A study found that in 2021, the number of people retiring in a new state rose from 13.4% in 2015 to 18.3% in 2021. Sometimes this is done to settle in an area with a lower cost of living. Optima Tax Relief lists important items to consider before deciding where to retire.
The cost of living is usually a top priority when deciding where to retire. The cost of living will help determine how much a retiree will pay for rent or a mortgage, transportation, and health care. Medicare is not accepted in all areas so health care should be looked at closely. There are also some costs that will be specific to a certain state. For example, if someone decides to retire in Florida where hurricanes are known to destroy homes, premium home insurance will be a necessity.
Another cost to consider is income taxes. Not all retired individuals stop working. Sometimes retirees may want to move to a state that does not collect state income tax. These states include Alaska, Florida, Nevada, South Dakota, Tennessee, Texas, Washington, and Wyoming. While this sounds like a good idea, it usually also means that the state has much higher property and sales taxes. While an individual can get away with avoiding property taxes by renting a home instead of buying, the same is not true for sales taxes. Higher sales taxes mean goods and services will cost more.
Estate taxes are also important to consider. An estate tax, also known as the “death tax,” is a tax levied on an estate of a deceased person. In 2023, the federal estate tax exemption is $12.92 million, meaning any assets over this amount will be taxed at a rate between 18% and 40%. Some states have lower estate-tax exemptions than the federal government. This could mean that a retiree’s heirs are left with a state estate tax upon inheritance. Currently, 12 states and the District of Columbia have state estate taxes, all with lower asset thresholds than the federal limit. These states include Connecticut, Hawaii, Illinois, Maine, Maryland, Massachusetts, Minnesota, New York, Oregon, Rhode Island, Vermont, and Washington.
Deciding where to retire can be tough. A retiree may find one tax benefit in one aspect that is offset by higher taxes for another aspect of life.
