One of the biggest expenses that retired people face is taxes and, with that ‘top of mind’ in their thoughts many people, come retirement, contemplate moving to another state to save on them. Indeed there has always been talk about these so-called ‘tax-friendly’ states but the reality is that moving to another state just for the tax benefits may not be the best idea.
You see, every state is pretty much a business entity and, as a business entity, it needs to make money to survive. If the state you live in doesn’t force you to pay income tax you can pretty much bet that they’re charging you more for another service or hitting you with another fee.
For example, many states that have high personal income taxes have property taxes that are quite reasonable, and many states that have very high property taxes may have excellent personal income tax rates. Few, unfortunately, have both low property and low income taxes and, depending on what you earn, how much property you own and how big your house is, one may be better than the other.
When it comes to retirement and moving, it’s best to look at all your sources of income and all the different rates at which they are taxed in different states. You may need to take a little bit of time and even consult an expert on this because, frankly, it’s important. Once you’ve done a little research you should be able to see which state has the overall advantage in terms of how they charge for sales tax, property taxes, income taxes and so forth.
For example a person who is going to rely on earned income when they retire rather than Social Security will most likely be better off in a state with low or no income tax. Of course if you’re in the opposite situation a state with high income tax won’t be as much of a financial burden.
Then again there are a number of other things to look at. If you move far away and all of your family lives distant the cost of going to visit and see them could run into the thousands of dollars. On the other hand if you stay somewhere close that has higher taxes you’ll save all of that travel money and be able to see your family much more often.
All of which means that, when you’re getting close to retirement age, you should start doing your research in earnest to find the state, and the tax situation, that’s the right one for your needs.