Potential Benefits vs. Hidden Costs

In a recent article by the Wall Street Journal, investment advisors, tax professionals, and economists discussed the mixed financial outcomes for retirees relocating to states with no income tax. While the allure of such states is strong, potential hidden costs can offset the anticipated savings.

Case Study: A Retired Couple’s Move

One illustrative example featured in the report is a retired couple who made the decision to move from Indianapolis to St. Petersburg, Florida. Although Florida boasts no state income tax, the couple discovered that their new home came with significantly higher property taxes. This change effectively negated the financial benefits they sought from relocating.

The couple’s financial advisor indicated that this financial scenario means they will have to work “many more years” to secure their retirement goals.

The Role of Income Level in Tax Implications

According to Jared Walczak, Vice President of State Projects at the Tax Foundation, the expected financial benefits of moving to a no-income tax state can vary significantly based on the retiree’s income level. Wealthier retirees, who often rely on investment income, may benefit more from such moves compared to middle-income retirees who predominantly draw from their savings and pensions. For these retirees, property and sales taxes often have a more substantial impact on their overall financial situation.

Walczak pointed out Tennessee as an example: the state has no income tax; however, its combined state and local sales tax rate is among the highest in the nation at 9.56%.

Trends in Retiree Relocation

Interestingly, data from moving services company HireAHelper indicates that the number of retirees moving to new locations dropped by approximately 23.8% last year. This decline, as some experts suggest, may reflect an increasing preference among older Americans to age in place rather than relocate.

Housing professionals elaborated that this trend is influencing the real estate market, as indicated by a December study conducted by AARP, which highlighted a significant preference among older adults for remaining in their current homes.

Conclusion

This analysis underscores the importance of thorough financial planning for retirees considering relocation to states without income tax. While the allure of no state income tax can be tempting, it is crucial for individuals to weigh the overall financial landscape, including property taxes and the evolving trend of aging in place.