How to Decide Where to Retire

Andrew Weber is a senior director of Planning Philosophy, Research and Guidance at Northwestern Mutual.

Whether you stay in your hometown or move to a bucket-list destination, where you choose to retire can have a huge impact on how much money you’ll need to thrive. Your location could affect everything from your cost of living to what you pay for health care.

Though there’s lots of information about the best places to retire, you’ll ultimately want to pick somewhere that matches your retirement vision and your budget. Here are some questions to ask yourself when deciding where to retire.

1. What do I want to do during retirement?

Envision your ideal retirement, and then consider the locations that best support that vision. If what you want to do requires good weather, you may need to move somewhere warm. Or maybe you want to retire near your kids. Where you want to spend retirement (and how much it’ll cost) will depend on what you want out of it.

When researching the best cities to retire in, think about the cost of living for each place. These are some common expenses that can vary more than you might think from location to location:

• Housing
• Property taxes
• Groceries
• Entertainment
• Gas
• Transportation
• Health care
• And more

The Economic Policy Institute has a handy calculator for estimating the cost of living in different cities.

2. What is the tax impact where I want to retire?

Depending on where you live, you could owe a surprising amount to your state. Here are some important things to keep in mind:

Some states tax Social Security benefits (others don’t): Depending on your income and where you live, you may have to pay taxes on a portion of your Social Security benefit. In 2024, states taxing Social Security benefits includes Colorado, Connecticut, Kansas, Minnesota, Missouri, Montana, New Mexico, Rhode Island, Utah and Vermont.

• 401(k) and pension distributions may be subject to state tax: Distributions are taxed at the federal level, but some states may also tax a portion of your retirement savings. Check to see if these distributions are taxed in the state you’re interested in.
• Not all states collect income taxes: Your income will go further in certain states. But do your research—while these states may not tax your income, you may find yourself paying more in sales or property tax.

3. Am I interested in moving abroad?

If you’re dreaming about retiring abroad, you’ll have some unique details to consider, like these:

• The cost of living
• The crime rate and overall safety
• Access to quality health care (and how much you’ll pay for it)
• Distance from family and friends
• Whether you’ll need to learn a new language
• How the move will affect your taxes (if the country has a tax treaty with the U.S., you may be taxed at a reduced rate or qualify for certain tax exemptions)
• How retirement account distributions will be taxed in that country
• What you’ll do with your home, car and belongings if you move away

U.S. News & World Report has a list of best places to retire in the world based on affordability, favorable tax treatment, friendliness, health care and other important factors. Their top five locations are Spain, New Zealand, Australia, Portugal and Switzerland.

How do I prepare for retirement?

You’ll want to estimate how much you’ll need to retire comfortably. This isn’t a one-size-fits-all number, but Americans believe they’ll need $1.46 million, according to Northwestern Mutual’s 2024 Planning and Progress Study. Your actual savings target will depend on where you live, when you retire and how you want to spend your time in retirement. Here are some action items to put on your list as you save.

Take advantage of tax-friendly retirement accounts

Financial tools like 401(k)s and IRAs allow you to save for retirement—and they have some nice tax perks. You can score a tax deduction on money you put into a 401(k) or traditional IRA, and Roth IRAs allow for tax-free withdrawals in retirement (you pay taxes on money before you contribute it to Roth accounts). Your employer may even match some of your contributions to these accounts.

Your financial advisor can help you determine which accounts have a place in your plan as you save and help guide you on drawing from them in a tax-friendly way during retirement. Working with an advisor or a tax professional can help alleviate a significant tax burden on your retirement savings.

Project your monthly retirement income

When you’re no longer working, you’ll transition from saving money to drawing on your savings for income. A good monthly retirement income for you will depend on your lifestyle, expenses and location.

The 4 percent rule is one way to determine how much you can spend each year. You’ll plan to withdraw 4 percent of the total value of your nest egg during the first year of retirement. The next year, you’ll withdraw the same amount, plus a little extra to account for inflation (and so on). Using this math, your portfolio should last at least 30 years—but the rule isn’t perfect, so your income target should be built around your unique financial situation.

Vary your sources of retirement income

A tax-advantaged retirement savings account is only one way to plan for retirement. In fact, you’re better off using a mix of income sources. You’ll be able to capitalize on the advantages of different sources and protect yourself in case one source doesn’t do well. Different options can include the following:

• Tax-advantaged retirement savings accounts like 401(k) and IRAs
• Investments and brokerage accounts
• Health savings accounts (HSAs)
• Cash savings
• Social Security
• A pension
• Annuities
• Cash value in a life insurance policy*

Work with an advisor

Planning the retirement you want can involve many complex decisions. Working with an advisor can simplify this process and help you make sure you plan for the life you want.

Your Northwestern Mutual financial advisor will ask better questions to get to know you and your retirement goals—from what you want to do to where you want to live. And together, you’ll build a plan to get there.

*The primary purpose of permanent life insurance is to provide a death benefit. Using permanent life insurance accumulated value will reduce the death benefit and may affect other aspects of the policy.

This article is not intended as legal or tax advice. Northwestern Mutual and its financial representatives do not give legal or tax advice. Taxpayers should seek advice regarding their particular circumstances from an independent legal, accounting or tax adviser.

Please remember that all investments carry some level of risk, including the potential loss of principal invested.

Certified Financial Planner Board of Standards Center for Financial Planning, Inc. owns and licenses the certification marks CFP^®, CERTIFIED FINANCIAL PLANNER^®, and CFP^® (with plaque design) in the United States to Certified Financial Planner Board of Standards, Inc., which authorizes individuals who successfully complete the organization’s initial and ongoing certification requirements to use the certification marks.