I am 54 and would like to retire next year. I plan to move from expensive New York City to Florida, where I will buy a house outright with cash for $600,000 to $650,000 (financed from the sale of my house last year). In addition, 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 on a $130,000 property sale in 2025. In addition, I have a $75,000 pension and a small K1 real estate partnership that generates $7,000 per year.
I am currently working part-time for cash making $35,000-$40,000. I’m hoping that with a fully paid for house in Florida and no longer renting here for $3,000 a month, plus a lower cost of living, I can afford not to work or only work 15-20 hours a week. I have full medical benefits for life, but no optical or dental. By my calculations, I should be able to afford to stop working by taking out about $20,000-$30,000 a year, but I can adjust this based on market conditions, plus Social Security at age 67.
– DJ
Moving to an area where the cost of living is lower and where there are no income taxes can certainly help make early retirement a reality. If you have the option and are not tied to New York for family or other reasons, you may be able to stretch your money considerably further by moving to Florida. Based on the information you’ve shared, it seems like you’re in a solid position and may be able to afford 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 withdrawal plan
At a high level, the withdrawal plan you mention is one that I think you can reasonably follow without overtaxing your portfolio and risking running out of money too quickly. If we combine the $1.4 million 457(b), the $515,000 investment account, and the total cash of $170,000, you have approximately $2,085,000 to draw from.
Even the high amount of your withdrawal estimate ($30,000) equates to a withdrawal rate of less than 1.5%. Assuming you are well diversified and have a reasonable asset allocation with somewhere between 50 and 75% equities, this withdrawal rate is very conservative and should leave you little chance to deplete your savings. And that’s before we take into account the fact that you may be able to reduce it once your Social Security payments start.
The way you withdraw money from each account affects your tax bill. So make sure you think about it strategically and consult a financial professional if necessary. Your 457(b) withdrawals are fully taxable, and you can trigger long- or short-term capital gains taxes when you sell assets to withdraw from your investment account. The good news is that Florida has no income tax. Additionally, your 457(b) withdrawals are not subject to an early distribution penalty.
Your income and expenses
You currently get €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 let’s assume you’re spending all of this on living expenses, leisure, and taxes.
First, let’s subtract the $3,000 you spend on rent in New York each month, since you’re no longer paying that. That brings your annual expenses down to $86,000.
Next, let’s consider the lower cost of living in Florida. Depending on where you move in the Sunshine State, there can be a significant difference in the cost of living compared to New York. The SmartAsset cost of living calculator allows you to quickly compare local costs in New York with your new Florida community. You can click on the Tax, Housing and Food tabs to see how that breaks down by category.
If we assume your cost of living will be 20% lower than the Big Apple, you would end up spending about $68,800 per year.
Now add in all the expenses you don’t have now that you 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 approximately $5,800 per year. Then let’s assume $2,200 per year for even $8,000 insurance.
That brings your total to $76,800 in potential annual expenses. This is a very rough estimate, but since your retirement alone is close to that, I think you’re in a pretty good place if the assumptions we’ve made are close to your actual situation. Of course, amend this estimate with any specific details you have. Also keep in mind that your pension is likely not indexed for inflation, meaning it will cover a smaller percentage of your total expenses each year. (Consider reaching out to a financial advisor who can help you manage the numbers and create a comprehensive financial plan.)
Don’t forget income tax
I just want to point something out, in case some clarification is needed. You mentioned ‘working for cash’. People often phrase it this way to suggest that it’s better than receiving a check and believing they won’t have to pay taxes on the income.
Of course that’s not true. Income is income, regardless of whether it is cash or recorded on a document such as a 1099 or W2. You still have to declare it as income and pay tax on it. If you plan to continue working part-time in Florida, you will need to factor these taxes into your budget.
In short
If you move to an area with a lower cost of living after retirement, you can increase your retirement savings and even retire early. Comparative cost of living figures can help you estimate the amount of money needed to maintain a certain lifestyle when moving from a particular area. An annual pension of $75,000 and another $2 million in projected assets should provide a strong foundation to support your retirement in the Sunshine State.
Tips for finding a financial advisor
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Brandon Renfro, CFP®, is a financial planning columnist at SmartAsset, answering reader questions about personal finance and tax topics. Do you have a question that 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 has received compensation for this article. Questions may be edited for clarity or length.
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