Retirement can be one of the most exciting times in your life. Without work tethering you to a certain location, you have the freedom and flexibility to live out your golden years wherever you like.
But before you ditch your hometown for an unfamiliar place, be sure you have done adequate research into your new area to ensure that your move makes financial sense and will also provide you with a fulfilling life.
How can you tell if relocating makes sense for you? Let’s find out.
Assess the tax situation
Taxes are an important factor in determining if and when relocating is a good choice for you. Because taxes play such a significant role in your financial strategy, understanding the tax implications of a new residence will help you see how far your retirement income will go.
When most people think of taxes, they think of income tax. State income tax can be a big determinate in how much you will owe each year. This makes states like Florida, Wyoming, and Texas (along with a few others) appealing as they don’t have any state income tax.
For residents of South Carolina, they can experience an income tax up to a maximum of 7% depending on their income. While that may seem a bit high, it doesn’t even compare to California which has the highest state income tax of 13.3%. While income tax is an important factor, it isn’t the only one in determining your tax burden in a state.
You should also be aware of your state’s sales tax. Sales tax will become especially important as you look at the general cost of living in your area. States with high sales tax make daily living expenses like groceries, gas, entertainment, and services more costly.
You have worked hard to save and secure your retirement income which is why you need to know if the state you want to relocate in has Social Security tax. Social Security is likely a significant portion of your retirement income, so it will be good to know what percentage of your benefits are subject to taxes in your state. Currently, there are only 13 states that impose this tax like Colorado, New Mexico, Montana, Vermont, among others.
Another common type of tax to look out for is estate or inheritance taxes. The federal estate tax applies when assets exceed 11.58 million dollars for 2020, but some states also have their own rules for taxing estates. In 2019, 13 states levied estate taxes each with their own exclusion amount. South Carolina does not have estate or inheritance taxes.
Estate taxes often impact families with substantial assets but inheritance taxes can affect an estate of any size. The amount your heirs will pay in inheritance taxes depends on a few factors,
- Relationship to you
- Tax bracket
- Exemption limits
Currently, there are only 6 states that employ inheritance taxes: Iowa, Kentucky, Maryland, Nebraska, New Jersey, and Pennsylvania.
At this point you might be asking yourself, are there really more taxes to consider? The answer is yes! The last type of tax we are going to talk about today is property tax. State’s with high property taxes can put a major dent in your cash flow and income plan for retirement. If you are moving from a state with low property taxes to one with high property taxes, you could be in for a big surprise come tax time if you don’t do the proper research.
The bottom line for taxes
Taxes will play an important role in your income strategy in retirement. Understanding the tax situation in the state you are looking at will be helpful in deciding if a move makes sense from a tax perspective.
Keep in mind that when it comes to tax requirements, balance is everything. One state may have a higher income tax rate but a reasonable sales and property tax with little to no tax on retirement benefits. It is all about striking the right balance and understanding your tax obligations before moving.
Understand changes in the cost of living
Even though it may seem like taxes are the only cost you will need to consider in the relocation decision, factoring in your cost of living is an equally vital task. If you are looking to move to a beach town you may experience higher rent or housing costs, especially if you want to be right on the beach.
It is also wise to consider the other daily costs that you will come across like groceries, utilities, entertainment, and transportation. All of these costs will impact your retirement budget. While you may be familiar with the costs in your current area, you may not be as familiar with costs in your new area, making it important for you to know how far your dollar goes.
As you look at the cost of living, take some time to think about how much additional money you will spend flying or traveling to visit loved ones who are either still in your home town or scattered across the country. Are you comfortable spending more on travel to see them? Will you be alright limiting your travel expenses to a couple of times per year? Understanding what your new normal will look like can help determine if a move is right for you.
Check-out the healthcare system
Healthcare is one of the most important aspects of a potential retiree’s new home. As you age, you will want to make sure that you have quick access to reliable medical care. Do some research on your area to see what the quality of hospitals and physicians are like around you, keeping in mind that you will also need to check out specialists like dentists, optometrists, physical therapists, and more.
Quality healthcare needs to be at the top of your list, but it is also good to be aware of the costs of healthcare in your new area. Private insurance plans and Medicare plans will fluctuate depending on your state, so planning for that will help you feel safe and secure.
Know your ‘why’
Before moving to a new state in your golden years, be sure that you are able to define your reasons for wanting to relocate. Perhaps it is the weather, access to new amenities, a change of pace, or even a lifelong dream. No matter what your reason, be sure that you define it and explore it.
Moving to a new place in retirement is a big deal and will require significant lifestyle changes. Before choosing a place, visit it often and at different times throughout the year. If you are from Michigan, for example, and are thinking about moving to South Carolina. Come visit in the winter months you are desperate to escape, but also in the summer months to see how you handle a southern summer.
Here at Goepper Burkhardt, our team is passionate about helping you build a retirement lifestyle that you love. For some retirees that might include relocating. We want to help you build a retirement plan that supports your goals and dreams. Ready to get started? Book a call with us today.