Taxes and Relocation in Retirement

Many retirees look to relocate in retirement, or to pursue a snowbird lifestyle where they spend the warmer months in the midwest or north near their family, then go to their southern home for the colder months of the year. While relocating somewhere new and exciting in retirement is an appealing option for many, there are several key questions to consider before taking the leap. 

One primary consideration is how your potential new home’s tax laws compare to where you currently live. 

Tax Considerations

There are several different tax items to research before making a move, including:

1. How income tax compares. 
2. Whether or not your new home taxes Social Security benefits.
3. Whether or not your new home includes pension payments as taxable income for state and local taxes.
4. If there are new state and local taxes (SALT) to consider. 
5. If sales taxes are higher than where you currently live.
6. Whether property taxes are higher than where you currently live.

Understanding Income Taxes And Beyond

Taking taxes into consideration before moving, like whether you’ll face a high income tax rate, or whether your new home will tax your Social Security and pension benefits as part of your income, makes sense. As a retiree, you have limited cash flow. You likely aren’t continuing to work, and so your nest egg is finite. 

Even if you are investing using a bucket strategy to extend the life of your savings, you need to be mindful of how your money is spent. This includes taxes! Understanding how increased income taxes could potentially impact your retirement cash flow is critical before choosing a place to relocate. 

Every state organizes their tax structure differently when it comes to things like income tax, whether Social Security or pension benefits are taxed as part of their residents’ income, property taxes, and more. 

For example, some states have no income tax at all - including Alaska and Nevada. Others have no sales tax - such as Delaware or Montana. It’s important to step back and look at the big picture when researching tax favorability of different relocation options. 

Choosing a Favorable Tax Location

There are some publications, like Kiplinger and US News, who do some of the legwork for you. You can easily scan through to find states that are ranked as the most tax-friendly for a multitude of reasons, from low state income tax rates, to favorable property tax rates. However, it’s also wise to research tax conditions that will specifically impact you. For example, if you know you may receive a large inheritance during your retirement that will contribute to your cash flow, some states (like Hawaii or Connecticut) have estate taxes that may cut into your windfall. 

If you have questions about how taxes can impact relocation decisions in retirement, we’d love to speak with you. Get in touch with us today by clicking here.

Wood Smith Advisors, a woman-owned Registered Investment Advisor (RIA), is a fee-only financial services firm that partners with its clients to simplify their financial lives. We focus on women, entrepreneurs, and individuals with complex financial situations, providing objective and competent advice, education and services to help them develop and build their businesses and reach their financial goals. We can be reached by clicking here.

"Finance Made Simple" blog posts are intended for educational purposes and not for specific advice. Each person’s situation is different. Consult your financial advisor for advice relating to topics discussed.