How advisors can help clients decide if relocating is worthwhile.

The process of relocating involves a lot more than just packing boxes and calling the moving van. Whether the move results from a job change or retirement, or whether the new locale is across the state, across the country or across the globe, there are a host of cost of living considerations to weigh that can have profound impacts on the purse strings.

Marge Schiller knows that first hand. She's twice moved her financial planning practice because her husband, a city manager, found new towns to oversee. After establishing her business in Connecticut, she went to Minnesota before landing in Florida. "City managers move around the country a lot," says Schiller, who manages the financial planning arm of the Sarasota accounting firm, Goar, Endriss & Walker. "It's part of their jobs. But it's not a highly-paid profession, and the political reasons for taking new jobs don't always translate into a good financial fit for the family."

Being the financial planner that she is, Schiller crunched the numbers on everything from housing costs to water bills before each move to make sure the couple wasn't shortchanging themselves. Many others, though, aren't as careful. "I don't think people always do the math," she says.

Housing costs, taxes, and transportation expenses are some of the major considerations that can make relocations a financial misstep. Smaller details often get overlooked but can add up, such as paying $300 a month for a parking garage in New York City or the need for year-round lawn service in Florida. It's up to advisors to do the math for their clients who are contemplating a move. "Our message to clients is to look at what they have, make sure they can duplicate it, and know the costs of duplicating it," says Lou Stanasolovich, president of Legend Financial Advisors in Pittsburgh. "We try to paint a picture by working up all the numbers on an after-tax basis. If a person is getting a promotion but is moving to a high-cost area, will this actually mean a net reduction in their lifestyle? We take the same approach for retirees with second homes who are pondering where to set up permanent residence."

Stanasolovich uses two low-cost states, Pennsylvania and Florida, to illustrate the finer points of juggling cost-of-living considerations. The former has a state income tax rate of just 2.8%, and pensions, IRAs and Social Security aren't taxed at the state level. The latter has no state income tax, nor does it tax pensions, IRAs or Social Security.

He says housing costs in Pittsburgh are modest compared with places like New York or California, but real estate taxes are high because they go to support excellent schools. Real estate taxes tend to be lower in Florida, Stanasolovich says, because the schools generally aren't as good. The flip side, though, is that moving to an area with so-so schools might require sending the kids to private school, in some cases offsetting the savings in lower real estate taxes and perhaps requiring a significant boost in salary to cover the costs. One other note: Private school tuition isn't tax deductible in most states.

That's not an issue for retirees, where housing costs have the biggest impact on cost of living. In fact, for some folks, it can be the difference between working and retiring. Peter Traphagen, a partner at Traphagen Investment Advisors in Oradell, N.J., recently suggested to one couple that they sell their home in affluent Bergen County in northern New Jersey and move to the state's lower-cost southern region.

As of autumn, their existing home was listed for $700,000, and the couple eyed a new residence to the south in the $250,000 range. With current laws allowing for a $500,000 tax-free gain on the sale of personal residences, Traphagen wants to put the anticipated $450,000 profit into investment-grade corporate bonds earning 6%. This would provide the couple with an additional $27,000 in annual income.

Tack on annual savings from the move amounting to $9,000 in reduced real estate taxes, $3,000 in lower home maintenance costs, and an estimated $1,200 less in utilities, and the couple could have a nice windfall. "They have only $200,000 in savings," says Traphagen. "They had to downsize and move if they wanted to retire comfortably. It was a forced choice."

In many ways, cost-of-living expenses revolve around the value of the home. "When people move, the biggest decision they have to make is how much house can they afford," says Bert Whitehead, founder of Cambridge Advisors in Franklin, Mich. His rule of thumb is that cost-of-living expenses typically are four times a person's monthly house payment. Over the past 10 years, Whitehead has recommended to some of his clients that they move to less expensive regions to make ends meet and live comfortably. Not only does this cut direct costs such as taxes and maintenance, but one's social expectations change and there's less need to keep up with the Joneses.