Published by Taylor Financial Group
We revisit this topic every year because it’s a popular one. You may tend to focus on the more obvious questions… When should I retire? How much money do I need to save to retire? But “where should I retire?” is just as essential. Where you choose to retire to could significantly impact how you spend your retirement savings. It’s better to figure that out now, before you retire, than to have to make an unexpected change during retirement – especially since statistics show that 37% of current retirees have already moved in retirement and another 27% intend to do so.
What Should You Consider?
From a financial standpoint, you want to consider state taxes, household income, living expenses, health care costs, poverty rates and the overall economic wellness of the State you will be living in. Beyond financial matters, you should also be considering how your location will affect your lifestyle. For instance, how far are you willing to be from family and friends? What type of weather and seasonal changes are you willing to live with? While there’s a lot to consider, issues that could drastically affect your finances should definitely not be ignored.
Let’s take a look at the best and the worst states to retire in, as reported by Kiplinger in a recent study they conducted, ranking all 50 states for retirement.
South Dakota received the number 1 ranking, with 15.2% of the population being 65 years old or older. The cost of living is 4% below the country’s average, and the average household income for those 65+ is $43,712. It’s also considered one of the top ten most tax friendly states.
Hawaii was the runner up, coming in at ranking number 2, with a population of 1.4 million and 16.1% of that being residents age 65 or older. The cost of living seems astronomical at 87% above the U.S. average, but the average income for 65+ households is $71,997, almost double that of South Dakota, making the cost of living more affordable. But, honestly, which of you plans to move there?
New York, not surprisingly, is considered the worst state to retire in. With a population of 19.7 million, it is incredibly crowded compared to other options, and only 14.7% of the population is 65 or older. The cost of living is 22% above the country’s average and the average household income is $67,140. Manhattan alone is considered the most expensive place to live in the U.S. But, the real kicker is the very unfriendly tax laws. The NY tax burden can have a major negative impact on your retirement funds. In fact, according to a study by Lincoln Financial Group, nearly one out of every three dollars spent by high-income retirees goes to taxes.
Massachusetts is ranked the second-to-worst state for retirement. The population of 65+ residents is 15.1% of the total 6.7 million. The average household income for 65+ residents is $65,312, and the cost of living is 38% above the U.S. average. It’s also not a tax friendly state, making the higher household income lose its appeal. Almost all retirement income, with the exception of Social Security benefits, is subject to the state’s flat rate of 5.15%. Ouch!
For information on the tax friendliness of all of the States, see the chart below.
How Does New Jersey Rank?
Since New Jersey is our home state, we couldn’t help but take a peak at where it ranks. We were not surprised to see it at number 47, not too far behind New York. The population is 8.9 million, with those 65 years of age and older making up 14.7%. While the cost of living is 27% above the U.S. average, the average household income is $69,710, not far behind Hawaii. And, the state taxes aren’t the worst, but they’re certainly not the best either, with property taxes ranking the highest in the nation. The new tax law only adds insult to injury here, with the SALT limitation, which all but takes away our state and property tax deduction.
Despite these rankings, Florida (ranked #8) and Maine (ranked #22) tend to be some of our clients’ favorite states to retire in… along with plenty of other Americans. And, who can blame them?! These states have some of the most beautiful weather and scenery a person can find. So, as we mentioned earlier, it’s not always about the money. You have to consider what matters most to you in the way of lifestyle, too.
If you’re contemplating where to live in retirement and want some advice, give us a call. We can run scenarios based on different locations and circumstances to help you make an educated decision.
Sources:
Kiplinger, Best States to Retire 2018: All 50 States Ranked for Retirement, May 8, 2018
Lincoln Financial Group, The Underrated Impact of Taxes on Retirement, 2018
JP Morgan, Guide to Retirement 2018
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