation to support your retirement in the Sunshine State.
Tips for Finding a Financial Advisor
Hiring the right financial professional can seem like a daunting process. That’s why we created this comprehensive guide for find and choose a financial advisor. While many things can and should be considered in your search, understanding what financial advisors do and the type of service you need is a crucial starting point.
Finding a financial advisor doesn’t have to be difficult. The free SmartAsset tool connects you with up to three licensed financial advisors who serve your area, and you can have a free introductory call with your advisor to decide which one seems best for you. If you are ready to find an advisor who can help you achieve your financial goals, start now.
Keep an emergency fund on hand in case you face unexpected expenses. An emergency fund should be liquid – in an account that doesn’t have the risk of large fluctuations like the stock market. The tradeoff is that the value of cash can be eroded by inflation. But a high interest account allows you to earn compound interest. Compare the savings accounts of these banks.
Brandon Renfro, CFP®, is a financial planning columnist for SmartAsset and answers reader questions on topics related to personal finance and taxes. Do you have a question you would like answered? Email AskAnAdvisor@smartasset.com 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, nor an employee of SmartAsset, and he was compensated for this article. Questions may be edited for clarity or length.
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