For many of us, retirement may seem far down the road or it may be looming around the corner. I, for one, am not ready for retirement in many ways. But I have realized, as I have watched my parents deal with a variety of challenges in their recent retirements, things are more complex than I thought. Our quality of living might depend on where we live as much as how much we are receiving from qualified retirement accounts and social security.
Recently, Kiplinger released their “10 Tax-Friendly States for Retirees 2011” report. Kiplinger’s states, “Although relocating to an income-tax-free state such as Florida or Texas may sound appealing, sometimes the best retirement destination is a state that imposes an income tax but offers generous exemptions for retirement income.”
Kiplinger’s considered income taxes, retirement fund taxes, social security taxes, property taxes and sales taxes in their review of each state. As a result, Florida did not come in on the top 10. In fact, Kiplingers “10 Tax-Unfriendly States for Retirees 2011” states “For retirees living on a fixed income, high income taxes, burdensome real estate taxes and hefty sales taxes on daily purchases can really eat into a nest egg.”
The greatest challenges my parents have faced is the high cost of health care services, sales taxes and cost of over-the-counter and prescription drugs as well as property taxes. My father, dealing with post-cancer medical issues, hesitates to purchase medications he needs; and my mother, who owns her own home, worries about being able to pay property taxes and sales tax on daily goods. They both live in New Mexico.
Kiplinger’s list of the 10 tax-friendly states includes: Wyoming, Mississippi, Pennsylvania, Kentucky, Alabama, Georgia, Oklahoma, South Carolina, Delaware and Louisiana.
In considering each state, the KIplinger’s noted the following:
- income taxes were usually not applied to social security or qualified retirement income
- property taxes had solid exemptions and rebates for homeowners
- prescription drugs and health care services had little to no sales tax
- groceries were not taxed in a number of the states and a few did not tax clothing
In New Mexico, my parents pay social security and retirement benefit income tax on any amount over $8,000. Rates can be 5.3% and exemptions allowed are low. Property tax rebates are allowed but income cannot exceed $18,000.
On a modest, very small 2-bedroom home, in need of repairs constantly the past few years, and at an assessed value of $25-30,000, my mother pays only $18/month, which is fairly equivalent to the property taxes I pay in Washington State for a home assessed at 10x that value. Benefit of staying where she is: you can buy a home for a lot less in New Mexico–moving to Washington State would be much more expensive than staying put.
For me, this added up to a number of new things I need to consider when retirement gets closer (and perhaps long before since it really isn’t that far away): property taxes, income tax on retirement funds, sales taxes and costs of goods and health care services and exemptions and rebates allowed for seniors. Up until now, where I lived was dependent on where I had a job. But in the next few months, I will be looking into whether my state is a pretty good state to consider remaining in when I retire, or whether I should plan on looking around (and maybe taking some vacations to check a few places out)!
About the author: Susan McLain is a writer, business analyst, blogger, marketing manager and mother of 3 grown (and growing) children. She works as a marketing manager and content specialist for Avalara, a sales and use tax compliance Software-as-a-Service company on Bainbridge Island, Washington. She is also a doTERRA essential oils independent consultant and enjoys the great Pacific Northwest with her family.