For someone just retired, a thought might be to move closer to children or grandchildren now that the job no longer is a factor. This can be a compelling idea, particularly as one thinks about spending more time with others. Another thought would be that living close to relatives provides a source of care when that is needed.
Before pulling the trigger and making that move, it is wise to review living costs both where you live currently as well as the desired new location. The fact is, that some states are more financially friendly to retirees than other states.
One Example
In the Northern Delaware/Southeastern Pennsylvania area, it is beneficial to live in Delaware during the working career and retire to Pennsylvania. One reason is that Delaware does not tax funds going into a retirement fund at the state level, but does tax it on the way out. Pennsylvania does not levy a tax at the state level for funds pulled from a retirement account such as a 401(k) but does tax the money going into the account. (The federal government does, however, tax 401(k) funds as they are withdrawn.)
Different Types Of Taxes Can Make A Difference
If moving to another state is a possibility, look into all of the different types of taxes that may be levied. The above example highlights the income taxes at the state level. But also look into county and local taxes as well to see what they will be. That includes city taxes if considering living in a city.
Does the state of interest offer any tax breaks for older adults such as a homestead exemption? In the city of Philadelphia there are homestead exemptions that keep property taxes artificially low as long as one lives in that property. Older adults who have lived in one home for a long time would see taxes jump if they moved out of Philadelphia.
Review the sales tax for the state of interest. Sales taxes can vary from zero (Alaska, Delaware, Montana, New Hampshire and Oregon) all the way to nearly 10% (Tennessee, Arkansas, and others). Considering how much people spend each year on personal needs and to maintain a home, 9.5% can result in a big jump in extra spending on taxes.
In addition to sales taxes, many states have real property taxes. That isn’t like the opposite of imaginary property taxes, but are taxes on things one owns such as a house, car, boat or RV.
Finally, don’t forget to consider that a state might even take some of what is left when you are gone, such as estate and inheritance taxes.
If you are considering a new home in a different state, Kiplinger’s website provides a useful tool that can help with the comparisons.
After retirement, when considering a move, it is great to start over in a new location to spend the rest of one’s life. Just remember to go into it with the knowledge of what it will cost to live there so that there aren’t any surprises when you get there.
Want more of this?
This is one of three articles we sent to our subscribers this month. If you subscribe to our newsletter you’ll get additional content not found in our blog. Plus, the newsletter will be delivered to your inbox automatically. Subscribe Now