Finance Blog
Retirement Planning: Most Affordable Places To Retire
Are cost of living expenses a part of your retirement planning? They should be. An article in a recent issue of AARP The Magazine absolutely shocked me. It listed the most affordable places to retire. Yet Maine, which was on the list, has a property tax rate of 14.53 percent! With the average cost of a house around $200,000, your property taxes would be $28,000 each year. That’s considered affordable? I think not. Maine’s property taxes would exceed all my potential fixed costs in California.
What kind of living situation can your retirement savings support?
The real costs of retirement living
State income taxes. Nine states claim to have no income taxes. Only Nevada, Wyoming, and Alaska tax none of your income. Alaska even pays you to live there. Florida, South Dakota, Texas and Washington won’t tax your personal income, but they may tax business or corporate income.
New Hampshire and Tennessee tax you on dividends and interest. Indiana (3.4 percent) and Pennsylvania (3.07 percent) have flat tax rates. Colorado, Illinois, Michigan, Massachusetts, and Utah have flat rates ranging from 4.35 percent to 5.3 percent.
Social Security Income taxes. Although 36 states don’t tax Social Security benefits, avoid Iowa (8.98 percent), Kansas (6.45 percent), Minnesota (7.85 percent), Missouri (6.0 percent), Montana (6.9 percent), Nebraska (6.84 percent), Vermont (8.95 percent), and West Virginia (6.5 percent).
Colorado (4.63 percent), Massachusetts (5.3 percent) New Mexico (4.9 percent), and North Dakota (4.86 percent) have lower tax rates. And Alabama, Massachusetts, Mississippi, New York, Pennsylvania, and the nine tax-free states do not tax pension income or SSI.
Better options for your retirement
- States with low (or no) sales tax. These include Alabama, Alaska (none), Louisiana, Delaware (none), Mississippi, Montana (none), Oregon (none), Vermont (none), and West Virginia. However, be careful. Some counties or localities assess taxes. (Update 10/28: Maryland has a 6 percent sales tax rate, and the post has been corrected to reflect that Delaware has no sales tax.)
- States with low real estate taxes. These include Alabama, Alaska, Louisiana, Mississippi, and West Virginia. Many states also offer generous exclusions for seniors. California’s property tax is limited to 1 percent of the acquisition value. Seniors residing in California, or who move within California, may take their lower tax to their newer, more expensive home.
- States with low home prices. Idaho, Indiana, Kansas, Mississippi, Missouri, North Dakota, Oklahoma, South Dakota, and West Virginia have houses under $120,000. Another dozen states have prices under $143,000.
Reviewing the Data
The best option overall for retirement is Alaska—if you can handle the cold and the long, dark nights for part of the year. Plus, the state has jobs available, which is perfect if you need extra income.
Alabama and Mississippi don’t tax pensions or Social Security, have low property and sales tax rates, and feature home prices below $143,000. It’s worth looking at all 14 states that don’t tax pensions or Social Security income.
Retirement planning beyond the numbers
While the numbers can help with your retirement planning, take other important factors into account.
- Where is your support system—your family and friends?
- Can you make new friends easily in a new town?
- Does the lifestyle in your potential community meet your tastes?
- Can you get the medical services you will need?
- Will your retirement health insurance cover you in that state?
- Can you get part-time work to supplement your income if you need it?
- Can you get the level of Internet/wireless service you need?
- Do the locals welcome newcomers, or will you always be an outsider?
Once you’ve chosen your top three places, spend a few months living in those areas to see what life would be like as a local. Once you know you’ll be happy there, only then should you make your move.
READ MORE:
Best Tax Tips: The Tax Effects of School Supplies and Courses
2012 Standard Mileage Rate: How it affects Your Business Vehicle
Entrepreneurs and Start-Ups: Best Tax Tips
August 2011 Summer Tax-Free Days
Common Mistakes the Self-Employed Make
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Sales Tax – Are All Those Receipts Worth Saving?
Eva Rosenberg, EA is the publisher of TaxMama.com , where your tax questions are answered. Eva is the author of several books and ebooks, including the new edition of Small Business Taxes Made Easy. Eva teaches a tax pro course at IRSExams.com and tax courses you might enjoy at http://www.cpelink.com/teamtaxmama.
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Why didn’t Georgia make the list? Most of Georgia has very low property taxes and the weather is beautiful most of the year!
because Ga takes 6% income plus another 6-8% sales tax on everything you buy. ADDED TOGETHER about 12-14%.
Dear Karen,
Thanks so much for your feedback.
Georgia didn’t make the list specifically, but was included among the states that don’t tax Social Security. You’re right. Georgia also doesn’t tax certain pensions.
You don’t have the lowest property taxes or home prices. But Kiplinger calls it a peachy state for retirees.
http://www.kiplinger.com/tools/retiree_map/index.html?map=4&state_id=11&state=Georgia
I’d love to hear from more people who love their states.
Tell us what you love about your state and why it’s great to retire there.
Real experiences are often more important than the numbers.
You do know Delaware does not have any sales tax also!
Maryland certainly DOES have a sales tax – 6%.
iN cALIFORNIA i THOUGH ONLY SOME COUNTIES ALLOW YOU TO BRING YOUR OLD PROPERTY TAX BASIS. IF YOU MOVE WITHIN A COUNTY YOU KEEP THE OLD PROPERTY TAX BASIS. THIS ARTICLE STATES THAT YOU KEEP YOUR OLD TAX BASIS WHEREVER YOU MOVE IN CALIFORNIA AND STAY IN CALIFORNIA . IS THAT RIGHT?
Hi JSM,
You’re ABSOLUTELY correct. For more details – and to see which counties allow the transfer, please see my reply to Richard, below.
Maryland has a 6% sales tax.
Yes, you are correct.
It should have been Delaware, not Maryland, included on the list.
They are next to each other on the map.
Mousing over the states on the Kiplinger no-sales-tax map, I picked up the wrong state.
Thanks for catching that!
Hugs
Eva
As a CA real estate broker, I know. Seniors can take their low tax rate with them ONLY WITHIN THE SAME COUNTY. Richard C Dennis
Hi Richard,
As a CA Real Estate Broker, you’re doing your clients a major disservice, I am sorry to say. You only know half the story.
Proposition 60 allows for the transfer of property tax values within a county.
http://www.boe.ca.gov/proptaxes/faqs/propositions60_90.htm#2
Proposition 90 allows seniors to transfer their property values into other California counties. Although, since each county gets to decide if they will permit the transfer of the value, not all counties allow this.
According to the California Board of Equalization, there are 8 counties who permit this kind of inter-county transfer, as of Feb. 15, 2010.
http://www.boe.ca.gov/proptaxes/faqs/propositions60_90.htm#18
In fact, there is another provision for folks who are disabled to get a second bite at the apple – Proposition 110.
http://www.boe.ca.gov/proptaxes/faqs/propositions110.htm
To read more about California’s rules, visit the State Board of Equalization’s website and read their FAQs.
http://www.boe.ca.gov/proptaxes/faqs/propositions60_90.htm
Other states may have similar rules, with similar complexities between districts.
Incidentally everyone, the latest AARP Magazine printed a correction to the article referenced at the very beginning of my story. It turns out, all the property taxes in their article were 10x the actual amount. So Maine’s property tax is NOT 14.35% ($28000). It is actually 1.435% ($2800). Makes a HUGE difference, doesn’t it? Suddenly, Maine becomes affordable!
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