Does Moving For A Job Make Sense?

Lord knows that with unemployment at 10%, there are lots of us looking for jobs in places to which we hadn’t dreamed of moving. But even in good times, Americans are constantly changing jobs. Indeed, one-fifth of the work force typically switches jobs in a given year, many to different cities in a different state.

The key question when it comes to moving locations for a new job is what will happen to your living standard? Specifically, how much will your living standard change if you move for the same pay, and how much more (or less) must you make to maintain your living standard? Spending less or working harder represents the price of the move, and these days we need to know precisely the price of everything we buy, including our location.

But user beware! Simple cost-of-living tools, which abound on the Web, give wrong answers to both questions and can lead to very bad location choices.

Take Its cost-of-living tool tells you that moving for equal pay from Kansas City to Seattle will cut your living standard by 22%, but that if you earn 28% more at the new job, you’ll be made whole.

This presumes that what you currently earn is what you spend. Not so. The Internal Revenue Service as well as state tax collectors make sure of that. Moreover, your ability to spend today depends on your regular and retirement account assets and your future after-tax income from Social Security, pensions and work.

CNNMoney’s cost-of-living tool also assumes that your spending pattern is the same as the national average. But if Uncle Vinnie in Seattle offers you his condo for next to nothing, housing in Seattle may be cheaper even though CNN says it’s 72% more expensive.

The “rest of your life” is another reason the simplistic, static measures can be miles off. Suppose you spend like the average household, but want this to be your last move. Then Seattle means paying higher housing, grocery and other prices for the rest of your life, not just during your working life.

There are other complicating factors. If the Seattle job comes with health insurance, a pension and a 401(k) with matching employer contributions, it’s one thing. If it comes with no fringe benefits, it’s another. Second, earning more will likely boost your future Social Security benefits as well as those your spouse may collect on your earnings record.

Third, gross and net costs of housing are different. If you buy, rather than rent, you can deduct the extra mortgage interest and property taxes you’ll face provided you itemize.

And fourth, there’s the taxman. Moving for higher pay means higher federal and, potentially, state taxes for each of your remaining years. So deciding today whether to move requires provisionally filing all your future tax returns. And this year, it means including the special tax credits available both to first-time home buyers and to long-time homeowners. (For advice on the credit, click here .)

Pulling your hair out yet? Don’t. There’s a new, free, Web tool that can make all these complex current and future calculations in two seconds. It not only tells you what will happen to your living standard if you head to Seattle for the same pay. It will also tell you how much more you’ll need to earn in the new job, to maintain your spending power. The tool–ESPlannerBASIC –is a life-cycle personal financial planning program provided as a public service by the company founded by one of the authors of this piece–Laurence Kotlikoff.

ESPlannerBasic and calculate very different location prices. Take Bill and Sally Owens, a 55-year-old, childless couple. Both earn $75,000 working for an India-based company that pays no benefits. They plan to retire at 65 and are assuming a 2% investment return after inflation.

Billy and Sally have $300,000 in regular assets and $250,000 each in traditional pre-tax individual retirement accounts to which they contribute $3,000 each per year. They each expect to collect $2,500 (in today’s dollars) per month from Social Security starting at age 65. They own a $400,000 house with a $200,000, 15-year mortgage that requires a monthly payment of $1,600. Their annual property taxes, homeowners insurance and maintenance costs total $4,000, $1,000 and $2,000, respectively.

Since they telecommute, they can move to Seattle without switching employers. says Bill and Sally need to earn $192,192 to have the same living standard. Since $150,000 is only 78% of $192,192, is also saying that Bill and Sally’s living standard will be 22% lower if they move for the same pay.

ESPlannerBASIC delivers different results. The program lets you enter housing expenses separately and determines how much you can and should spend on a discretionary basis each year to smooth your living standard through time.

In moving the Owens to Seattle, we assumed they buy a house that’s 72% more expensive than their current house and that they borrow the extra $288,000, leaving them with a total mortgage of $488,000 and a monthly payment of $3,904. We assume the property taxes, insurance and maintenance costs are also 72% higher.

According to ESPlannerBASIC, Billy and Sally can spend $78,898 per year on a discretionary basis if they stay in Kansas City. This discretionary spending is over and above their housing costs, tax payments, contributions to IRAs and saving for retirement. If Billy and Sally move to Seattle, their sustainable discretionary spending drops to $72,552 per year or to $64,894 after accounting for the higher cost of groceries, utilities, transportation and health care.

Hence, if we measure living standard based on discretionary spending, the move from Kansas to Seattle reduced Billy’s and Sally’s living standard not by 22%, as suggested, but by 18%. But even this overstates the living standard difference. The reason is that in Seattle, Billy and Sally will be sitting on a house worth $288,000 more dollars. If Billy and Sally take out a reverse mortgage at say, age 75, that lets them borrow $150,000, they’ll end up at age 100 (if they last that long) with roughly the same equity as in Kansas City. In this case, their living standard in Seattle is only 15% lower. That’s two-thirds the drop CNNMoney predicts.

Also, according to ESPlannerBASIC, the salary increase needed to keep Billy and Sally whole is 55%, not 28% ($192,192 divided by $150,000)! The reason is that Billy and Sally are only going to work another 10 years and every extra dollar they earn is being taxed at a 33% rate federal marginal rate, although at a zero state income tax rate since Washington has no state income tax. Clearly, if Billy and Sally are really concerned about maintaining their living standard, they may need to work 55% harder or longer for a decade. That’s a big price to pay for better coffee shops, not to mention rain and fog.

To summarize, compared with’s toy calculator, ESPlannerBASIC says Billy and Sally suffer a smaller living standard reduction, but require a larger increase in salary to remain whole. So, depending on the question being asked, CNNMoney either overstates or understates the true price of Billy and Sally’s living in Seattle. In ignoring tax savings on housing and the fact that part of the higher housing expenditure in Seattle is an investment, not pure consumption, CNNMoney is overstating the living standard decline from an equal-salary move to Seattle. But in ignoring the long number of years that the couple will face higher prices and the relatively short number of working years available to make up this difference, CNNMoney is understating how much more earnings are needed each year of their remaining work life to make them whole.

Laurence J. Kotlikoff is a professor of economics at Boston University, president of Economic Security Planning .