I was recently chatting with a friend about the pros and cons of moving to more tax-friendly states upon retirement. She wanted to know which state was the most popular with my relocating clients and what prompted them to move. Now, I’ve been in this business for almost 25 years and I can say for certain that there is rarely just one reason why retirees decide to relocate. Financial benefits like fewer taxes and a lower cost of living are always a big draw, of course. But for others, moving closer to their kids and grandkids, who are a plane ride away, is the priority. Empty nesters who don’t need as much space may choose to downsize closer to home. And then, of course, another highly motivating factor — especially for New Englanders — is the weather.
Aside: I didn’t grow up here. I’m originally from Ireland (another area not known for its enticing climate). But after living in Massachusetts for over 20 years, I’ve taken up the New England litany where, in the winter, we complain it’s too cold, in the spring, it’s too wet, and we swear to all that’s good and holy that we won’t complain once the warmer weather arrives. But like clockwork, just a few short weeks ago it was in the mid-90s, and we couldn’t stop complaining about the humidity.
Anyway, that’s a roundabout way of saying that many retirees from this area want to move to somewhere with a more predictable climate. Or at least one with dry heat or fewer days that include risk of frostbite.
After our conversation, I thought a bit more about where my clients who relocated ended up, and I figured others might be curious to see where our state ranks across the board compared to other states. So, I looked at some of the areas across the country where my current clients live to draw a comparison. To clarify, this is NOT a “best places to retire” list, but rather a snapshot of actual stories from real people deciding whether or not to make the move. Let’s take a flyover if you will.
Two of my clients, a married couple, retired to Alabama because their daughter works at a university down there. Their son-in-law travels regularly, and they wanted to be available to help out with their grandkids, so their daughter could continue to work. Aside from the initial culture shock, which they quickly overcame. The advantage of being mere minutes from their daughter and grandchildren came with many financial benefits and some pleasant surprises.
First, the state income tax in Alabama is insanely low, ranging between 2% to 5%. There is no inheritance tax there so if you pass away, your assets can be passed along to your family without tax penalties. Property taxes are a meager $400 per every $100,000 of a house that you buy.
Second, my clients discovered college football and a real sense of community within the weeklong pageantry leading up to game day. They love it and are staying put. Roll tide!
I have loads of clients who decided to head to the southwest. Some still bounce between Massachusetts and Arizona, but most live out there full time. The tax situation in the southwest is far less prickly than in the cacti. The Arizona state income tax ranges from 2%-8%, which is low. While 8% is slightly higher than Massachusetts, you’d really need to be raking in a minimum income of $500K+ a year to reach that tax bracket in Arizona. Most retirees I know are not.
Property taxes are on the lower side, around $600 per every $100,000 of a house — and you can get a lot more houses for your money out there. Another bonus for many of my clients is that when they sell their primary residence, they’re not putting 100% of the proceeds toward the next one, meaning they can bank some of that money, put it toward growth, or have some fun with it.
Also, there is no estate tax in the Grand Canyon state so your loved ones won’t be paying a tariff on the money you’ve already paid taxes on over the course of your life when they inherit it.
Of course, the weather is beautiful year-round, except in the summer. But even then it’s a dry heat, so you’re not dealing with the stifling humidity of our northeast summers (no offense meant of course – Boston, you’re my home!). But full disclosure, I was actually considering Arizona for my own retirement, until I asked my clients why they carry these funky purple flashlights around with them. “Scorpions,” they said. That was it. AZ, It’s going to be a hard “NOPE” for me.
I have 10 clients, five couples, out in California. Most are transplants from Massachusetts, but some are California natives I met through the others. People are obviously drawn to the state because most of it has fantastic weather year-round.
California state income taxes range from 1% to 13.3%, but you’d need quite a sizable income to start hitting that top rate. Property taxes are high — $730 per $100,000 — but many retirees have some additional tax benefits available to them, depending upon how they’re taking their money in retirement. Property costs, however, are quite expensive. I was talking to new California clients over Zoom a few weeks ago and they were saying that you can’t find a 2,100 square foot house for under $900,000 out there. So when this couple retired, they moved into an in-law apartment with their children and could not be happier.
Again, there is zero inheritance tax, regardless of income, talk about California Dreamin’. I guess that explains why a lot of the ultra-wealthy in this country live there.
If there’s one state that is likely toward the bottom of the list for retirement destinations, it’s the nearby state Connecticut. I’ve included it here because it sees a lot of retirement relocation – out of state.
I have a fair number of clients who are currently Connecticut residents but are deadset against living there when they retire.
While it’s a lovely place, it’s just an incredibly expensive state to live in. The state income taxes are 3% to 7%, which is pretty much in line with Massachusetts, but property taxes are the highest that I’d seen when I went through my list — $2,200 per $100,000. That’s extraordinary. And Connecticut doesn’t even have the nice weather to compensate, so it doesn’t exactly seem like a retiree’s dream destination.
Ah, Florida. God’s waiting room. The obvious one. The state where retirees flock in droves. It’s got great weather. It’s got people from all corners of the country. As we’ve done more business down there, I’ve found that parts of Florida are very New York, others are very Boston, and everyone else is from somewhere else.
There’s no state income tax, which is obviously a huge advantage when it comes to your 401k and other retirement accounts. There’s no inheritance tax, so there’s no penalty to transfer wealth from one generation to the next.
It’s also a quick, two-hour plane ride to and from Massachusetts, so retirees can welcome their kids from the South Shore over winter break and head home for the holidays later in the year. It also makes it easy to split your time between New England in Florida, which a lot of my clients find convenient. So, if you can deal with the erstwhile “Florida Man” stories or the occasional alligator wandering out onto the golf course (maybe there’s a flashlight for that?), this could be your state.
Of course, everyone wants to know about Hawaii. It’s an absolutely breathtaking place. I have one client in Hawaii that used to be a school teacher here in Massachusetts. Sometimes when we’re on a Zoom call, she’ll turn her laptop around so I can see the sunset. It honestly looks fake; it’s that beautiful. She moved out there and loves it for many reasons, but it’s a very expensive place to live.
The cost of living is probably higher than the other 49 states likely caused by its geography. It’s a collection of islands, so everything needs to be shipped in – that’s not cheap. Hawaii state taxes are around 11% and while it doesn’t have a sales tax, Hawaii instead has a General Excise Tax (GET), which is a tax on businesses that then often gets passed on to consumers.
They do have an estate tax, but if you’re a Hawaiian who has less than $5.5 million to bequeath you are exempt from it.
Now, our neighbor to the north is on my list because the Granite State has no state income tax whatsoever, which is certainly compelling.
However, it has very high real estate taxes, the fourth-highest of all fifty states! So you’d have to take a good look at the big picture to see how much the “live free or die” lifestyle impacts your bottom line.
Lastly, while it offers a bit of everything — mountains, lakes, seacoast, city — I think we can all agree that the New Hampshire winters are no joke. If you don’t love shoveling tons of snow each week from November through May (I’m only half kidding), you might want to look elsewhere.
Bottom line: you have options when it comes to where you live your dream retirement (we didn’t even talk about moving abroad! We’ll save that for another day). Finding your ideal home is just a matter of retirement planning. Know your goals and priorities and create a plan. As always, we’re here to help you get where you want to be.
Rowlette and Associates, LLC DBA: South Shore Retirement Services – an affiliated company – is an independent financial services firm offering both insurance and investment services. Investment advisory services are offered only by duly registered individuals through AE Wealth Management, LLC (AEWM). AEWM and Rowlette and Associates, LLC DBA: South Shore Retirement Services not affiliated companies. Investing involves risk, including the potential loss of principal. Any references to protection benefits, safety, security, lifetime income, generally refer to fixed insurance products, never securities or investment products. Insurance and annuity product guarantees are backed by the financial strength and claims-paying ability of the issuing insurance company. Our firm is not affiliated with or endorsed by the U.S. Government or any governmental agency. Neither the firm nor its agents or representatives may give tax or legal advice. Individuals should consult with a qualified professional for guidance before making any purchasing decisions. 1235726 – 03/22
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