June 14, 2011 — So you’ve been thinking about your impending retirement. We’ll bet you are wondering where in the heck you should retire to, even if you are pretty sure you will end up in the group of 70% of retirees that never move more than a few miles from home in retirement. This article will give even you some powerful reasons to consider moving a lot farther away, in fact all the way to another state. Most, but not all, of the reasons have to do with money. Part 2 of this series, “Becoming a Florida Resident”, will provide the nuts and bolts of how to… become a legal resident of one of our most tax-friendly states for retirees – Florida. See also our article, “Worst States for Retirement – Updated“.
1. Do you hate winter? If you are one of the many folks from the midwest or northeast who don’t want to be “cold and old”, it won’t much require much persuading to get you to move to another state. Moving farther south, at least for the winter, will let you escape that dreadful cold and those punishing snow and ice storms. You’ll get to enjoy perpetual springs, summers, and falls. But here’s an important thing some folks forget: if you are a snowbird make sure you go far enough south to really escape winter. Even northern and central Florida can be chilly, as can Phoenix. If you retire full-time to one area, however, you might be more willing to endure a few chilly days or even the rare snow or ice storm you might get in Georgia, South Carolina, or the Pacific Coast.
2. Are you paying too much in state income taxes? The obvious solution to this problem is to change your legal residence to a lower tax state. Nevada, Florida, Tennessee, and Texas are 4 southern states that have no income tax. AK, SD, WA, and WY have no income taxes if you are willing to move to a colder climate. See our article, “The Most Tax Friendly States for Retirement” for more details.
3. Do you have a government or military pension? These days government and military pensions tend to be the best pensions out there. So if the bulk of your retirement income is going to come from one of those pension plans, you might want to make sure you don’t lose too much of it to taxes. Obviously if you move to a no income tax state, it’s not an issue. But many states with an income tax have an exemption for government and military pensions, or at least a portion of it, from taxation. It is too complex to provide all details here, but some of the tax friendly states for public sector pensions are Alabama, Hawaii, Illinois, Kansas, Louisiana, Massachusetts, Michigan, Mississippi, New York, and Pennsylvania. 15 states exempt all or a portion of military pensions from taxation.
4. Are you getting killed by property taxes? It’s no secret that states in the Northeast and Midwest have the highest property taxes. For example in the New York City suburbs a home does not have to be all that nice to come with a $10,000 property tax bill. States in the southeast tend to be much more favorable, sometimes averaging a $1,000 or even less. Making matters worse in many states like Connecticut are the lack of significant property tax protections for people over 65. In these states your property taxes can soar for 2 reasons: 1) the assessed value of your home goes up dramatically (hasn’t been happening lately, but it has in the past!), and 2) school and municipal tax increases exceed the rate of inflation.
Many states like Florida, however, have implemented circuit breaker and other protections that prevent property taxes from uncontrollable increases. Some states have protections for everyone in the state, while others provide the benefits only for lower income, disabled, or retired folks. See the Topretirements State Retirement Guides or consult the State Department of Revenue websites for more information on this topic.
5. You thought you would never be able to retire – not so fast! At Topretirements we hear this a lot. It is sad how frequently people tell us they are giving up; they just don’t think they will ever be able to retire. To that we say, you do have alternatives.
As Sandy said in last week’s story, “What Sandy Learned After 8 Years of Visiting Active Adult Communities“, if you haven’t visited the communities outside your state you have no idea how affordable some areas can be. There are hundreds of communities in Arizona and Florida where you can buy a nice resale home for less than $50,000. Buying a home in good condition for less than $10,000 is definitely possible. Rents can be had for $500-600, which puts them in reach even for folks on social security (in April 2011 the average retirement social security payment was $1,762 for a couple). Assuming you own a home already in the northeast, chances are you can sell it for more than $100,000, buy a new one in AZ or FL for $50,000, and have $50,000 left over to spend throughout your retirement. You have to live somewhere, so you might as well live somewhere where the living is cheaper and easier. (NOTE: In the years since we wrote this article real estate prices have recovered from the crash of 2008, and they are a lot higher than we mentioned here. But there still are bargains to be had).
Now – Find out How to Become a Legal Resident of Another State, and Why That’s a Good Deal
See related article, “How and Why to Become a Florida Resident“, featuring an interview with Florida attorney Barton Smith.
Comments, Anyone? Please share your ideas and thoughts about moving to a different state in the Comments section below. Your discussions help us all – keep ’em coming!