Many factors go into retirement decisions. When should you retire? Where should you retire? Etc. Family and personal factors are perhaps the most important of these considerations. Where do your children, grandchildren, and friends live? Where do you have roots? What location has the weather and scenery you enjoy? How are you feeling?
Financial issues are only one factor in choosing a retirement location. Depending upon the person, it may loom large, or it may not be a significant factor at all. Here are some financial issues to consider when choosing a retirement location:
- Cost of Living. The cost of living in the area is a significant factor. McAllen, TX is the city with the lowest cost of living in the United States, 23.7% below the average. Here’s a link to Kiplinger’s list of the 10 cheapest cities in the United States. On the other hand, the borough of Manhattan in New York City has a cost of living 127.8% above the average. Here’s a link to Kiplinger’s list of the 10 most expensive cities in the United States.
- Income Tax. Seven states (Alaska, Florida, Nevada, South Dakota, Texas, Washington, and Wyoming) have no income tax on residents. On the other hand, California taxes income as high as 13.3%. New York taxes residents as high as 8.82%, plus New York City adds an income tax up to 3.876%, for a combined tax up to 12.696%.
- State Death Tax. Ten states have a threshold for taxation at death lower than the federal exclusion. (The federal exclusion is $5 million, adjusted for inflation annually, and is doubled until the end of 2025.) In Massachusetts and Oregon, the threshold for taxation is just $1 million. Of course, assets passing to a spouse are exempt in both states.
- Property tax. The effective property tax rate varies dramatically, from a low of 0.32% annually in Hawaii, to a high of 2.31% in New Jersey. Here is a link to a recent USA Today article about property taxes.
But, you’ll also want to consider what your quality of life will be in retirement. Here’s a link to an AARP article which includes Forbes’ list of the 25 Best Places to Retire in the U.S. About 1/3 of the cities on the list are college towns.
Other considerations include:
- Good healthcare (more important as you age). Here’s a link to a U.S. News ranking of the best states for healthcare. Hawaii tops the list and Arkansas ranks last.
- Good public transportation (important to ensure your mobility as you age). Here’s a ranking on Business Insider of the twelve U.S. cities (over 250,000 population) with the best public transportation. New York City tops the list and San Francisco is the runner-up.
- Amenities for seniors and retirees
- Social and cultural opportunities
- Recreational opportunities (such as golf, swimming, hiking, etc.)
There are many factors to consider in deciding on when and where to retire. We’ve looked at just a few of those factors. Of course, each person will weigh those factors differently. In the next article we’ll look at milestone ages to consider in retirement planning.
Stephen C. Hartnett, J.D., LL.M.
Director of Education
American Academy of Estate Planning Attorneys, Inc.
9444 Balboa Avenue, Suite 300
San Diego, California 92123
Phone: (858) 453-2128