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The Most Popular Retirement Destinations for Seniors

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Many of us look forward to that sweet day when we’ll never have to set an alarm again. You have no boss, no deadlines and no meetings. Most of us would agree that retirement sounds pretty awesome. Which is why it is so important to plan for it properly.

When it comes time to choose where to live, cost of living and general livability for retirees are typically the two main concerns. In past studies, we have endeavored to look at a cross section of retirees’ concerns, so we can rank the best places to retire. But sometimes, the best places to retire doesn’t always line up with where retirees actually move. We hope to shed some light on senior retiree preferences by finding the top retirement destinations. Here’s a look at the most tempting locations.

Key findings

  • The top 25 retirement destinations is dominated by Arizona and Florida metros. Those two states account for 15 of the 25 metro areas with highest net migration of retirees.
  • The Phoenix metro area was the runaway favorite. This area attracted 19,550 new seniors. Only about 12,421 opted to leave. That left a net influx of 7,129 retired seniors making Phoenix their home.
  • Only two metro areas not in Arizona or Florida made it to the top 10: Milwaukee and Nashville, Tenn. Milwaukee saw a net influx of 3,924 retirees, while Nashville gained 2,831.
  • The busiest and least-affordable metros saw the largest loss of retirees. Cities like New York, Los Angeles, Seattle and San Francisco tend to lose those who left the workforce. This exodus of retirees does slightly help balance population crises in cities like San Francisco which lost 2,731 retirees.
  • Weather and a sense of “affordability” aren’t the only factors attracting retirees. Florida and Tennessee in particular, and Arizona to a lesser degree, have extremely retiree-friendly tax laws. Florida does not tax any kind of retirement income and has relatively low property and sales taxes. Likewise, Tennessee does not tax social security income, which, apart from the BBQ and music, may explain why Nashville is a top 10 retiree destination.
  • California experiences the biggest loss of retirees. Of the 18 California metro areas we analyzed, 14 saw a net decrease in retirees.

Most popular retirement destinations

Phoenix stole the number one spot that retirees are flocking to. But if you prefer less desert and more beach, Tampa, St. Petersburg and Clearwater, Florida came in second place. If you’d take a lake over a beach any day, Lake Havasu City in Arizona made its way into the top 10. And thanks to their low cost of living, midwestern cities may be the perfect place to spend your golden years.

If the top 10 is sounding a little crowded for your taste, you could hop on over to the Pacific Northwest. Slightly less popular – but still highly ranked – is Portland and surrounding metro areas in Oregon and Washington. The Portland-Vancouver-Hillsboro area in Oregon and Washington ranked 11th place. And Eugene, Oregon was also highly ranked as the 19th most popular retirement destinations for seniors. We have to say, Portland has a pretty stellar reputation. We found in a previous study, that Portland ranks seventh as one of the best places to live in America if you’re looking for a balanced lifestyle.

The South is looking mighty appealing too. Of course, plenty of spots in Florida made the list, but so did Nashville, Tenn. Who’s ready for some BBQ? If you desire even more southern charm, check out the Greenville-Anderson-Mauldin region of South Carolina.

Humidity got you down? Golden coast California didn’t make it into the top 10. Hint: high real estate prices. But sunny San Diego ranked 23rd, which is not too shabby.

Least popular retirement destinations

The New York metro area ranked number one in our list of the least popular retirement destinations for seniors. Chicago, Philadelphia and Los Angeles didn’t fare too well either.

Dream locations like Honolulu, Hawaii, and Orlando, Florida didn’t rank as highly as one would think. And on a not so surprising note, bustling metro areas full of workers bees weren’t desirable spots either. Apparently, there is a lot less need for early bird specials in Los Angeles, San Francisco, Atlanta, New York, Seattle and Chicago.

Be prepared for retirement with these tips

Preparing to retire is a big financial undertaking. One you should take seriously and plan for. Consider these tips as you prep for retirement.

Take advantage of catch-up contributions: If you find yourself over the age of 50 and getting ready to retire but fell behind on saving money, you may want to take advantage of catch-up contributions. Usually, the maximum contribution limit to a 401(k) is $18,500 and to an IRA is $5,000. But for those over 50 years of age, catch-up contributions are more flexible, allowing those total contribution limits to be $24,500 and $6,500, respectively.

Adjust your budget: Tightening your budget so you can see how you’ll live on your new income can help you prepare for the adjustment to life in retirement. You may want to consider saving for unexpected expenses like travelling, assisting family and friends and the potential need for medical care or the option of living in an assisted living facility.

  • The 4% withdrawal rule: Generally you’ll need to withdraw around 4% from your nest egg each year. This means that if you have $1 million saved for retirement, you would withdraw $40,000 each year for costs like food and medical supplies. This is just one way of looking at the expected cost of retirement.
  • 75% of income rule: You can also follow the principle of the 75% of income rule. This guideline advises that you should spend between 75% to 85% of your current annual income each year in retirement. Generally your expenses drop after retirement, so ideally this should be enough income for you to live comfortably.

Review and pay off debt: Taking care of debt before you retire is something to seriously plan for. Seniors with credit card debt have a net worth worth of 43% less than those without credit card debt. The high interest rates associated with credit cards can destroy nest egg income.

Because the average credit card interest rate is 14%, seniors who have credit card debt (on average, $4,786) will pay an average of $670 every year for interest charges. With the average investment portfolio not earning more than 8% every year, seniors will on average earn only $4,508 from their portfolio. Sadly, this means that credit card interest can eat up more than 15% of a nest egg income.

Methodology

Data comes from Integrated Public Use Microdata Series (IPUMS). In order to rank the top retirement destinations for seniors, researchers looked at two metrics. Specifically we looked at the number of residents over 65 who were out of the labor force who moved into a metro area and compared it to the number of over 65 residents who were out of the labor force who moved out of a metro area. Those two numbers were then combined to create a net migration figure. This study is ranked based on that net migration figure.

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Life Events, Mortgage

What is Mortgage Amortization?

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The difference between your home’s value and how much you owe on your mortgage is your home equity. With each mortgage payment you make, mortgage amortization — or paying down the loan in installments — is at play, and each monthly payment brings you closer to owning your home outright.

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What is mortgage amortization?

Mortgage amortization is the process of paying off your loan balance in equal installments of principal and interest for a set time period. The interest you pay is tied to the balance of your loan (your principal) and the mortgage rate. When you first start making payments, most of the payment is applied to the interest rather than the principal.

Your principal payments catch up with interest over time until your loan is paid off. Once it reaches a zero balance, it becomes a “fully amortized loan.”

How mortgage amortization works

The easiest way to understand mortgage amortization is to look at how monthly mortgage payments are applied to the principal and interest on an amortization table. There are two calculations that occur every month.

  1. The first calculation measures how much interest is paid based on the rate you agreed to. The interest charge is recalculated each month as you pay down the balance, and you pay less interest over time.
  2. The second calculation reflects how much of the principal you pay. As the loan balance shrinks, more of your monthly payment is applied to your principal.

If you’re a math whiz, here’s the formula:

A mortgage amortization calculator does the heavy lifting for you. You can see the effects of amortization on a 30-year fixed loan amount of $200,000 at a rate of 4.375% below.

In the first year, you pay more than twice as much toward interest as you do toward the principal. However, the balance slowly drops with each additional payment. By the 15th year, principal payments outpace interest and equity starts building at a much faster pace.

How mortgage amortization can help with financial planning

A mortgage amortization table helps you assess the short- and long-term benefits of adjusting your mortgage payments. Making extra payments over the life of the loan or refinancing to a lower interest rate or term could save you thousands in interest charges over the life loan. Even better: you’ll end up with a mortgage free home sooner.

Using a mortgage calculator to configure a few scenarios, here are some financial goals you might be able to accomplish using mortgage amortization.

Calculate how much money you can save by refinancing

If mortgage rates have dropped since you bought your home, consider refinancing. If you’re in your forever home and don’t plan to move for a while, a half-percentage point drop in rates could make room in your budget to boost retirement savings, your emergency fund or put money toward other long-term financial goals.

The example below shows the monthly payment and lifetime interest savings if you replaced a 30-year, fixed-rate loan for $200,000 at 4% with a new loan with a 3.5% interest rate with the same terms.

While saving $56.74 per month on payments doesn’t seem like much, it adds up to $20,426.83 in interest savings over the loan’s lifetime.

See the effect of making extra payments

The amount of interest you pay every month is directly connected to your loan balance. Even a small amount added to the principal each month reduces interest over time. The graphic below shows how much you’d save adding an extra $50 every month to your payment on a $200,000, 30-year fixed loan with an interest rate of 4.375%.

Figure out when you can get rid of PMI

Borrowers who don’t make a 20% down payment on a conventional mortgage typically pay for private mortgage insurance (PMI). The coverage protects a lender against financial losses if you don’t repay the loan.

Once your loan-to-value ratio, or the loan balance in relation to the home’s value, reaches 78%, PMI automatically drops off. Multiply the price you paid for your home by 0.78 to determine where your loan balance would need to be for PMI to be canceled. Locate that balance on your loan payment schedule for a rough idea of the month and year PMI will end.

Decide if it’s time to refinance an adjustable-rate mortgage

Adjustable-rate mortgages (ARMs) are a helpful tool to save money on monthly mortgage payments. However, ARMs make more sense if you plan to refinance the loan or sell your home before the initial fixed-rate period ends and the loan resets to a variable interest rate.

An adjustable-rate mortgage amortization schedule helps you pinpoint when the loan will reset and gives you an idea of the worst-case scenario on payments. If the adjustments are outside of your comfort zone, consider refinancing your ARM into a fixed-rate mortgage.

The difference between a 15-year fixed and 30-year fixed payment schedule

Refinancing to a shorter term, such as a 15-year fixed mortgage, may save you hundreds of thousands of dollars over the life of a loan — but the trade-off is a higher monthly payment.

The graphs below show the difference between a 30-year amortization schedule for a $200,000, fixed-rate loan at 4.375% and a 15-year amortization schedule for the same loan amount at 3.875%.

The lifetime interest savings for a shorter loan payment schedule is $95,447.16. As long as the $468.31 increase in your mortgage payment doesn’t prevent you from meeting other savings or investment goals, the long-term savings are worth it.

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Life Events

When Do You Need to Start Taking Required Minimum Distributions (RMDs)?

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When you reach age 72, the government requires you to begin withdrawing money from your retirement savings accounts each year. This sum, known as a required minimum distribution (RMD), allows the IRS to begin collecting income tax on the dollars you’ve stashed away in tax-deferred accounts such as a 401(k) or traditional individual retirement account (IRA).

What is a required minimum distribution (RMD)?

Regulations governing most retirement accounts state that you cannot leave funds in the account indefinitely. Even if you don’t need the money, the government requires you to begin reducing the overall balance in most accounts by a set sum each year — the required minimum distribution — once you’ve turned 72.

The precise amount of each person’s required minimum distribution is determined by the IRS based on life expectancy and total savings. The RMD rule only applies to tax-deferred accounts or accounts that allow people to reduce their taxable gross income each year by the amount they set aside in the plan.

Because tax-deferred accounts provide upfront tax savings, the IRS waits to collect taxes on contributions to the accounts and any subsequent investment gains until the money is withdrawn. Here’s a full list of retirement accounts subject to the RMD rule:

  • 403(b)
  • 457(b)
  • Profit-sharing plans
  • Other defined contribution plans

RMDs are not required for Roth IRAs or Roth 401(k)s, since contributions to Roth accounts are made using money on which you’ve already paid income tax. Note, however, that beneficiaries who inherit Roth IRAs must take RMDs.

When do I have to start taking RMDs?

You need to start taking required minimum distributions by April 1 of the year after you turn 72. In subsequent years, you need to take RMDs by December 31st.

If you are still working at age 72 and have a traditional 401(k) or 403(b) account with your current employer, you may not have to take an RMD from that account unless you own 5% or more of the company. Review your plan’s exact terms to see if it allows you to wait until you actually retire to begin taking RMDs or if it follows the same 72 rule regardless of retirement status.

Employment, however, won’t help you delay taking RMDs from any individual retirement accounts outside of your employer retirement account, such as a traditional IRA.

You do not have to take your RMD as one lump-sum payment. The IRS allows you to take out the funds in chunks throughout the year too. As long as the total meets the RMD for the year, you’re in the clear.

You’re also not limited to taking only the RMD amount from your account each year — you can withdraw more than that threshold, if you want.

How do I calculate my required minimum distribution?

Just like filing your taxes, it falls on your shoulders to remember to take the RMD once you reach 72. You can do the math yourself (we’ll explain below) to figure out what your required minimum distribution will be, or you can ask for help from a tax professional or financial adviser.

To calculate your RMD, you need to know exactly how much you have saved in your retirement account as of Dec. 31 of the previous year. Next, use the table below (the IRS’s Uniform Lifetime Table) to find your “distribution period” score, which is based on your life expectancy.

To calculate the RMD, divide your retirement account balance by the distribution period that corresponds with your age. Repeat this step for each of your accounts to come up with the total amount you must withdrawal for the year. Remember, your account balances change over time and the IRS can update its distribution period figures, so redoing this math each year is crucial to ensure you take out the correct sum.

Let’s say you turned 72 in December 2020 and had a balance of $1 million in your retirement account as of Dec. 31. You would then find the distribution period that corresponds to your age in the Uniform Lifetime Table.

According to the table, your distribution period number is 27.4. When you divide $1 million by 27.4, you get an RMD of $36,496.35. That is the minimum withdrawal you must make from that account by April 1, 2021.

However, if you’re married and your spouse is 10 years or more younger than you and is the sole beneficiary of the retirement account, you will need to find your “distribution period” score on this alternate table by locating the spot where your age and your spouse’s age intersects.

For instance, if you turned 72 in 2020 and had that same $1 million balance in your retirement account on Dec. 31, but were married to a spouse who’d just celebrated their 59 birthday, your distribution period number wouldn’t be 27.4, but rather 28.1 to accommodate the longer expected lifeline of your spouse.

And this would mean you’d need to take an RMD of $35,587.19 from your account in 2021, or about $909.16 less than you would if you were single or married to a spouse closer to your own age.

What is the required minimum distribution penalty?

If you don’t take your first RMD by April 1 of the year after you turn 72 or your subsequent annual RMDs by Dec. 31 each year, you’ll be slapped with a 50% excise tax on the amount that was not distributed when you file taxes.

That’s a steep fine when you consider that the top tax rate is 37%, which is why it is so important to accurately calculate your RMDs each year, as the tax applies whether you fail to take any money from the account or simply don’t take enough.

For example, if your RMD was $10,000, but you only took out $5,000, you will be assessed that 50% tax on the $5,000 that you did not withdraw.

Remember, if you delay taking your first RMD until April of the year following your 72nd birthday, you’ll be required to take two withdrawals in the same year, one for your 71st year and one for your 72nd year, which could raise your gross income and move you into a higher tax bracket. To avoid this, you can opt to make your first withdrawal by Dec. 31 of the year you turn 71, instead of waiting till the following April.

Alternatively, you could reduce your taxable income by making a qualified charitable distribution paid directly from the IRA to a qualified public charity, not a private foundation or donor-advised fund. The charitable distribution can satisfy all or part of the amount you are required to take from you IRA and won’t count as part of your income.

If you withdrawal the RMD first, then donate it, this trick won’t work as the money will count toward your gross income.

What if I have multiple retirement accounts?

If you have more than one retirement account, things can get a little more complicated. You still need to take an RMD, but you don’t have to take one out of each IRA account. Instead, you can total the RMD amounts for all your IRAs and withdraw the whole amount from a single IRA or a portion from two or more.

However, you can’t do the same with most defined contribution plans, like 401(k)s. With these accounts, you must take an RMD from each plan separately. One exception to this rule, though, is 403(b) tax-sheltered annuity accounts. If you have multiple of these accounts, you can total the RMDs and withdrawal from a single account.

If you own several different kinds of retirement accounts with RMDs, it’s probably a good idea to seek advice from a tax or financial adviser professional who can help you make the wisest decision for your finances.

I inherited a traditional IRA — what should I do?

While it’s great to be left the generous gift of a retirement account by a loved one, inheriting an IRA comes with its own set of tricky RMD rules that can vary greatly depending on your relationship with the original owner and how you chose to use the account.

I inherited a traditional IRA from my spouse

If you’re a spouse and sole beneficiary, you have the most flexibility in how to handle your new IRA. You can choose to treat the IRA as your own by designating yourself the account owner and making contributions or by rolling it over into an existing IRA account that you own. If you choose this option, you can follow the standard RMD rules — meaning you can wait until you turn 70½ to begin taking money from the account.

Alternatively, you can roll the assets into what’s known as an inherited IRA. With this kind of account you can start taking distributions immediately and not face the typical 10% early-withdrawal penalty the IRS applies if you’re under age 59½.

To calculate the RMD you’ll need to take with this kind of IRA, use the IRS’s Single Life Expectancy Table, which has different distribution period figures than the standard table you would use if you were the original account owner. You can opt to use your own age for these calculations or your partner’s age as of their birthday in the year they died, reducing life expectancy by 1 each subsequent year.

But you may not need to take RMDs right away depending on how old your spouse was when they died. If they were older than 70½ then you’ll need to start withdrawing funds by Dec. 31 of the year following their death. But if they were younger, the IRS lets you leave the money in the account until your spouse would have reached 70½.

I inherited a traditional IRA — but I’m not a spouse

Beneficiaries who are not a spouse are required to move the assets into an inherited IRA and begin taking RMDs regardless of the original owner’s age. If the person passed before age 70½ you can opt to withdraw the full balance within the five years following the year of their death. Or you can prolong the payouts by taking RMDs annually based on your age, reducing beginning life expectancy by 1 for each subsequent year, using the Single Life Expectancy Table.

If the original owner was 70½ or older, how you calculate your RMDs depends on whether you or the deceased was younger. The lowest age is what you’ll base your life expectancy figure found in the Single Life Expectancy Table on, though you will need to reduce beginning life expectancy by 1 every subsequent year.

I inherited a Roth IRA — what should I do?

The original owner of a Roth IRA never has to take RMDs but that can change when the account passes to a beneficiary. A surviving spouse who inherits a Roth IRA can opt to treat the account as their own, meaning they won’t ever need to take an RMD, if they contribute to the account or roll into an existing Roth IRA.

Non-spouse beneficiaries, however, do have to take RMDs from an inherited Roth IRA, following the same rules as those who inherit traditional IRAs where the owner passed before reaching age 70½.

That means these beneficiaries can either withdraw the entire balance from the Roth IRA within the five years following the year of the original owner’s death or begin taking RMDs based on your life expectancy, as outlined in the Single Life Expectancy Table, by the end of the year following the owner’s death.

The final word on required minimum distributions

Whether the retirement account was yours to begin with or you’ve inherited it, calculating the correct RMD amount to withdraw from it every year can be tricky, but spending the extra time to make sure you understand the rules and check your math can pay off big time when you’re not losing 50% of your savings to Uncle Sam in the form of a tax penalty.

Advertiser Disclosure: The products that appear on this site may be from companies from which MagnifyMoney receives compensation. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). MagnifyMoney does not include all financial institutions or all products offered available in the marketplace.