Showing posts with label states with low taxes. Show all posts
Showing posts with label states with low taxes. Show all posts

Wednesday, April 8, 2015

Where Retirees Pay Low Taxes

Once you leave the work force, many retirees are concerned about how to pay low taxes so they can really stretch their Social Security and pensions and make every penny count.  After all, if you are going to receive $1200 to $2400 a month in Social Security (a typical range), the money will go a lot further in low-tax, low cost-of-living states like Texas or Washington rather than states like California or New York.  Below is some of the information you will need to know in order to make the right retirement decision for you.

States With No State Income Tax

The first issue that you need to consider is whether or not you will have to pay state income tax on any of your retirement income.  The states listed below, do not have a state income tax on regular income, although there are some other issues, mentioned below, that you want to consider.

Alaska
Florida
Nevada
New Hampshire
South Dakota
Tennessee
Texas
Washington
Wyoming

New Hampshire and Tennessee do tax your dividends and interest income.  In addition, some of those states, like Texas, have unusually high property taxes that can amount to more than residents would have paid in income taxes in other states.  It is important for retirees to consider ALL the taxes that they will pay in their new location, including sales, personal property, estate and inheritance taxes.

Cities with Moderate Taxes and a Desirable Quality of Life

Paying low taxes is not enough to guarantee a pleasant retirement.  Most retirees also want to enjoy a pleasant lifestyle, as well.  In other words, they are looking for places where they will be able to afford to live on their retirement income while, at the same time, being able to have fun in locations where they feel safe, with good transportation and access to quality healthcare.

Many retirees also want to be able to live in the same region of the country where their adult children and grandchildren live.  Often they want easy access to parks and beaches or lakes.  They may be looking for a mild climate.

With all those considerations in mind, here are "Eight Tax-Friendly Cities" that, according to Where to Retire magazine, may meet your overall needs:

Fort Lauderdale, Florida
St. Marys, Georgia
Spartanburg, South Carolina
Hattiesburg, Mississippi
Manitou Springs, Colorado
Tempe, Arizona
Boulder City, Nevada
Payallup, Washington

Of course, this is just a sampling of the possible choices that are available.  As you can see, several of the listed cities are actually in the states that do have a state income tax.  This is because the magazine looked at the entire tax burden that people experience, including property and sales taxes.  Even if those particular cities will not work for you, you may consider other affordable and interesting towns within those same states.  In particular, Florida, Georgia, South Carolina and Arizona are popular and affordable retirement meccas.

As you can see, you may not wish to move to a state simply because it does not have income taxes, until you carefully study what other taxes you may be expected to pay, as well as the overall cost-of-living.

The best state for retirement may be different for each individual.  Some of the questions you may want to ask yourself:

Do you plan to buy or rent in my new location?
How do home prices and rents compare from state to state?
What will be the total impact of the taxes you will be paying?
What is the overall cost of living?
What will it cost to enjoy your favorite pastimes, hobbies and activities?
Will you have convenient access to healthcare and other services?
How much will it cost to travel to visit your loved ones?

Once you have researched the answers to these questions and considered the amount you will be paying in taxes and other expenses, then you will have gone a long way towards deciding the best place for you to live economically during retirement, while paying the lowest taxes possible.

Source:
 
"8 Tax-Friendly Cities," Where to Retire magazine, January/February 2015 issue, pg. 52.

For more ideas about good places to retire, use the tabs at the top of this article to find links to dozens of other articles, including where to retire both in the United States and in other countries.

You are reading from the blog:  http://www.baby-boomer-retirement.com

Photo credit:  www.morguefile.com

Saturday, May 25, 2013

Save Money on Taxes After Retirement

Are you planning your dream retirement, but worried about how to afford the best lifestyle for your money? One way to make your pension and Social Security benefits go further is to live in a state that does not take a big bite out of them.  Fortunately, there are several states that do not require you to pay income taxes on these benefits and they are scattered throughout the United States.  The magazine, U.S. News and World Report, recently published a list of these states so that retirees can decide which one will work best for them.  They also included information about 2008 property tax rates and sales tax rates in each of these states.  As always, I have added my own comments,  since there are other factors that retirees will need to consider.

States with Low Taxes

Alabama - This state does not tax your Social Security benefits or pensions, and it only has a 4 percent sales tax. In addition, many people pay less than $400 a year in property taxes.  The low tax rates are especially appealing when you also consider the fact that, like most other southern states, Alabama has a low cost of living, making it very appealing to many retirees.  In addition, the weather in Alabama can be quite mild in the winter, although it gets hot in the summer.  You may want to look along the coast of the Gulf of Mexico for an relaxing, low cost retirement community.

Alaska - In this state, you will pay no income taxes and no sales taxes at all.  However, median property taxes are almost $2,400 a year.  There are other financial benefits to living in Alaska, as well.  One very popular financial windfall is the fact that, instead of paying income taxes, residents actually get an annual rebate from the state because of the large amount of revenue the state collects from the oil industry.  When my husband and I took a tour of Alaska, many of the tour bus drivers and gift shop employees were retirees who only worked during the three months of summer.  They were often very enthusiastic about sharing their stories of how much they loved living in this magnificent state for people who enjoy the great outdoors.  However, winters are very long and dark and not everyone will be happy living there during retirement.  In addition, if the rest of your family lives in the lower states, it will not be cheap or easy to visit them. Relocating here is not a decision to be made quickly based on one summer visit.

Florida - One reason so many people have traditionally retired here is because there is no state income taxes for anyone and only a 6 percent sales tax rate.  The median property taxes are a little under $1,900 a year.  Home prices are very low in Florida, too, with many homes in over-55 communities available for under $150,000, and it is not uncommon to find homes for under $100,000.  Florida also has the advantage of pleasant year around weather, which makes it appealing to many people who move there from states that are further north. This state will certainly continue to be popular with retirees in the coming decades.  Many beach communities have become quite expensive, although it is possible to find desirable communities that are less than a 30 minute drive to the beach.

Mississippi - This is another state with no taxes on either your Social Security benefits or pensions, and the average property taxes are under $500 a year.  However, there is a 7 percent state sales tax.  Mississippi is next door to Alabama, and there is a lot of similarity between those two states in climate and the low cost of living.  Again, you may be able to find an affordable and desirable retirement community within a short drive of the Gulf of Mexico, which could be very appealing to people who have always dreamed of a beach town retirement.

Nevada - Because of the money they raise from gambling, this state has no state income taxes for anyone.  The median property taxes are under $1,800 a year and the state sales tax is 6.85 percent.  While the property taxes and sales taxes are higher than the southern states, many people enjoy the fun Nevada lifestyle.  Nevada also has several quite diverse climates, including the desert climate around Las Vegas and the mountainous regions surrounding Reno and Lake Tahoe.  Many Californias who are looking for a less expensive place to live after they retire have been attracted to Nevada.  During the recent recession, Nevada was one of the states that was particularly hard hit.  As a result, property values in many areas are quite affordable.

New Hampshire - In this state, you will pay no income taxes on most forms of retirement income, although residents do pay taxes on their interest and dividend income.  This could be a significant cost for someone who is living primarily off of their investments, so watch out!  In addition, New Hampshire has exceptionally high property taxes, but no sales tax.  Whether or not living in this state will work for you may depend on your sources of retirement income and whether or not you can afford to pay the higher than average living expenses.  To be honest, although this state is included on the U.S. News and World Report list because of the lack of income taxes, other expenses may offset this savings, making it a much less affordable place to live than some of the other states on this list.

Pennsylvania - This state charges no income taxes on either Social Security benefits or your pension.  However, the median property taxes are over $2,200 and the sales tax rate is 6 percent.  One of our daughters lives in the Poconos, in a charming community where a lot of New Yorkers have retired.  While Pennsylvania may not be the cheapest place in the US to retire, it is considered a bargain by many New Yorkers who want to stay close to Manhattan, but in a more affordable location.  If the state of Pennsylvania interests you, check out my blog post from a couple of months ago called, "Retire to Friendly Lancaster County, Pennsylvania."  This particular county has several affordable retirement communities, and has become very popular with people who want to retire in the Northeast.

South Dakota - No state income taxes are paid by anyone who lives in South Dakota.  In addition, the median property tax is under $1,600 and the sales tax rate is only 4 percent.  However, like Alaska, the winter weather in South Dakota can be quite severe, so this state is not for everyone.  If you are already living in one of the northern states, though, South Dakota may be an affordable alternative if you want to stay in the area but keep your expenses low during retirement.  If you are not familiar with the area, I suggest that you rent for a while before you decide if you want to live there permanently.

Tennessee - Like New Hampshire, there are no income taxes on most forms of income, with the exception of dividends and interest.  In addition, median property taxes are under $1000 a year.  The sales tax rate, at 7 percent, is slightly higher than some other states.  In addition, Tennessee is further south than several of the other states on this list, particularly New Hampshire, South Dakota, Pennsylvania and Alaska, so the weather will be a bit more temperate ... although you may still get a little snow in the winter.  Property values in many parts of Tennessee are quite affordable, too.  This is a great location for people who wish to stay within driving distance of many of the lower mid-west and southern states.

Texas - This state has been mentioned many times in this blog as a popular retirement location.  There is no income tax for anyone in Texas, and the state sales tax rate is 6.25 percent (although many towns and cities do have additional sales taxes of their own.)  However, property taxes are a little high and cost the median family over $2,300 a year.  Housing prices in many parts of Texas, especially the small towns, are quite affordable.  Some of the areas of Texas that are quite popular with retirees are near Austin (Sun City Texas is only 30 miles from there), as well as along the Gulf of Mexico.   The Texas Gulf Coast is a very affordable region for people who want to retire in a beach community.

Washington State -   There is no income tax in the state of Washington, although the median property taxes amount to over $2,600 a year.  This is one of the highest rates for any of the states mentioned in this article.  The sales tax rate is 6.5 percent.  Many people love to live in the northwestern United States, and a number of retirees have been attracted to the San Juan Islands. We have friends who retired twenty years ago from Texas to Friday's Harbor in the San Juan Islands, and they never regretted the decision.

Wyoming -  This is one more state that does not have an income tax.  Other taxes are quite low, as well.  The median property taxes are not much over $1,000 a year and the state sales tax is a very modest 4 percent.  However, like some of the other states in the Northern U.S., this location may not appeal to everyone.  I worked in Wyoming one summer while I was in college, and we were having snow flurries when I left on the last day of August!  I grew up in Missouri, so I was used to cold winter weather, but this seemed like an early start to winter to me.  In addition, while I was not there during the winter, I heard many stories about blizzards and harsh winter weather.  Many of the people I met owned property in Wyoming but only lived there in the summer.  This is another location where you may want to rent for a year or two first, especially if you are moving there from someplace with a moderate climate.

If one of your biggest financial concerns after retirement is the amount of money that you will lose to income taxes, then the above list should be helpful.  Obviously, which state will be best for you depends on your personal source of retirement income, since a few of these states will take a bite out of your dividends and interest.  In addition, there is a wide range in the amount you might pay in property taxes from state to state, and that could easily more than offset the amount of state income taxes your might pay.  If you plan to purchase a home when you relocate, you will definitely want to take these taxes into consideration.  Choosing the right state for your retirement is dependent on a number of other factors, as well.  For example, if you will be living a long way from your children and grandchildren, you have to factor in the cost of traveling to visit them. 

Wherever you decide to live when you retire, take the time to work up a budget for several different locations.  In this way you will see the big picture and not base your decision solely on one factor, such as state income taxes.

If you would like more information to help with your retirement planning, check out the index articles listed below.  Each one contains an introduction and links to a number of articles on that topic:

Gifts, Travel and Family Relationships

Great Places for Boomers to Retire Overseas

Great Places to Retire in the United States

Health and Medical Topics for Baby Boomers

Money and Financial Planning for Retirement

Resource for tax rates:

http://money.usnews.com/money/retirement/slideshows/12-states-without-pension-or-social-security-taxes

You are reading from the blog:  http://baby-boomer-retirement.blogspot.com

Photo of night sky courtesy of www.morguefile.com