Finding a Tax-friendly State for Retirement Doesn't Have to Be Taxing
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. All of which can 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 (instead of it going to taxes) to have fun with.
Which States Are Considered Tax-friendly?
According to an article posted by CNBC earlier this year, these are the top 10 most tax-friendly states, based on a combination of the money factors mentioned above are:
- New Hampshire
- South Dakota
However, looking at the numbers alone is never a good way to make your decision.
How to Decide Whether or Not to Relocate
When exploring whether or not 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.
- Is Tax-friendly for a Working Retirement: If you're planning on working full-time or part-time, then you'll want to move into a low or zero personal income/wage tax state.
- Accommodates Easy Family Travel: Make sure you move either close to the ones you love or where there's easy access via airports/road trips to strengthen relationships.
- Accommodates Healthcare Needs: For both current healthcare needs and for future ones that may pop up, you want to make sure there are specialists in the area when you need them.
- Provides 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
Are you so excited by this idea that you wish you could retire tomorrow? Or perhaps you're feeling unsure and need more guidance on how to explore this option.
Here are the next steps to help you find the best option:
- Step #1: Test-drive Your Budget: If you haven't already, then load your current budget into the KeyBank Financial Wellness Tool and test out your retirement budget and tax scenarios.
- Step #2: Discuss Your Intentions with a Financial Planner: 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 an amazing retirement full of travel and adventure.