Congratulations! You've officially retired or at least made the decision to begin the process. However, before you can kick back and start relaxing, you have to determine your retirement location, and finding one that is tax-friendly will help your retirement dollars go further, making your new lifestyle that much more enjoyable. As a working consumer, you spent over an estimated 100 days per year working in order to pay federal, state, and local taxes, according to the Tax Foundation. No retiree wants this type of tax burden holding them back, so do some pre-retirement homework to find your tax haven.
First determine your projected financial status during retirement (i.e. about how much income will you be bringing in on a monthly basis), the type of daily life you have planned, and any goals you look forward to accomplishing during retirement. Now, begin to research the retiree tax havens by state in order to understand the details of these state's tax laws and also find out what they offer socially, culturally, and recreationally.
While federal taxes are virtually unavoidable, that is if you want to continue living in the USA, state and local taxes vary across the board. Rates of income tax, property tax, sales tax and estate tax differ by state and should be examined closely by prospective retiring residents.
According to U.S. News & World Report, the following US cities offer a combination of low taxes, affordable living costs, and appealing cultural/recreational options for retirees.
If these top 10 locales don't appeal to you, keep in mind, there are a number of other tax havens in the U.S. Look into how a state you may be considering handles social security as well as pension and retirement account income.
According to Forbes magazine, Illinois, Mississippi, and Pennsylvania exempt 100% of private and public retirement income, including IRA distributions. Michigan also exempts a certain amount of private retirement income per married couple along with Social Security benefits from its income tax. Colorado and Georgia are also on the list of those states that exempt large amounts of income for retirees.
Since Social Security will comprise a large portion of your retirement income, it is important to know which states exempt these benefits from income tax. The states that do include Alabama, Arizona, Arkansas, California, Delaware, Georgia, Hawaii, Idaho, Illinois, Indiana, Kentucky, Louisiana, Maine, Maryland, Massachusetts, Michigan, Mississippi, New Jersey, New York, North Carolina, Ohio, Oklahoma, Oregon, Pennsylvania, South Carolina, Virginia, and Wisconsin.
Look at whether property tax is reduced or deferred in specific states. Southern states tend to have lower property taxes, whereas older industrial states in the mid-west and northeast are on the higher side, with Alabama boasting the lowest and New Jersey ringing in with the highest.
Sales tax is a more minor factor but still something to consider, especially if you plan to purchase any big ticket items during retirement. The states with no state or local sales tax include Delaware, Montana, New Hampshire and Oregon. Those with the lowest include Alaska followed respectively by Hawaii, Maine, Virginia, Wyoming, and South Dakota.
Estate taxes are another minor consideration since they only affect 23 states at this time but are still important to research since they can carry some significant effects where they apply. Check out this state-by-state breakdown on estate tax and exemption.
As you're searching for your retirement abode, remember that no state's tax laws/perks are perfect. Every government requires operational money to function and must obtain it from some source. Often, if one tax is low, the state will make up for it in other ways. This highlights the importance of doing your homework and finding the state that is right for you based on your retirement profile.
After doing some research, you may find you are better off staying in your current location. It all depends on your means, and your plans and wishes during retirement.
This state tax directory compiled by Bankrate.com can provide details on your state's tax laws or the laws in a state you may be considering for retirement. Also, talk to friends and relatives who are of retirement age and may have some helpful tips. Once you've narrowed down your location list to one or two possibilities, speak with your financial advisor to be sure you haven't missed any details. If you don't have a financial advisor, contact your credit union and they will set you up with an investment professional that will help you build a foolproof retirement plan and find the perfect place to spend your golden years. Good luck in your search and happy retirement!By Cyndi Cohen