For retirees who are contemplating a move to a state with lower or no income tax, they may find that they should consider other realities of their final destination. Focusing solely on income taxes without considering other associated costs may not bring about the savings they hope for or expect.
This is according to a report published this week by the Wall Street Journal. Speaking with investment advisors, tax professionals, economists and people who have made such moves, the story assesses the impact of other costs — including other taxes — that may reduce or even out the savings with their current living arrangements.
One such cited example is a retired couple who relocated from Indianapolis to the St. Petersburg, Florida area. Florida is a state with no income tax, but once they made the move to be closer to their children, they found that the purchase of a home coupled with the much higher property tax rate effectively neutralized the potential savings from no state income tax.
Their financial advisor, who spoke to the Journal, explained that the couple will now have to work “many more years” to be “fine.”
Jared Walczak, VP of state projects at the Tax Foundation in Washington, D.C., told the outlet that the tax bracket matters a lot in terms of potential savings from a move to a zero-income tax state. Wealthier retirees, he said, are more of a factor for those more reliant on investment income, while “for many middle-income retirees, income taxes become less important since they are typically drawing down and not earning so much,” the report said based on Walczak’s input.
Sales and property taxes generally have more of an impact on the bottom line for middle-income retirees, he said, with the Tax Foundation highlighting Tennessee as an example: it “has no income tax, but its combined state and average local sales-tax rate of 9.56% is the second-highest nationally,” according to the organization.
However, a recent report by moving services company HireAHelper also suggests that retiree moving activity last year dropped by nearly one-quarter (23.8%), based on data the company compiled from the U.S. Census Bureau. One potential culprit for the drop, some experts contend, is the increasingly dominant preference that older Americans have for aging in place.
Housing professionals who spoke recently with Realtor.com said that it is impacting the moving and homebuying activity in certain areas, partially stemming from a December study by senior advocacy organization AARP regarding the general preferences a majority of older Americans have for aging in place.
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