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Here is why one might be up for this idea of work in high per capita wealth areas and retire where cost of living is low
In both local economies, obviously there's pluses and minuses in terms of local basket of goods and services like restaurants, teacher pay, real estate, hence city data
Where you get paid more for same work, prices are higher for same basket of goods/services...so sort of a trade-off
But!
Trade-able international commodities and stock shares abide by the "Law of One Price". And are the same everywhere.... This means some really interesting derivations
in more expensive cost of living place, fewer labor hours are need to be worked to convert compensation into 1,000 purchased shares of Exxon Mobile. If this isn't the case due to state income/property/sales taxes, you would want to let your state representatives invest the public money in diversified stocks.
Also because taxes on stocks are more uniform flat rates and also usually lower than taxes on ordinary income, this represents that even in high tax northeast, potential for investing in higher volume of trade able stocks/commodities may still be more. Also in high tax high income states, if compensation can be in form of stock shares instead of cash.... You can loop around high state income taxes.
When you retire and cash out, you live off say 100% non-trade able assets, and retire from being a wage earner, you now only depend on price....so then no benefit from not going as low on cost of living as possible , absent non-financial incentives (family ties, community ties, natural landscape ties, liking of the weather, etc)
Your wage is a fixed pension not altered by living in Laredo Texas, so now you can earn a Massachusetts teachers' pension wage and relax on the patio of your Texas town home and have a huge discretionary income
as they say the key to dieting is eat less or move more.
the key to retiring is spend less or have more income.
no mystery or discovery here.
The point is you "have more potential" to get your "net worth" up higher in say California or New York than you can in say Texas/South Carolina...given that both locations offer you a local job where your basket of goods you can consume per year are closely similar
Rich location: you earn more but the goods cost more
Poor location: you earn less but everything is way cheaper
Rich location: you earn more but goods are more expensive BUT when you look to buy trade-able stocks, you pay same price as person in poor location. This means "wow, stock prices are cheaper relative to that price of bananas"
Poor location the stock price will be a higher amount relative to local supermarket cost of bananas
So all is the same until you invest in trade-able assets and then the high COL person has an advantage
i agree, folks do much better going from high cost areas to low cost areas then most locals that lived in those low cost areas their whole lives. .
we had a 2nd home in the pocono mountains in PA which we were going to retire to. we live in nyc.
we thought about relocating before retirement but that wouldn't have worked.
while costs were about 20% less for daily life in pa salarys were 1/2 .
however once we retired and sold everything up here we would have been in very good shape there selling at ny prices. the problem is that the high cost areas can be just as tough to save for retirement even with the higher pay.
The point is you "have more potential" to get your "net worth" up higher in say California or New York than you can in say Texas/South Carolina...given that both locations offer you a local job where your basket of goods you can consume per year are closely similar
Rich location: you earn more but the goods cost more
Poor location: you earn less but everything is way cheaper
Rich location: you earn more but goods are more expensive BUT when you look to buy trade-able stocks, you pay same price as person in poor location. This means "wow, stock prices are cheaper relative to that price of bananas"
Poor location the stock price will be a higher amount relative to local supermarket cost of bananas
So all is the same until you invest in trade-able assets and then the high COL person has an advantage
Yes, and more yes to your OP. Many including me have and are doing that. Yes it can be as you vision for the reasons you give
We spent our working careers in relatively higher-wage, higher cost-of-living Silicon Valley, retiring to relatively lower-wage, lower-COL Nevada (which also has no state income tax).
So we employed the OPs strategy and it worked. Well, to say we employed the OPs strategy is not strictly true as we did not begin to think of retirement locations until after we had accumulated wealth and after we became empty nesters. So I guess you could say the OPs final move became obvious to us, and we employed it.
But our timing was critical. We bought low & sold high in terms of Silicon Valley real estate over a 30 year working career, and that made all the difference. So when you seek to employ the strategy, you are making a long-term bet on a local economy, and that long-term bet, as with any 30+ year bet, involves substantial risk.
So, really what is happening is you are being compensated for incurring risk. And as with all risk, sometimes the payout is not there. Sometimes you make that 30+year bet and you roll the dice & you get craps.
No one knows what the future will bring, but beginning your career as a NCG in relatively high-wage Silicon Valley right now carries substantial long term financial risks. Yes, you can start out as a 22 year old engineer making $125K, but you discover the cost of living in terms of housing is exorbitant and you wonder if it is worth it. A shared, 3 bedroom 1 bath apartment can run $1800/month in San Francisco where young techs live. That high cost permeates everything. You've probably seen the protests against the high-tech companies who operate shuttle buses. You see age group peers in 2nd tier cities without the high cost of Bay Area living having a better quality of life. Yeah, they don't get to work at Facebook or Google or Apple or a young fresh start-up, but they get to own a nice 3 bedroom house in the suburbs with a manicured lawn & a white picket fence on one income.
At the end of the day, it is more about how you want to live your life.
Retiring has its own issues. If your children stay local, you will find that you do not wish to relocate to Nevada. Your wife may insist on staying in the high-cost-of-living Bay Area or NYC so "she can be there for the grandchildren" even though none currently are planned. You discover that as an aging person you need access to the quality of medical care that exists in major medical markets with research universities that exist in places like the Bay Area & NYC.
Finally, once you are old enough that your adult children are worried about your being independent, you want to be somewhere were your kids can check in on you & help with the details of life - and that means living where they live.
.... The problem is that the high cost areas can be just as tough to save for retirement even with the higher pay.
^^This is the bottom line^^. If you're an Average Joe/Jane in a high cost area, your higher wages don't make up for the higher cost of living. High cost areas generally only benefit the top 20% earners in those areas (maybe the top 40% at most). The higher salaries that the remaining 60% get are not enough to make up for the higher cost of living. People on the California CD forums point this out over and over again. It's one of the few things everyone on the CA forums seems to agree on.
The only exception would be if someone is willing to do something drastic and live a non-typical American lifestyle (such as live with roommates for many years, live with extended familiy as immigrants often do, have extended family watch kids so they don't have to pay for daycare, etc.). Most people are unwilling or unable to do these things.
Well, the true indicator is disposable income. The higher salaries in some states can be deceptive because that additional income gets absorbed in higher real estate and taxes. The Census Bureau's ACCRA numbers show that people in Alabama have higher disposable income that people in New York, New Jersey, Connecticut, and California.
It is a truism that massive numbers of retirees are leaving places such as New York City, Los Angeles, and Washington, DC in order to relocate in places where their cost of living will be a lot less. In particular their housing dollar may well go twice or three times as far.
This is especially true for people with pensions. I was a high school teacher for 34 years in the Los Angeles area, so while I never made any money, I have the enormous good fortune of having a pension I can now live on. I remember an older colleague who had grown up in Kansas and was returning there upon retirement. With his California teachers' pension, he would be able to live like a king back there, but only live reasonably O.K. by sticking around.
I don't want to live in Kansas (or any other similar place); I love living in the Los Angeles area, so I stayed put. Sure, I could have twice the house for the same money, or the same house for half the money somewhere else, but the house I have is O.K. and I love my life here. But I understand the rush to "get out" even if I am not part of it.
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