Friday, June 20, 2008

Relocating To Reduce Retirement Costs

The Nightly Business Report is doing a series on retirement and recently did a show on the benefits of relocating. In the show, one retiree described how moving to Florida saved several thousand in heating costs and $1200 for having no state income tax. Although we don't plan to relocate at this time, I have begun thinking about possible options that could help reduce retirement costs:
  • No income tax. Seven states, Alaska, Florida, Nevada, South Dakota, Texas, Washington and Wyoming, have no income tax. Two others, New Hampshire and Tennessee, only tax interest and dividend income. Another option is to look for states with low income taxes. Here is a list of 2008 state income tax rates.

  • No tax on social security. According to the AARP, 26 of 41 states with broad based personal income taxes do not tax social security. The 15 states that do tax social security are Colorado, Connecticut, Iowa, Kansas, Minnesota, Missouri, Montana, Nebraska, New Mexico, North Dakota, Rhode Island, Utah, Vermont, West Virginia and Wisconsin.

  • No sales tax. Alaska, Delaware, Montana, New Hampshire, and Oregon have no sales tax. Colorado is a low sales tax state at 2.9%. Here is a list of 2008 sales tax rates by state.

  • No tax on retirement accounts. According to Tax-Free in the Rust Belt, by Ashlea Ebeling, three states, Pennsylvania, Illinois and Mississippi, with broad income taxes do not tax any retirement withdrawals. Another seven states, Alabama, Hawaii, Kansas, Louisiana, Massachusetts, Michigan and New York, exempt all federal, state and local government pensions.

  • Low property taxes. Property Taxes: Where does your state rank? by shows the rank order for the 50 states. New Jersey, New Hampshire and Connecticut are top ranked for the highest taxes. Louisiana, Alabama, and West Virginia are the have the lowest taxes.

  • Lower Cost of living. This calculator estimates the change in expenses when comparing two metropolitan areas. Sometimes there is an additional windfall from selling a home in a higher cost of living area and buying an equivalent or downsized home in a lower cost of living area. Some folks have even moved abroad to Costa Rica or Mexico to lower costs.

  • Unfortunately, no one location is the lowest cost in all categories. Thus, it is important to look at each state with respect to one's own situation. In addition, a downside of relocating is being away from family and friends, causing some retirees to move back to their original hometown.

    In our case, our location only has two of the above benefits, a lower cost of living and no tax on social security. However, at this time, we have no plans to move our retirement costs. We still prefer to be close to family and friends, which makes it worth the higher expenses that we have.

    For more on Reaping the Rewards Reflections, check back every Friday for a new segment.

    This is not financial or retirement advice. Please consult a professional advisor.

    Copyright © 2008 Achievement Catalyst, LLC

    No comments: