What to think about before deciding to retire in another state

Itsskin | E+ | Getty Images

Thinking about retiring to another state? You’re not alone. A United Van Lines study found the percentage of people retiring to a new state had increased to 18.3% in 2021, up from 13.4% in 2015.

Making the move is not a straightforward decision, however, as there are myriad financial and non-financial considerations involved. Financial advisors can help you cover all the bases.

“There are times [when] the financial implications are so significant that it would behoove someone to do the analysis all around before packing up,” said certified financial planner Marianela Collado, CEO of Tobias Financial Advisors in Plantation, Florida. And while many are seeking lower property taxes, “you don’t really want the ‘tax tail to wag the dog,'” she added.

More from Life Changes:

Here’s a look at other stories offering a financial angle on important lifetime milestones.

Collado offers up several significant issues for consideration, including:

  • Cost of living: This may include health care, health insurance, rent, home prices, home insurance (especially in a place like Florida), property taxes, transportation costs, etc.
  • Income taxes: It can really impact long-term retirement projections when you move from a state without income taxes to one with state levies on earnings.
  • Estate taxes: Many states have much lower estate-tax exemptions than the federal government, which could result in a state estate tax applying to heirs.

The grass is not always greener on the other side, said Kevin Brady, CFP, vice president with Wealthspire in New York. He encourages clients to also think about the tax implications of changing domicile. If they have residences in different states, there can be very strict requirements to meet in terms of days spent in a new state before clients can claim residency for tax purposes.

Benjamin Brandt, CFP and founder of Capital City Wealth Management in Bismarck, North Dakota, said “you want any potential tax savings to be the icing on the cake.”

“There are very few free lunches with taxes,” added Brandt, who also hosts the Retirement Starts Today podcast. “They could be offset by other taxes.”

More Americans come out of retirement

When it comes to health care, Brandt advises clients to be aware of possible restrictions in doctor choice, as physicians are not accepting Medicare in some areas popular with retirees.

“It’s important to check with your health insurer to make sure you retain benefits in your new location,” said Jeremy Finger, CFP, founder of Riverbend Wealth Management in Myrtle Beach, South Carolina.

“Both private health insurance for younger retirees and Medicare Advantage plans have specific service areas,” he said. “Retirees moving out of the service area will need to find a new plan, which could mean more expensive premiums and increased out-of-pocket costs.”

Legal documents should also be reviewed to account for different laws in the new state of residence, Finger said.

It’s important to manage expectations

Source link