If you’d like to move in retirement, you must consider the impact of taxes, cost of living, lifestyle considerations, and more. Below we break down the various factors you should consider if you’d like to move!
Income Tax by State[i]
In dark green are the seven states that have no personal income tax. They are Wyoming, Washington, Texas, South Dakota, Nevada, Florida, and Alaska. In light green, we have the states that have a low or otherwise favorable income tax rate. These include Tennessee and New Hampshire, both of which limit their tax only to interest and dividend income instead of wages. Pennsylvania is also highlighted in light green as it has a 3.07% flat income tax rate, which is one of the lowest in the country.
Social Security Tax by State[ii]
Thirteen states tax Social Security benefits:
If you’re considering retiring in one of these states, talk to your financial advisor to discuss the state’s rules on taxing Social Security. The states have individual rules such as how much of your benefits can be taxed, how much income can be exempt, etc.
Sales Tax by State[iii]
The map above depicts states with no sales tax in blue, states with low sales tax (under 5%) in green, states with medium sales tax (5-6%) in yellow, and states with high sales tax (over 6%) in red.
You may incur sales tax when purchasing personal property such as shoes, clothes, food, etc. However, states may have various sales tax rules to consider. For example, Rhode Island has a high sales tax of 7% for clothing; however, it only gets applied for items over $250.
Property Tax by State[iv]
The map above depicts property taxes in the US from the lowest (under 0.6% in green) to the highest (over 2% in red). Depending on where you live in retirement, property taxes may account for a significant amount of your budget.
Inheritance and Estate Tax by State
Estate and inheritance tax, or “death taxes,” are taxes imposed on assets at death. The deceased person’s estate pays the estate taxes before the money is distributed to their beneficiaries. Inheritance taxes are paid by the person inheriting the assets.
The map illustrated above depicts states with Estate and/or inheritance tax[v].
States with Estate Tax:
- Connecticut: 10%-12% on estates above $5.1million
- District of Columbia: 12%-16% on estates above $5.8 million
- Hawaii: 10%-20% on estates above $5.8 million
- Illinois: 0.8%-16% on estates above $4 million
- Maine: 2-12% on estates above $5.7 million
- Maryland: 0.8%-16% on estates above $5 million
- Massachusetts: 0.8%-16% on estates above $1 million
- Minnesota: 13%-16% on estates above $3 million
- New York: 3.06%-16% on estates above $5.9 million
- Oregon: 10%-16% on estates above $1 million
- Rhode Island: 0.8%-16% on estates above $1.6 million
- Vermont: 16% on estates above $2.8 million
- Washington: 10%-20% on estates above $2.2 million
States with Inheritance Tax[vi]:
- Iowa: 5%-15%
- Kentucky: 4%-16%
- Maryland: 10%
- Nebraska: 1%-18%
- New Jersey: 11%-16%
- Pennsylvania: 4.5%-15%
Maryland is the only state that can impose both an estate and an inheritance tax. However, most heirs are exempt from paying the 10% flat inheritance tax. The descendant’s spouse, parents, grandparents, children, grandchildren, siblings, sons-in-law, or daughters-in-law are all exempt.
Note that inheritance tax will not apply to certain immediate family members of the deceased in most states.
Cost of Living by State[vii]
The Cost of Living Index compares the expenses an average person may incur. It includes groceries, housing, utilities, and transportation. The base is 100, so states that are over 100 are that much more expensive than the average cost of living in the country. States under 100 are that much less expensive to live in than the rest of the country. For example, Hawaii has the nation’s highest cost of living at 192.9. That means it’s estimated to be 92.9% more expensive to live there than the national average.
Health Care by State[viii]
When considering health care, there is more factors than cost involved. Wallet Hub did a great study where they ranked states based on cost, access, and outcomes. The map above illustrates their rankings. The green states are the top 10, and the red states are the bottom 10.
Remember moving isn’t just about taxes and costs. There are other considerations when moving in retirement such as:
- Do you want to be close to your family? How easy would it be for you to see them?
- What climate would you like to live in? Do you want a tropical paradise or something close to the mountains?
- Where does your health permit you to live? Can you handle a hilly city like San Francisco?
- Do you want to be around people your age? Are there retirement communities?
- What is the crime level of the city you’d like to move to?
Establishing a State of Residency
Remember, it’s essential to make your move legal. Buying a property in a tax-friendly state and visiting a few times a year is not enough to benefit from that state’s tax rates. This is particularly important if you plan to keep your home where you currently live and visit between two or more states throughout the year.
To ensure that you reap the benefits of living in a new state, consider these things:
- Where your primary residence is
- Voter registration
- Homes: own or rent; size and value
- How much time do you spend in your state?
- Business: active involvement or ownership
- Other: auto registration, bank accounts, safe-deposit boxes
Are you ready for retirement?
There are many factors to consider when moving in retirement. At Prosperity, we work with clients to help them understand how moving to various locations will impact their unique financial situation. Are you ready for retirement? Take our retirement readiness quiz to find out!
This information is for educational purposes only. It is not intended to provide, and should not be relied on for, any tax or legal advice. You should consult your tax or legal adviser prior to making any decision based on any specific information contained herein.
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