I’m 54 and would like to retire next year. I intend on moving out of expensive New York City to Florida where I will purchase a home outright with cash for $600,000 to $650,000 (financed from the sale of my home last year). Additionally, I have a 457(b) plan with a $1.4 million balance and a Schwab investment account with $515,000 invested in a basket of stocks, as well as approximately $40,000 in cash. I expect a cash settlement in 2025 on a property sale of $130,000. In addition, I have a pension of $75,000 and a small K1 realty partnership that generates $7,000 a year.
Currently, I work part-time for cash earning $35,000-$40,000. I am hoping with a fully paid home in Florida and not renting here anymore at $3,000 a month, plus a lower cost of living, I can afford to not work or work just 15-20 hours a week. I have full medical benefits for life but not optical or dental. According to my calculations, I should be able to afford to stop working by withdrawing approximately $20,000-$30,000 a year but I can adjust this based on market conditions, plus Social Security at 67.
– D.J.
Moving to an area with a lower cost of living and no state income taxes can certainly help make early retirement a reality. If you have the opportunity and aren’t tied to New York due to family or other reasons, you may be able to make your money stretch considerably further by relocating to Florida. Based on the information you’ve shared, you look to be in a solid 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 speaking 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 risk running out of money too soon. If we combine the $1.4 million 457(b), $515,000 investment account, and total cash of $170,000, you’ll have about $2,085,000 you can pull from.
Even the high end of your withdrawal estimate ($30,000) equates to a withdrawal rate of less than a 1.5%. Assuming you’re properly diversified and have a reasonable asset allocation with somewhere between 50-75% stock, this withdrawal rate is very conservative and should leave you little chance of depleting your savings. And that’s before we account for the fact you may be able to reduce it once your Social Security payments start.
How you withdraw money from each account will impact your tax bill. So, be sure to think strategically about that and consult a financial professional when needed. Your 457(b) withdrawals are fully taxable, and you may trigger either long or short-term capital gains taxes when you sell assets to withdraw from your investment account. The good news is that Florida doesn’t charge a state income tax. Also, your 457(b) withdrawals are not subject to an early distribution penalty.
Your Income and Spending
Currently, you’re bringing in $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 between living expenses, leisure and taxes.
First, let’s subtract the $3,000 you spend each month on rent in New York since you won’t be paying that anymore. That brings your annual expenses down to $86,000.
Next, let’s factor in the lower cost of living in Florida. Depending on where you move in the Sunshine State, there could be a considerable difference in the cost of living compared to New York. SmartAsset’s cost of living calculator can help you quickly compare local costs in New York to your new community in Florida. You can click on the tax, housing and food tabs to see how that breaks down between each category.
If we assume that your cost of living will be 20% less than what it is in the Big Apple, you would end up spending approximately $68,800 each year.
Now, add any expenses you don’t have now that you will have if you move to Florida. Two that stick out to me are property taxes and home insurance. You can look those up to get exact numbers for the home you purchase but this Florida property tax calculator can help you with an estimate. For a $650,000 home in Miami Beach, property taxes are about $5,800 per year. Then, let’s assume $2,200 per year for insurance for an even $8,000.
That brings your total to $76,800 in potential annual expenses. This is a very rough estimate, but considering your pension alone is close to that, I think you are in a pretty good spot if the assumptions we made are close to your actual situation. Of course, modify this estimate with any specific details you have. Also, keep in mind that your pension likely isn’t indexed for inflation, which means it will cover a smaller percentage of your total expenses each year. (Consider connecting with a financial advisor who can help you run the numbers and build you a comprehensive financial plan.)
Don’t Forget About Income Tax
I want to point something out just in case any clarification is needed. You mentioned “working for cash.” A lot of times people phrase it this way to imply that it’s better than receiving a check with the belief they don’t have to pay taxes on the income.
Of course, that isn’t true. Income is income whether it’s cash or recorded on a document such as a 1099 or W2. You should still be reporting it as income and paying taxes on it. If you plan to continue working part-time in Florida, you’ll want to account for these taxes in your budget.
Bottom Line
Moving to a lower-cost-of-living area in retirement can help you stretch your retirement savings and even retire early. Comparative cost of living figures can help you estimate the amount needed to maintain a certain lifestyle when moving from one area. An annual pension that pays $75,000 and another $2 million in projected assets should provide a strong foundation to support your retirement in the Sunshine State.
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Brandon Renfro, CFP®, is a SmartAsset financial planning columnist and answers reader questions on personal finance and tax topics. Got a question you’d 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 SmartAdvisor Match platform, and he has been compensated for this article. Questions may be edited for clarity or length.
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