Moving for retirement tax reasons

[Mulligan]

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Originally Posted by M Paquette Somehow I think that what the move (and the lawyers!) would cost will far exceed the tax savings for the rest of my life. My effective CA state income tax rate is 0.5%. Property taxes are limited in how fast they can go up, and are loced to the 1987 home purchase price. No sales tax on groceries, our major retail purchase, or on medical care or insurance, our other major spending categories. Folks really need to take a long, hard look at how much they ACTUALLY pay in taxes before contemplating a move.

My friend who has a nice pension, moved across state lines last year to live with GF, and they were renting. He was bragging to me how he was saving $2000 a year in state income taxes since Illinois does not tax pensions... Well fast forward to this year and after she "insisted" they buy a house. Bottom line now is they bought a comparable house that he owned here, and the property taxes are almost $4000 more a year over there. Well, so much for the savings.....

[FANOFJESUS]

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Originally Posted by Mulligan My friend who has a nice pension, moved across state lines last year to live with GF, and they were renting. He was bragging to me how he was saving $2000 a year in state income taxes since Illinois does not tax pensions... Well fast forward to this year and after she "insisted" they buy a house. Bottom line now is they bought a comparable house that he owned here, and the property taxes are almost $4000 more a year over there. Well, so much for the savings.....

I believe that Chicago property taxes are more than I have ever paid my state in state income taxes. I just about fell over the first time I heard Chicago people talking about it.

[Mulligan]

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Originally Posted by rec7 I believe that Chicago property taxes are more than I have ever paid my state in state income taxes. I just about fell over the first time I heard Chicago people talking about it.

I agree. I don't know how anyone can lay claim to "owning" a house there when they have to write yearly checks like that. It would appear to me, the government owns it more. But I guess if you get beat over the head with a club long enough you don't notice the pain.

[Accidental Retiree]

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Originally Posted by Felix Mulier If you faced a similar opportunity to pick up, part and parcel, and plant down somewhere else, what helped you the most in making your decisions on where to go? Thanks for your thoughts.

Like you, we have no ties to our current home, other than that we've lived here for 30 years. We are ready for a change, and we would like a somewhat slower pace.

Before we visit an area we are considering for relocation, I find online via Redfin a few neighborhoods that seem likely. We then visit open houses in the places under consideration.

Spending a few days in an area, we also visit the neighborhoods a few times over different times of the day. We visit the local grocery stores to see what that they're like, how clean and well stocked, who shops there. We also go to Costco, the local garden center, places like that. Basically, we go to the places we'd be going if we lived in a particular neighborhood.

We know pretty quickly if it's a place where we think we'd feel at home.

When we get home from these expeditions, we then ask ourselves, "Can we see ourselves living in that house, or that house?" And if so, "Would we prefer to live in that house instead of where we are?"

As of this writing, we are staying in CA, although we are considering the Central Coast and the Sierra Foothills.

[Meadbh]

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Originally Posted by Felix Mulier Great thread, all! We've been retired for a couple of years and have always talked about moving to warmer climes. It's daunting at first to decide where to go. I started with "Where don't we want to live?" which narrowed things down considerably! But seriously, it's really difficult to get one's arms around this! No family considerations here - nothing really keeping us here. If you faced a similar opportunity to pick up, part and parcel, and plant down somewhere else, what helped you the most in making your decisions on where to go? P.S. We're not in a position to rent someplace for a while first. Would be nice, but not workable. Thanks for your thoughts.

I started taking regular vacations in this area years ago, because I bought an interest in a vacation property. I would shop and cook for myself and began developing a circle of friends. Over time it occurred to me that this would be a nice place to live after RE. When I did move, it was like coming home. It didn't hurt that taxes are a little lower here too.

[shortstop14]

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Originally Posted by haha I was going to ask, is that mill still operating, and still smelly? IMO, having been around a few paper mills in my day, there is no tax difference that could make me put up with paper mill odors in their full glory. But some mills have been greatly cleaned up as to both air and water pollution. Ha

The Camas (now) Georgia Pacific mill still operates, but at quite a reduced level. Environmental regulations tightened significantly over the years, and it seems to be pretty much a non-issue these days. But we're ok with the smelly reputation keeping the population from booming even more than it has.

[haha]

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Originally Posted by Mulligan My friend who has a nice pension, moved across state lines last year to live with GF, and they were renting. He was bragging to me how he was saving $2000 a year in state income taxes since Illinois does not tax pensions... Well fast forward to this year and after she "insisted" they buy a house. Bottom line now is they bought a comparable house that he owned here, and the property taxes are almost $4000 more a year over there. Well, so much for the savings.....

So he lost money, and his freedom. Good move!

If a gf insists on buying a house together, she has pretty much converted herself into a de facto wife. IMO, wives are marvelous if that is what you want, but if you only want to save some tax, maybe not so much.

And if this happens because love-bundle insists on it, adios autonomy!

Ha

[Brat]

Cascade Park East in Vancouver is worth a look. Close to the I-205 bridge where IKEA, Costco, Target, Home Depot can be found on the Oregon side within a mile.

Before you jump to the conclusion that WA taxes are lower than OR you should look at their many fees. The big one that hit us was an excise tax when we sold our home. That ranges from 1.53% to 1.78% in Clark County.

[AllDone]

My parents moved from a "high tax" state to a "low tax" state and wound up paying more in taxes. In CA, for instance, SS is not taxed and property taxes are fixed. Gasoline taxes are high, but they did more driving in their new home where car "fees" where also much higher. I lived in a tax adverse county for years and paid a jillion "fees", too. For us, taxes were not part of the equation when deciding where to live. Having recently driven on a dirt road (first time ever!) in a low tax state, I would say that quality of life is worth a few thousnd dollars a year to me.

I saw a table once that estimated total taxes. "High tax" California was bang in the middle of the pack.

[Shawn]

Quote:

Originally Posted by Mulligan My friend who has a nice pension, moved across state lines last year to live with GF, and they were renting. He was bragging to me how he was saving $2000 a year in state income taxes since Illinois does not tax pensions... Well fast forward to this year and after she "insisted" they buy a house. Bottom line now is they bought a comparable house that he owned here, and the property taxes are almost $4000 more a year over there. Well, so much for the savings.....

It is certainly true that people should consider all taxes, and all expenses, when computing potential savings from a retirement move. It is important to look at the big picture.

That said, in my situation, I cannot think of a single major tax in California that would not be lower in another desirable state. If I move from California to Colorado, for example, my state income tax will be cut in half. My property tax will be cut in half for a comparable house. Sales tax will be less. I believe other taxes/fees (e.g., gasoline tax, vehicle registration fees) will be less. The potential tax savings are very significant and are even larger in some other states. By moving to a low tax yet desirable state, my total retirement expenses could be reduced 25% from the tax difference alone. They could be reduced 50% factoring in other cost of living differences.

This does not specifically mean I will move. I like my present location in California and there is also the momentum factor and the hassle of a move. But cost considerations are significant. At a minimum, moving represents a clear-cut Plan B option should my economic situation deteriorate (although state tax differences likely would be less significant in that situation).

[Rustic23]

About 5 years prior to retiring we moved from CA, San Francisco, to TX, Houston. Being a native Houstonian, and having family in Houston, the decision was easy. It was also helped by a severance package for a year paid at CA rates, to live in TX. So while we did not move for Tax/expense purpose, I do feel I have some first hand knowledge.

If family had not been a factor, would we have moved? Absolutely! I could have retired on my other income in TX and would have had to have another job in CA. We were renting in CA and paying about $2,200 a month. In TX our house payment was a little less than $1,000 and that included property tax. Just about everything else is cheaper.

So I am glad we did not have family in CA, because I would not be retired now!

[Shawn]

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Originally Posted by AllDone My parents moved from a "high tax" state to a "low tax" state and wound up paying more in taxes. In CA, for instance, SS is not taxed and property taxes are fixed. Gasoline taxes are high, but they did more driving in their new home where car "fees" where also much higher. I lived in a tax adverse county for years and paid a jillion "fees", too. For us, taxes were not part of the equation when deciding where to live. Having recently driven on a dirt road (first time ever!) in a low tax state, I would say that quality of life is worth a few thousnd dollars a year to me. I saw a table once that estimated total taxes. "High tax" California was bang in the middle of the pack.

Property taxes are not fixed in California. Better said, tax assessed home values are not fixed. My property taxes keep going up and up (both the base amount and added fees).

Many states, including low tax states, either do not tax Social Security or exempt a significant fraction from taxation. Unlike many states, California fully taxes other pension income, including in-state public pensions. California fully taxes interest, dividend, and capital gain income (in my case, at 9.3%, which will not change after retirement, big ouch).

I am pretty sure that they have paved roads in other states. They even have police, fire, libraries, parks, and public schools. Ironically, most of my driving on dirt roads has been in California (e.g., Imperial Valley, Central California along San Andreas fault). I remember visiting the town of Landers following the 1992 Landers earthquake. Impoverished community with dirt roads, at least at that time.

According to this site at Kiplinger, California is one of the highest taxed states for retirees.

None of this means people should not live in California. In my area, I particularly like the climate, general topography (e.g., hills for bicycling), outdoor activities near and far (e.g., local parks, ocean, backpacking in the Sierra's), etc. Of course, one can find these or compatible characteristics in other states too. But taxes in California, pretty much all taxes, are very high compared to many other nice places to live. Depending on one's economic situation (e.g., availability of DB pension), they can significantly impact cost of living in retirement.

[steelhead]

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Originally Posted by M Paquette Somehow I think that what the move (and the lawyers!) would cost will far exceed the tax savings for the rest of my life. My effective CA state income tax rate is 0.5%. Property taxes are limited in how fast they can go up, and are loced to the 1987 home purchase price. No sales tax on groceries, our major retail purchase, or on medical care or insurance, our other major spending categories. Folks really need to take a long, hard look at how much they ACTUALLY pay in taxes before contemplating a move.

+1. California is very tax friendly for us too now that we're retired, for many of the reasons you mention. Less so when DW and I both worked of course, but that's why a person needs to carefully look at one's own lifestyle in evaluating a tax situation.

[haha]

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Originally Posted by Shawn None of this means people should not live in California. In my area, I particularly like the climate, general topography (e.g., hills for bicycling), outdoor activities near and far (e.g., local parks, ocean, backpacking in the Sierra's), etc. Of course, one can find these or compatible characteristics in other states too.

I think not, at least in the US. Coastal WA has much that Coastal California has, but where CA is warm and sunny WA is cold and cloudy. Obviously it is a lot more pleasant to go surfing or swimming LA and south than along the WA Pacific coast, and the same holds when you compare the High Sierra to the Cascades. The Eastern slopes up here are drier than Western, but IMO at least California wins hands down.

Ha

[daylatedollarshort]

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Originally Posted by Felix Mulier Great thread, all! We've been retired for a couple of years and have always talked about moving to warmer climes. It's daunting at first to decide where to go. I started with "Where don't we want to live?" which narrowed things down considerably! But seriously, it's really difficult to get one's arms around this! No family considerations here - nothing really keeping us here. If you faced a similar opportunity to pick up, part and parcel, and plant down somewhere else, what helped you the most in making your decisions on where to go? P.S. We're not in a position to rent someplace for a while first. Would be nice, but not workable. Thanks for your thoughts.

We have a short list of places to check out. We won't make a final decision until we see where the kids settle post college. If they stay in state we wouldn't move half way around the world, at least not all year.

Our short list isn't too different than most top ten international retirement locations lists. One factor is you have to go where you can get a visa and maybe citizenship or residency down the line. So for 55+ retirees that rules out a lot of countries if you don't already have citizenship or family ties, don't want to work at a skills shortage job, start a business or meet minimum investment criteria.

We moved to where we lived now for jobs we no longer have. Most places we are considering moving we would actually be closer to family or at least no farther than we are now.

[Accidental Retiree]

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Originally Posted by steelhead +1. California is very tax friendly for us too now that we're retired, for many of the reasons you mention. Less so when DW and I both worked of course, but that's why a person needs to carefully look at one's own lifestyle in evaluating a tax situation.

For us, too, it's less expensive than we'd realized before we started looking around for another place we might like to live. I never thought that CA would be the least expensive place for us to retire.

Those heating oil and A/C bills that I hear about in other parts of the country amaze me!

For us it comes down to this: we know we could have a nicer, larger house (probably with higher property taxes and higher utilities) in just about any other state.

However, since we don't want to have to stay indoors in that nicer, larger house for half the year -- to avoid extreme temps one way or the other, or the many things on REWahoo's list --we're going to stay in CA and pay the price for the temperate climate we enjoy.

For now....

[W2R]

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Originally Posted by Shawn I am pretty sure that they have paved roads in other states.

That's right! We DO have paved roads, by gosh.
.
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[nwsteve]

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Originally Posted by Brat Before you jump to the conclusion that WA taxes are lower than OR you should look at their many fees. The big one that hit us was an excise tax when we sold our home. That ranges from 1.53% to 1.78% in Clark County.

Brat,
Fraid Oregon is really a pretty tax unfriendly place for retirees. Check out this link from Kiplingers, who includes Oregon on its list of the 10 most tax UNfriendly states. State-by-State Guide to Taxes on Retirees - Oregon -Kiplinger.
I think any retiree facing RMD of any material size will do well to really understand their potential exposures in any state with an income tax.
You can avoid a lot of the fee happiness of some westside jurisdictions (ie Puget Sound) but staying away from the big metro areas in WA. When we moved to Eastern WA from Seattle area, our overall costs dropped substantially--some clearly from downsizing, but also from lots lower sales tax (Bellevue/Redmond/Kirkland's sales tax is pushing 10% while I can still get 6.5% at our local Costco in Clarkston. Even in Spokane, sales tax is no more than 8.5) Not only are our costs lower, we also gets lots more sun!! ;-) and a lot fewer lefties like Seattle new councilwoman who is an acknowledged Socialist. OTOH, gloomy skies and lots of government are some folks cup of tea.

Nwsteve

[2035]

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Originally Posted by tfudtuckerpucker Taxes are important, but before I bought a house in a new area, I would rent there for one year. When we lived in Oregon, we watched retirees move to the beautiful northwest (many from California), only to move away after 9 months of drizzly, gloomy skies. And now Oregon and Washington are tagged in worst states to retire FWIW.

I'm back in my home state of California (Bay Area) but have lived in Seattle twice. Call me nuts, but I love overcast weather. My skin never looked so good to boot! Here (east bay) is too hot and dry.

[photoguy]

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Originally Posted by Shawn That said, in my situation, I cannot think of a single major tax in California that would not be lower in another desirable state.

I think this depends very much on one's particular circumstances. So much so that I ended up actually using turbo tax to estimate my taxes instead of using the generic guides/calculators found online.