What Is the Most Tax-Friendly State for Retirees?
You've likely researched many ways to maximize your retirement years — like designing your plan to include long-term care, protecting your capital with a well-timed income plan, and maximizing your Social Security payments.
Now it's time to consider additional strategies to increase your retirement savings' lifespan, enjoy an active retirement community, or bask in warmer weather — while staying close to family and loved ones. This can all be done by moving to a tax-friendly state.
Advantages of Moving to a Tax-Friendly State
Besides a new adventure, moving to a tax-favorable state adds real economic benefits by:
- Lowering Your Tax Bill: Depending on which tax-friendly state you retire to, you'll see partial or full exemptions on your income sources from state taxes (Social Security/pension/tax-deferred retirement account withdrawals), age-caps on property taxes, and even lower estate taxes from the state.
- Giving You the Opportunity to Protect Existing Capital: Perhaps you've paid off your home and you're searching for ways to grow and protect your earnings. Moving to a tax-friendly state can help you find ways to increase your investment income streams and have more cash left over to have fun with.
How to Decide Whether to Relocate
When exploring whether to relocate for retirement, look for states/places that:
- Will Positively Impact Your Annual Tax Bill: You're looking for retiree tax advantages, such as age-capped property taxes and no state income tax on pension/tax-deferred account withdrawals.
- Are Tax-Friendly for a Working Retirement: If you're planning to work full-time or part-time, then you'll want to move into a low or zero personal income/wage tax state.
- Accommodate Easy Family Travel: Make sure you move either close to loved ones or where there's easy access to travel to them.
- Accommodate Healthcare Needs: For both current and future healthcare needs that may pop up, make sure there are specialists in the area when you need them.
- Provide Access to Lifestyle Activities: Retirement grants you a lot of leisure time, so be sure to relocate where you can follow the sports teams you love, take the classes you've always wanted, and live in a climate that will allow you to be active.
Next Steps in Your Life
Feeling excited or unsure and need more guidance on your retirement path?
Here are the next steps to help you find the best option:
- Step #1: Test-Drive Your Budget: If you haven't already, review your current budget and test out different retirement and tax scenarios.
- Step #2: Discuss Your Intentions with a Financial Advisor: If the numbers make sense and you're considering relocating, then it's time to speak with a financial advisor to help you plan the transition.
- Step #3: Build Out Your Relocation Timeline: With a financial advisor's help, you'll be able to build out your retirement relocation timeline to include milestones such as test-driving your new retirement destination on vacation, scouting out new living arrangements, and optimizing your current home for sale or rent.
Remember that the key to retiring well is to plan ahead to make the most of your retirement savings, which includes minimizing your tax bill. You want to consider all of your options to accomplish that goal, and relocating could be just the thing that leads to a fulfilling retirement full of travel and adventure.