Fleeing Illinois For Tennessee In Retirement

Forbes.com-Looking to leave suburban Chicago in retirement, John and Janet Reed took scouting trips to Hilton Head, Savannah and Phoenix. Johnís sales rep job was winding down, and Janet had retired from full-time teaching to consult for their local school district.

Back home in Naperville, Ill., they clicked on an online offer to visit Tellico Village in East Tennessee on a two-day Discovery Package. Now itís home. How they got there is a roadmap for pre-retirees looking to cross state lines.

Do the math. The Reeds sat down with their financial advisor at Vanguard and ran a plan showing projections of how likely it was that their assets would carry them through a comfortable retirement. They got a disappointing answer: 60%. But by making the move to Tennessee, the chances of their money lasting jumped to 80%. The main reason: a lower cost of living. That knowledge helped move them forward in their decision to move out of state, and in particular to Tennessee.

Follow your passions. John, 68, and Janet, 67, wanted an active retirement with golf, hiking, and boating on their list of things to do. Tellico Village has three golf courses; itís in the foothills of the Great Smoky Mountains; and Tellico Lake is 16,000 acres (itís possible to boat from Tellico Lake and the Tennessee River, down to Florida, up the Atlantic Coast and the St. Lawrence to the Great Lakes and back to Tennessee). ďThe geography of the area was a real draw as well as the four seasons,Ē Janet says. ďItís absolutely gorgeous.Ē

Budget for home improvements and toys. The Reeds sold their Naperville house of 37 years over a weekend last year for $415,000. They had settled on Tellico Village before putting their house up for sale, but the quick sale left them scurrying to decide between a house or a condo for their retirement years; they bought a townhouse condo on the 18th fairway for $340,000, budgeting $50,000 for upgrades (beware: the renovations came out at $80,000). ďEvery time I added something new to our kitchen renovation John reminded me it was another foot coming off our boat,Ē Janet says. So they settled on a $31,000 used 27-foot Four Winns Funship to power around Tellico Lake.

Keep the kids in mind. The Reeds bought big enough for their family to visit. Their son and daughter (and one grandson so far) both live in Louisville, still almost a four-hour drive from their new home, but two hours closer than before. ďWeíre hoping weíll provide a bit of a playground for our kids,Ē Janet says.

Review taxes. The property taxes on the Reedís house in Naperville were $8,000 a year, compared to $1,800 a year for the new condo. Tennessee is a no-income-tax state, so Janetís teacherís pension isnít taxable nor are Johnís Social Security payments. When they start taking minimum required distributions from their Individual Retirement Accounts, those payouts will also be state-tax-free. But Tennessee does have a quirky 6% tax (the Hall tax) on certain dividends and interest and even capital gains distributions from mutual funds (but not capital gains from individual stock). Lesson: check in with a financial advisor about your stateís quirks, and adjust your investment approach accordingly.

Another plus for retirees choosing Tennessee is that the state is phasing out its estate tax. The amount an individual can leave to heirs without paying the state estate tax is $2 million this year, going up to $5 million in 2015, and the tax will be repealed effective Jan. 1, 2016.

Meet the neighbors. If youíre buying into a planned community, check out the property owners associationís books and talk to current residents. Tellico Village was developed by Cooper Communities in the mid-1980s on land bought from the Tennessee Valley Authority, and later management was handed over to a Property Owners Association. In the fall of 2012, in an effort to boost sales of existing homes and still empty lots after a slowdown during the recession, the Association board launched the Discovery Package tour that sold the Reeds on the community. On that weekend, Joe Borgardus, a retired advertising executive who moved there in 2007 and is helping to sell the Village life these days, drove them around, and they also spent two hours boating on the lake with another couple.  ďWe were just with people who lived here and not forced into a situation with a realtor,Ē John says. They didnít meet with a real estate agent until a return trip.

Check out the neighborhood. Itís not just your immediate neighbors that matter, but whatís in striking distance. Access to medical centers and a nearby university, where Janet hopes to take courses, mattered to the Reeds. Foodies, they were worried about leaving food mecca Chicago but have discovered new favorite restaurants in Knoxville, and itís a shorter, less congested drive than the old Naperville to Chicago trek.