The kids are gone, the house is paid for and you never have to work another day again. How do you decide where to spend the next phase of your life though?
Finding the best place to call home after you’ve lived and worked all your life to get to this point can be daunting. There are so many states across the nation you should consider, but only if you know what to look for. In years past you may’ve been tied to a particular location because of employment or family obligations. Now that you’re retired however, you may no longer be limited to a particular area of the country.
While many retirees will still choose to live close to family members, there is a great deal to consider when making the choice to relocate. For most of us retirement means living on a fixed income and because we will no longer be getting raises and promotions, we need to find a way to live comfortably within our means.
USA Today recently reported a list of the 10 worst states for 2014 retirees. Based on property taxes, income tax and cost of living, U.S. states were rated on affordability.
- Retirement Income—While taxed Social Security income may not amount to very much, other pension accounts could be seriously impacted. In 2014 a retired couple will receive on average, a little over $2000 per month from Social Security benefits. While taxes on this amount may not break the bank, some states apply rates more heavily than others on pensions and retirement accounts.
- Military or government pensions may be taxed differently than 401k’s, IRA’s or other traditional company pensions as well. Mandatory distributions of retirement payments and the state’s requirements for taxation of these differ greatly in the U.S.
- Real Estate Tax—Some states tax property more heavily than others based on home values. While retirees no longer have children in the public school system or use many of the programs designed to help families, they may still pay high amounts proportionate to their income.
- Inheritance Tax And Estate Tax—States may tax heavily on estates. Rhode Island and New Jersey begin to tax estates approaching $1 million in value. This can hamper future plans for retirees who wish to hold onto assets and pass them onto heirs later.
Cost Of Living—Many people will not be able to maintain their current lifestyle once they retire. The difference in the cost of food, gas and utilities differs tremendously between states.
Retirees may consider other factors when deciding where to live.
- Location Of Family Members—Living near loved ones is a top priority for many people. Now that they are no longer tied to employment, some opt to move closer to family.
- Climate—After shoveling snow and living in colder climates many flock to warmer states.
- Medical Care—This is a big factor when considering where to retire. Proximity to good medical facilities and physicians is key for people at this time in their lives.
- Crime Rates—Safety and security are important for everyone and retirees will take this into consideration when choosing where to live.
- Transportation—Accessibility to train and bus lines may be a factor for some who don’t intend to drive as much as they once did.
- Recreational Opportunities—Once retired many people look to get involved with others in the community who enjoy the same things.
- Natural Disasters—Winter storms, earthquakes, tornadoes and hurricanes may have many retirees looking to relocate to calmer areas.
- Affordable Available Housing—Cost of living is a deciding factor on relocation after retirement. Lower rents and home prices drive some to Midwestern and Southern states.
Cons: The state of New Jersey has the highest real estate taxes in the country. Pensions are taxed and estate taxes are some of the highest in the nation. Marginal tax rates on incomes over $500,000 are 8.97%. The cost of living is high as well.
Pros: Social Security benefits are not taxed in New Jersey and gasoline is taxed at the lowest rate in the nation. Some of the nations best beaches are located in New Jersey and the state offers many recreational opportunities.
Cons: Property taxes in Illinois are very high and gasoline is heavily taxed as well. Illinois also has an estate tax that may impact some people.
Pros: Retiree pensions and Social Security income are exempt from income tax. Illinois’ cost of living is average for the country.
Cons: The state of Wisconsin is fourth in the nation for highest property taxes. Income from retirement is taxable as well. The marginal income tax rate is 7.75% for those making over $225,000.
Pros: Estates and Social Security benefits are not taxable.
Cons: Property taxes in Nebraska are the sixth highest in the country and Social Security and retiree pensions are also taxed. Nebraska has an inheritance tax and applies a marginal tax rate of 6.84% that starts at only $29,000.
Pros: Cost of living is extremely low compared to other states in the nation. In fact, it is the second lowest in the country.
Cons: Michigan property taxes in proportion to home values are the seventh highest in the nation. For Michigan residents born after 1952, exemptions currently in place will be taken away.
Pros: There is no inheritance tax or estate tax in Michigan and Social Security benefits are non-taxable. The cost of living in Michigan is relatively low compared to most states in the country as well.
Cons: The state of Vermont taxes both Social Security income and pension income and has high property tax rates. For incomes over $405,100, the marginal tax rate is presently 8.95%. The cost of living in Vermont is very high also.
Pros: Economically there aren’t many advantages for retirees in the state of Vermont. The Green Mountains, forests and rivers provide many recreational opportunities for retired residents however.
Cons: The state of Ohio taxes some types of retirement income and the marginal tax rate is 5.95% in this state.
Pros: Currently Social Security is not taxed in Ohio and the estate state tax is no longer allowed. Ohio’s cost of living is fairly low.
Cons: The state of Connecticut has the tenth highest real estate taxes of any state in the nation. Taxes of 16% are assessed on estates over $2 million. Tax on gasoline is fairly high as is the cost of living.
Pros: State income tax personal exemptions are the highest in the nation ($24,000 per couple) and for some retirees who collect Social Security benefits there may be some exemptions.
Cons: Rhode Island has steep property taxes (11th in the nation) and retirement income and Social Security benefits are fully taxable. Estate taxes are applied to values at $965,000 and above. For retiree incomes over $135,000 the marginal income tax rate of 5.99% applies. Due to deficits and pension funding, Rhode Island’s finances are under stress as well.
Pros: Rhode Island offers beautiful bay and oceanfront living fairly reasonably.
Cons: New York has the thirteenth highest property taxes in the nation and some types of pension income are taxable. Estates over $1million are subject to estate taxes and the cost of living is very high.
Pros: Social Security income is not taxed and it is possible the estate tax may be reduced in the near future.