Many retirees who want to stretch their retirement dollars as far as possible decide to relocate to a part of the country that combines access to the activities they enjoy most with a lower cost of living. This often involves buying a home or a condo with the right location for your retirement lifestyle.
In this situation, it’s easy to assume that you’ll want to retire in a state with low or no state income tax. But there’s a lot more to consider than just the income tax climate in your target location. Especially if you’re building or buying a retirement home in connection with your retirement relocation, you also need to carefully consider the property taxes, including state and local assessments, before you make your final decision.
Property Tax Considerations
One of the main reasons you should pay close attention to property tax rates is that, unlike many retirement incomes, property values tend to rise, year over year. That means that over time, your property tax bill is likely to increase, even if your income (and your income tax) doesn’t. For many seniors, this can result in a double bind: higher and higher property taxes, coupled with static or decreasing income over time. In fact, even if the retirement home is mortgage-free, rising property taxes alone can sometimes create problems for persons living on a more or less fixed income.
Researching Tax-Friendly Locations
One great way to start narrowing down the most tax-friendly locations for retirees who want to relocate is by using a tool like Kiplinger’s “State-by-State Guide to Taxes on Retirees.” This will give you a broad view of the general tax climate in each state, considering not only whether there’s a state income tax, but also looking at property taxes and other factors that make up how expensively or inexpensively you can live in retirement. You can learn, for example, that in Arizona, though the state collects personal income tax, there’s an exemption for Social Security benefits as well as the first $2,500 of income from federal or Arizona state retirement plans. So, even though there’s a state income tax in Arizona, such special provisions may make it less expensive, tax-wise, to live there than in a no-state-income-tax place such as Texas, where the property taxes are actually much higher than the national average.
Senior Tax Exemptions
Speaking of property taxes, it’s also worth checking to see if the state you want to retire in offers any type of exemptions or breaks on property taxes for seniors. For example, in Texas, seniors can exempt the first $10,000 of the value of their primary residence from property taxes, and certain local taxing authorities offer other exemptions. In South Carolina, seniors can exempt the first $50,000 of fair market value on their home, provided they are at least 65 and have been a legal resident of the state for at least a year.
At Mathis Wealth Management, our goal is to help you make the right decisions for your retirement. The principal way we do that is by helping our clients get all the information they need in order to make their retirement dollars go the farthest. If you would like to learn more, please get in touch.