Do you have a retirement dream? Are the clear blue waters and warm sunshine of Florida calling you? Perhaps you’d like to move somewhere cold and enjoy views of snow capped mountains every morning as you sip your coffee. There are many considerations when deciding where you will move for retirement.
Inheritance & Estate Tax
For retirees, inheritance & estate tax may be a big consideration because it can impact how much you are able to pass on to your loved ones. Below is a map of the states that have an inheritance tax (in orange), estate tax (in purple), or both (in red).
The main difference between estate taxes and inheritance taxes is who pays the tax. Estate taxes are paid by the deceased person’s estate before the money is distributed to their heirs. Inheritance taxes are paid by the person inheriting the money or assets.
If you wish to retire in a state that has an estate or inheritance tax, don’t worry! Many states impose the estate tax only on larger estates. For example, for the 2018 tax year, Maryland’s estate tax is imposed on estates exceeding $4 million ($8 million per couple). Maryland also collects an inheritance tax, but property passing to a spouse, child, spouse of a child parent, grandparent, sibling or other lineal descendant is exempt from taxation. Property passing to other individuals is subject to a 10% tax. 
Sources of income in your retirement may be subject to income tax. This may include IRA & 401(k) withdrawals, annuity distributions, gains upon the sale of your home, investment income and capital gains. Below is a map depicting states with no income taxes (in green), states with the highest income taxes (in red), and everyone in between (in gray). 
For retirees, living in a high-income tax state can impact your bottom line. For example, in beautiful California, income taxes can reach 13.3%. However, you would only see these rates on more than $1,074,996 for married joint filers and $1 million for those filing individually.
Social Security Taxes
Your social security income may be subject to social security tax if you live in one of the states that’s highlighted in blue below.
Each of these states has their own rule regarding social security tax. For example, in Colorado, up to $20,000 of benefits may be excluded for beneficiaries younger than 65. For those older than 65, up to $24,000 of social security benefits may be excluded.
Retirees may be particularly attracted to states with no or little sales tax. The map below depicts states with no sales tax in pink, low sales tax in blue, and high sales tax in purple. 
You may be subject to sales tax when you purchase any tangible personal property; this may include shoes, food, clothes, etc.
Cost of Living
Cost of living is ranked on an index where a score of “100” is the average. Below is a map that depicts the 10 states with the lowest cost of living (shades of green) and the 10 states with the highest cost of living (shades of red).
Choosing a state like Hawaii for your retirement may grant you perfect weather and tropical beauty, but you may be subject to an 88.4% premium on living costs. However, choosing a state like Mississippi, you can save as much as 15.8% living there.
Cost of Healthcare
Healthcare is vital for seniors and retirees. The map below depicts the 10 most expensive (in red) and least expensive (in green) states for healthcare.
These rankings are based on the general population, not just retirees. The cost of healthcare is based on the cost of a medical visit, a dental visit, average monthly insurance premiums, share of high out-of-pocket medical spending, and share of adults who don’t visit the doctor due to cost.
It may surprise you to see a retirement haven, Florida, depicted as a red state. However, 2.6 million people in Florida do not have health insurance! Florida also has a high 65 and older population, and older people are subject to higher health insurance premiums.
Taxes and costs aren’t everything. There are also important lifestyle considerations. Ask yourself these questions before committing to move to a new state.
- What climate would you like to live in? Can you handle the heat and humidity of Florida all year round?
- Where does your health permit you to live? Will you be able to take walks in steep San Francisco?
- Where is your family located?
- Do you desire to be amongst other retirees? Are there retirement communities available?
- What is the crime level of where you’d like to relocate?
- And perhaps most importantly, what will you do with your newfound free time?
Establishing a State of Residency
Once you’ve established where you’d like to retire, it’s important to make it legal. Buying a home in a tax friendly state and visiting a couple times a year is not enough to reap the tax benefits of that state. To establish a new state of residency, you must have the intent to treat the new state as your permanent home. You will have to strategically establish ties with your new domicile while severing ties with your old one.
The criteria for determining a domicile is:
- Where you live
- Voter registration
- Homes: own or rent; size and value
- Time spent: where and how
- Items “near and dear”: sentimental value, family heirlooms, collectibles, items that enhance quality of lifestyle
- Business: active involvement or ownership
- Family connections: where they live, where minor children attend school, social, community, and religious ties
- Other: auto registration, bank accounts, safe deposit boxes
You don’t have to do this alone!
With the help of financial professionals, deciding where to retire will be simpler. A financial advisor can show you exactly how various costs and taxes will impact your retirement plan. Send us a note today to start preparing for your retirement.
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