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Annuity Watch

How to Find the Most Tax-Friendly Places for Retirees

Maybe you are one of the many Baby Boomers who are in the process of dreaming up where to retire. Maybe you want to be near the water, perhaps the weather is what matters most to you. These things are important, but to truly live the good life, you want to strongly consider the tax responsibility your new home will put on you.

Typically, your federal taxes stay the same regardless of where you live. The state and local taxes can fluctuate greatly, however. Your first instinct may be to only look at states that have no state income tax (which currently is only seven states). However, something to keep in mind is how they will fill these gaps when budgets are cut (such as higher sales or property taxes). 

Although the other 41 states (plus District of Columbia) require you to shell out income tax, many of them give retirees monetary incentives that quickly add up. This could result in an overall more attractive bottom line for you that wouldn’t limit you to Alaska, Florida, Texas, Wyoming, Nevada, Washington or South Dakota.

Below are some other things to include in your research:

Plummeting home prices: Lower home prices have hit pretty much everywhere, including your dream retirement location. Don’t rule your favorites out before checking out up to date numbers.

Effect on pension: Some states give different breaks depending on income or age. The article in Kiplinger.com covering this subject reports “New Jersey allows residents 62 and older with incomes of $100,000 or less to exclude up to $20,000 of private-pension income from taxes.” This is just one example.

Social Security: How much of your Social Security benefits will your state require you to claim as income? Look into it. Arizona, California, and Alabama to name a few, won’t tax your benefits at all.

Property Tax: This can be a biggie. Due to property taxes being a huge source of revenue for local government, this is an area that can vary from state to state, county to county. Study whether your state gives breaks connected to age, income, residency, etc. 

Sales Tax: Some states want to tax everything from your morning waffles to aspirin. Some have no sales tax. In order to know what you will realistically be spending, you will need to find out where they stand. 

The overall quality of life should rank right up there with the cost of living when choosing where to retire. But one can greatly affect the other. So even though the future of your tax burden may be somewhat beyond your control, the more planning and assessing you can do before choosing… the higher your chances will be of achieving both.

Choosing where to retire is only part of the retirement planning puzzle. Call us. We're happy to help.