Think Taxes Are Best Reason to Choose a Place to Retire? Might Want to Rethink That

Great article. We've had must-avoid-taxes drummed into our heads all our lives, both before and after retirement. This brings some rationality to the question.

Great informative article. There's so much to consider when pondering relocation. Thanks for that input

Good article and many truths included. You did forget to mention Illinois in the property tax section. We have one of the highest property taxes in the country and the exodus from Illinois is well documented.

We retired and sold our home in NJ seven years ago. During that time we traveled the country in a motor home. When it was time to settle we chose Sussex County Delaware for the following reasons; low real estate taxes, close to family in MD and NJ, close to the beach, philadelphia, Baltimore and Washington DC where we could enjoy a life style similar to Northern NJ. even though the cost of living is 110% of the national average, this is still less than NJ.

State and local tax are serious financial drains when living on a fixed income. If you are fortunate enough to have unlimited income this would not be an issue! Just real Estate tax alone can cost a retiree over 300 dollars a month, add high insurance premiums for coastal properties and that is another 400 to 500 a month. City and regional tax can be over 100 dollars a month. So anyone who is planning to retire and has a fixed income had better seriously consider the financial impact of the state they are planning to retire to.
The failure of many retirees is the lack of serious financial planning based on the reduced income. I hate to see elderly folks working at McDonalds or Walmart just to make ends meet.

I've been wanting to move back home to California, but all of the hoopla about high taxes have made me wary. I want to move to Lassen County which is close to the Nevada border. I love the idea of hiring of professional to figure the whole mess out.

Some states such as Florida may seem less expensive, however if you purchase a home, HOA, CDD, and insurance for the home and automobile are significantly higher.

What a great article! I agree that many of us retired folk put too much emphasis on low taxes. I am currently living in NE Tennessee, a NO-Tax state. I can attest to the fact that money must be raised for state and local needs. Not only is the sales tax 9 3/4 % here, but income is generated through traffic. Many intersections are photo-enforced, with traffic lights that are computerized to change from green to yellow very quickly. If the light goes to red while traveling through an intersection, a $50 ticket arrives in the mail along with a video revealing the infraction. I now slam on the brakes upon seeing the light turn yellow. I am just hoping this paranoia doesn't lead me to being rear ended! And, yes, both my husband and i have received these $50 red-light tickets!

Ron: I have no idea where you live that you can pay $300/mo for property taxes, but it's probably not Minnesota. Ours are pushing $1000/mo and we know lots of people whose taxes are in the thousands per month.
Having said that, we have investments that are sadly not in our Roth IRAs so are fully taxable if/when we choose to sell them. It hampers our ability to be liquid in the market and make good investment decisions when you are worried about the state income tax should you choose to sell a stock. If/when we move out of state (preferably to a low or zero state income tax state) and then liquidate our portfolio we will save enough in state income taxes to pay for a darn nice house!
I personally would love to move to San Diego, but the tax situation in CA is worse than here in MN. I guess we're fortunate to have this to worry about, but we've saved all our lives and lived frugally so we can enjoy our retirement and leave a nice inheritance for our 3 grown children.

I endorse the authors' point of looking at a broader perspective than just taxes when deciding where to live in retirement. However, in the article's point #1, "life is short-enjoy yourself" is the following statement: "When Topretirements.com asked its members what best thing was about their retirement, none of the top 3 answers – “having less stress”, “getting to do what I want”, “having more time” – had anything to do with money." I would contend that all 3, and particularly the first 2, can have very much to do with money. If you are on a fixed income, and your finances are stretched thin, that can certainly be stressful and reduce your ability to do what you want. This is exacerbated by living in a high tax state, and since higher taxes seem to also correlate with higher costs of living in many areas, this translates into less available income, leading to more stress and less options for what you do.

Ok....To everyone who wants to move to California....we live in Oceanside and only pay 880$ per year for property taxes and on top of that you can defer them if you earn less than $40000 yearly. We plan on moving but the property rates will stay the same as long as we stay in this state. And if you live in a resident owned manufactured home your HOAs are only $200 per month. Ive lived in all 4 corners in the US and you cant find better weather anywhere else or anywhere that will help people if you become low income later on in life. I've done several years of retirement research and living down south is just not my cup of tea. Done that and there's no perfect place. You need to find out what you can't live without and take it from there. Theres nothing wrong if you have to try out an area for a few years and move on to somewhere else either. Makes retirement more interesting by being able to investigate new areas you've never lived near before......

I'd rather pay higher local property taxes for better local services, better libraries, faster first responder response times, cleaner roadsides, etc. and low or no state income taxes.

Don't forget to contact your local Tax Assessor's office to see if your income is low enough to get a senior tax break on your property tax. We were eligible for the first time this year and saved $960 for the year. Not earth shattering but helpful. However, you have to keep your income low to qualify and next year we plan to increase our income withdrawals due to the fact we are no longer on Obamacare which required lower income too to qualify for the subsidy.

These days, it could be wise to take the political pulse of the area you're considering. One way to do this is to read the letters to the editor of the local paper, ask potential neighbors, and/or research political leanings of a potential area online.
For example:
https://smartasset.com/mortgage/the-best-places-to-be-a-liberal-and-the-best-places-to-be-a-conservative
Politics could be a factor in choosing a place to relocate.
People often (even unconsciously) choose places that reflect their politics:
https://www.washingtonpost.com/news/the-fix/wp/2014/06/13/people-move-to-places-that-fit-their-politics-and-its-helping-republicans/?utm_term=.f76ee80c0eb9

Jan Cullinane, author, The Single Woman's Guide to Retirement (AARP)

Excellent article! Working with a financial/tax advisor who knows about both your current situation and how the tax situation where ever you're thinking of moving to is so important. It's hard to imagine what life say 10 years in your future will be like but you can be certain that you'll need more support and more services than you do now! Aging equals change. So I think item #5 is really important.

Also consider where your children/grandchildren live. It's much easier to live near them even and to see them in a high tax state if that is where they are than to move somewhere they will seldom visit if it requires airplane tickets and vacation time that is scarce for them.

I also acknowledge Ella's situation in TN with the local government living off of "got cha" traffic tickets. On my way to my 50th high school reunion in south central VA I was caught in a speed trap and am currently faced with a 30 day license suspension here at home in CT despite having just one other speeding ticket in my entire life - this is after I paid the $244 speeding ticket!

Children and grandchildren have a tendency to move. If I had moved to be near my grandchildren, I would be out of luck as they have since moved. Where I live is the only thing I can control.

This is a great article. Having a financial background I applaud the more holistic approach to looking at the expense aspect of retirement. My suggestion is to look at all the pieces to see where you come out. As mentioned here and by others there is more than just the financial aspect but when looking at that in total you might be surprised what you find. As one example, you might have very high property taxes but be able to buy property for so much less that it could be a good trade off. I retired from a very high expense state in the Northeast (Connecticut) to a high expense warm weather state (Hawaii). Overall I am at worst even and frankly would rather be here. Housing costs, all taxes, living expenses such as groceries, utilities, merchandise etc. all have an impact. Living as a retired person, especially age 65 and over, in states that give tax breaks on large taxes like real estate and income can make significant differences. I realize there are many attractive places much less costly than Connecticut or Hawaii but my point is just to look at the entire picture before deciding something won’t work. You may be surprised!

There was a wonderful comment made on our Topretirements Facebook page by Mike D that deserves to be repeated here, along with our response. Anybody else have anything to add:

Below paragraph 6, the 4th bullet statement includes, “But you don’t necessarily have to move to reduce your property taxes.” I wish that were so. Texas property taxes are ridiculous. I want the state to change its name to Taxes. My property tax is going up 9.3% this fall because of unfunded mandates the state government has levied on the local governments. They went up last year, and they’ll go up again next year. The only way for me to get out from under this increasing burden is to move to a lower property tax state. Or are some tricks that you did not reveal in the statement I quoted above?
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Comment from Topretirements.com: Unfortunately your options are few, if you stay where you are. The two we can think of are to downsize to a smaller and less valuable house, or move to an area within the state where the prop tax/value of the house is favorable. Generally in affluent communities, there are so many valuable houses that the tax % is lower.

In response to Mike D's comment about the increase in property taxes in Texas - it may be that Texas property taxes are ridiculous, but Texas also has no income tax. And by moving to a lower property tax state, you may end up moving to a state with an income tax. States need to raise money to provide services and infrastructure to their residents. They do this through a combination of some or all of property, sales, and income taxes. States that have reduced taxes overall end up having to cut services. Rather than just looking at the property tax burden before moving to a lower property tax state, there are websites that will calculate your overall tax burden. You may find that you're not so bad off after all.

Regarding Texas property taxes, there are a couple of things that you can do. Depending on which county and city you live in, you may be eligible for tax reductions or freezes if you are age 65 or over or disabled. My county, Tarrant, gives a tax break for such individuals. My city also freezes the school district tax.

Another thing that you can do is file a property tax assessment protest each year. I previously filed protests on our home and our beach condo with companies that do that for you. One company charged a sliding fee based on the value of your home and the other charged a percentage of the reduction they were able to attain. This year, I filed an online protest directly with the county. There was no waiting or going to meet the assessor. They offered a $10,000 reduction in my assessed value which I could accept or reject immediately. I guess they thought it was better to avoid the protest paperwork and meetings and just give a reduction to make it go away.

We probably will move to a different county because neighboring counties do not have taxes for things like our community college district, public hospital, and road and bridge tax in addition they have lower school district taxes. We will also be downsizing when we move. As Joann said, the money has to come from somewhere to provide services. If there is no income tax, you are probably going to have high property taxes and high sales taxes to make up for it. The state and local sales tax in my city is 8.25%.

Up until last year, you could get a deduction on all your property taxes and sales taxes on your federal tax return. As I understand it, that property tax and mortgage intrest deduction is now limited to $10,000. My property tax is over $21,000 on a $1 M dollar home so we are going to have to do something. On the positive side, there is no personal property tax in Texas and the auto registration tax is reasonable.

I'm no accountant, but it seems to me it would be good to analyze your tax situation as part of your overall retirement budget planning. States are obligated to provide certain services to their residents. As Joanne said, they raise money to do that by a combination of income, sales and property taxes. States that opt out of one of those have to make up that loss by increasing the others, or by cutting the services they provide. Lots of those services aren't so obvious. We discover them only when we need them and find they're not there. As we age, we need more services. That makes me leery of focusing on my tax burden because I've found I may end up paying more in other ways.
As for moving to a place with "lower" taxes, I just finished reading "Our Towns, a 100,000 mile journey into the heart of America," by James and Deborah Fallowes. They flew all over for 4 years visiting small and medium sized cities to find out what made these places special. Almost always it was a small core of residents who worked hard to upgrade and revitalize their vision of what their community could be, but in many places the citizens were willing to tax themselves to pay for what they wanted. My point is that a city/county/state that is happy with it's status quo and doesn't want to pay more for improvement, may end up being a very high cost in the end compared to a place that looks forward and seeks improvement even if it costs something. A well educated populace with opportunities for well paying employment is a good place to live, in my opinion, even if it means paying taxes for supporting good schools, communities colleges, a good airport, facilities to attract new businesses and such, even if my benefit from those is indirect - living in a nice place.

Laney, the new $10,000 tax deduction applies to your property tax and some other state taxes. For most people, the limitation does not apply to mortgage interest.

Why do you assume that in retirement, your income is less. In my case my gross income is up some (primarily from having to take required minimum distributions from 401K), but my taxable income almost doubled from when I was working, since I no longer contribute to 401K, pension, etc. So taxes are even more important to a retiree in my circumstances. Nevertheless, just having no income tax does not make a state the best for a retiree. I have lived in Tennessee and Washington state since retiring. Neither have a state income tax, but both have other ways of getting funds for financing government services. High sales taxes on food, clothing, etc. And fees where you might pay for something through your taxes. And, to some extent, you get what you pay for. The roads in Spokane, WA are terrible and the traffic in Nashville, TN is unbelievable. Both, as a result of not enough funding. As the article points out, taxes are only one of the things to consider. In my case, I moved to a high tax state, and even though it hurts like the dickens to pay the taxes, I like living where there are good government services and I am willing to suffer the consequences.

John said..."Some states such as Florida may seem less expensive, however if you purchase a home, HOA, CDD, and insurance for the home and automobile are significantly higher.""

That is not true, especially in my case. After owning property in Pennsylvania and the New jersey beachfront, it is much cheaper to live in Florida. My new Florida beachfront home has significantly lower fees for flood insurance, HOA fees are about the same, CDD fees are miniscule, car insurance is a little cheaper. Homeowners insurance is about the same, apples to apples. And no income tax !

Second the experience with Florida. I came from Minnesota. High income tax. Minnesota even taxes your Social Security. Horrendous property tax, mine was increasing at 32%/year! If you homestead your property in Florida, there is a limit on how much it can increase each year. I have found car insurance and homeowner insurance to be a tad higher. HOA fees similar. And no income tax.

I second what Linda said about Minnesota, left in April. Don't forget the snow and bitter cold in the winter. Having moved to Arizona our tax burden is about 1/2 of what we paid in Minnesota. The fees for automobile licensing based on its value was a wash, as Arizona has the same type fees.
When we were looking at a community in Ponte Verde, Florida the CDD was $2k a year for 20 years, add that to property tax and it was almost what I was paying in Minnesota, so we continued to look. It is so important to have an up to date monthly budget so a good comparison can be made.

Wisconsin property taxes are horrible too as well as the roads just a mess of holes and patches on top of patches. Can not wait to get out to warm climate and no snow! Would be nice to get some senior tax breaks also!

What a great article. I recently retired and increasingly learn the answer to almost every question is, “I depends.” Why? There are few absolutes to anything except for the of criticality of having intrigue, morals and good values and putting these traits to practice in one’s life. This is just as important reboughout retirement as before.

Bruce, I also am from Minnesota looking to retire in Texas next year. What does CDD stand for?

For people looking for ways to reduce their property taxes, I found this article really interesting.
https://www.aarp.org/livable-communities/livable-in-action/info-2018/wwl-property-tax-rebate-plan-medford-massachusetts.html
The town of Medord, Mass., has a program which lets folks over 60 work for the city in exchange for reductions in their property taxes. They mostly work as greeters at City Hall but have done other work as well. In my opinion, a program like this offers solutions to many problems: tax reduction, a way for seniors to feel useful and engaged, more workers for the city. Many cities and towns could adopt such a program.

Kim...... Community Development District........ monies can be used for parks, streets/roads, swimming pools all depends on the community. Make sure u ask how much and what the funds are allocated to.

Thanks Bruce. I had never heard that term before.

There's an interesting article in the August, 2918 Money Magazine: "A simple move will save this couple thousands; relocating to a lower-tax and lower-cost state can make a lot of sense for retirees." (p. 32) There's a really interesting chart that shows how long $1 Million in savings will last in every state.

Lucky for some of us who have a lower income that taxes are not an issue....only have to worry about medical bills and making it on $1250 per month. Ah well....

Bruce sais..""Having moved to Arizona our tax burden is about 1/2 of what we paid in Minnesota. The fees for automobile licensing based on its value was a wash, as Arizona has the same type fees.""

Florida has no type of "car tax". as does Arizona, Minnesota, Georgia, Virginia. I just bought a $250K Ferrari (used car) and there is no car tax in Florida.

This has been an interesting discussion. I recently retired to a suburb of Cleveland, which was NOT the most economical tax location (although housing prices are good). Clearly I'm also biting the bullet on weather. I moved primarily to be nearer to family, although the city checked off a lot of my other boxes like excellent medical care, a good airport, daily newspaper, libraries, adult education programs, favorite stores, and more. I have found that I don't begrudge a single tax dollar. I see every one of those dollars benefiting my community -- from a community center with indoor/outdoor walking trails, a gym that rivals any private gym membership, free weekly concerts under the stars, festivals, food truck days, senior health days and other programs, and more .... to a library with reading garden, art shows, incredible resources, daily free classes on countless subjects.... My community newspaper has so many activities I could be busy every day. Today I weighed a historial bus tour of a local town, classes on accessing library books on my Kindle or learning to bake French macaroons, among other options. When I shop, I see families, singles and many, many older people even though I'm not in a traditional 55+ community. My point is that taxes are just one factor in choosing a retirement destination. If the taxes benefit the community, you might find that higher taxes for community resources actually equal or are less than the HOA fee for resources in a 55+community.

Very well said Kate! One has to consider what your tax dollar is giving you & it certainly sounds like you are getting your monies worth. I see people on this site listing their HOA fees & numerous people don't begin to use the services that it gives them. It would be nice if HOA fees came in a two type - one for people that use all the services & one for people that need the maintenance part of the HOA (and maybe there are those types, I'm no HOA fee expert). I live in Vermont & it is very highly taxed (one of the highest), retirees get very little breaks. I love the beauty & quiet of my state though the winters can last too long, but the high taxes & not getting a lot for those makes one wonder is it worth it? Our young people are leaving the State they can't afford it. Our State is highly populated with out of staters with money, they probably out weigh the true Vermonter!

I'm with you, Kate, and have tried to make the point that 'worst states in which to retire' is a terrible description. Sure, I'd love lower taxes, but I think I get a great 'bang for my buck'. And as for the weather? I happen to like four seasons and a 'reasonable' amount of snow is no more onerous than a 'reasonable' amount of hot, sticky weather. It will do me no good to live in a low tax state if I have to travel miles for good medical care and even more miles for the activities I enjoy. Family isn't an issue for me (nor is it for lot of people) but being in a 'blue' area is. Compared to a lot of my friends who seem able to travel at will, I don't have a lot of extra money, but there are world class airports close by and low enough fares if I plan carefully. I looked elsewhere, and kept measuring the distance to 'back home' and just decided that home is where my heart is. It doesn't matter what state I live in. I'm happy that I made the best decision for me and hope other's can reach the conclusion that is best for them.

Sheila, where do you live? I totally agree with you, no taxes can equal no services which is fine...until you need them.

One issue not mentioned. The low tax states could become high tax states as people move there from high tax states.
Many continue to vote for the same politicians who were responsible for the policies which created the high tax environment. So...beware...….Tennesee, the Carolinas and Florida could turn into New Jersey as Virginia is beginning to do.

Sal, another way of looking at taxes: people who move to low tax states from high tax states bring their expectations for services they are used to having their state provide with them. They ask for the same from their new low tax state and vote for candidates who promise them and, lo and behold, taxes have to go up to pay for what people want.

Hi, Jennifer ~ I'm in Connecticut and I'm fortunate in that I can be easily entertained ... a good book, a ride in my kayak, a great lunch instead of (a more expensive) great dinner. NYC is a train ride away, and the coast of Maine (my preference, anyway) only a car ride. Also important is superb veterinary care which, to me, is just as important as good human health care. Are there times when I wish I had more discretionary income? You betcha. Would I love lower property taxes? Definitely yes. But am I willing to pull up stakes and move elsewhere for no compelling reason? No.

Hi Sheila:

There are many of the same compelling reasons you mentioned for me to possibly stay in NW Washington, DC. Lots of stimulation, my Church affiliation in a historic church which cannot be replaced elsewhere, and NYC is only a three hour Amtrak ride away--LOL I already qualify as a senior citizen thus can get discounts to ride the train. I will be 64 next month. I work three days per week. My only fear is the co-op fees which rise every year---they may one day boot me out of my home of 22 years now...at a time when I will need to be settled. While I am still working, I am fine financially. In late June I went back to work in medicine (I had been an administrative nurse in surgery) for an oral surgeon, but if I cannot work, it could be a hard time for me as I do not have a pension. I have saved via a 401K and have equity in my home. I have plenty of clothing and buy mix and match classics so I do not need anything but maybe one piece per season, if that. I am a good cook and have set a food budget, within that budget I attempt to allow for eating out for lunch o rafternoon tea maybe once a month. There are many months I do not eat out at all. Since I have somewhat figured out what I need to do if I stay here, and I do not know where to go for retirement, I will stay put. Washington, DC has lots of free activities and stimulation.

There were a slew of Comments made here about Social Security and when to take it. We moved them to https://www.topretirements.com/blog/financial/your-results-how-did-you-do-on-our-social-security-iq-test.html/
where they are a better fit.

Thank you for an excellent article. I lived for five years in a 'low' tax state in the South but returned to New England. I have lived most of my life in the states that are regarded as unfriendly for retirees, but YOU NEED TO DO YOUR HOMEWORK. If you are not a wealthy senior, staying in the Northern states can make a lot of sense. We receive far more in benefits from the state in which we choose to live than we pay in state taxes. The social services and quality of life are superior, the crime rates are lower and we are surrounded by beauty. Yes, we have winter, but it is not so bad once you are retired. You don't have to go out unless you want to. We can always leave for part of every winter if we really get crazy, which has not happened yet ... . Also, if you are not used to living where it is HOT six or more months of the year, you should probably try it for a while before moving. Just moving for 'lower taxes' does not make sense, in my opinion.