Koolau, thank you for the good information. I will be honest and tell you that as my wife and I read it we had this terrible sinking feeling.
The earlier post about how Hawaii was so tax-friendly for retirees had gotten our hopes up a lot. Although we have talked about making the move to Hawaii for sometime we just started doing more in depth investigation a few days ago. Trying to do our due diligence. That is when I found this forum and the post.
Since this is an early retirement forum I am guessing that few people are yet getting Social Security. We still have several years to go. Even when we get it there is no way we can live on it anywhere in America. With just SS it isn't even enough for the 2 of us to live in Mexico or Thailand. So, of course, we worked hard, saved, invested, and were careful with spending to build up a retirement nest egg. Therefore, even years down the road if we were in Hawaii having only the SS tax-free would be little help.
Isn't it true that almost no one gets a pension anymore? I don't know anyone who does. About the only people who get pensions, I think, are government retirees (federal, state, local). So, in Hawaii the government retirees are not taxed, but most other retirees are. I don't criticize that since it certainly is a good deal if you have a nice government pension to have the added benefit of no Hawaii taxes. I certainly wouldn't want to take that away from anyone. I do wish that for all us hoi polloi though that we had the same deal.
As it is then I can see how government retirees who lived and worked in Hawaii plus government retirees from the other 49 states would find Hawaii to be wonderful. I think I read somewhere a few years ago that government is the number one employer in Hawaii so, I suppose, there must be a huge number of government retirees there on top of the many who move from other states.
What Ko'olau said.
I don't know how much Social Security you two will be collecting, but many Thailand expats are living just fine on $1500 per person per month. Go read Billy & Akaisha's RetireEarlyLifestyle.com before you discount Thailand or Mexico. The two of them have been living very well in both of those places for over 20 years, and I suspect their total annual spending is still below $30K/year.
Hawaii's government is considered the #1 employer only because all of the state's public school personnel (teachers, staff, principals, and janitors) are state employees. The National Guard is also very popular here. If you're going to make a national comparison of government employees then you'd have to add in the teachers from every other state's public schools as well as a pro-rata servicemember number.
Hawaii tax on 401(k)s is a hot debate. A couple years ago the incumbent governor proposed taxing defined benefit pensions, and three weeks ago he was firmly smacked down in the re-election primary. Not the regular election, but the primary-- and by nearly a 2:1 margin below a relatively unknown opponent. Hawaii's voters are notoriously forgetful and forgiving (if they even bother to vote in the first place) so clearly the pension taxation topic is a sore spot.
Exempting 401(k)s from taxation has been proposed over the last few years, but it has not gained traction in the state legislature. Much to nobody's surprise the government is reluctant to give up tax revenue, and the state tax form starts with the federal tax form.
If you're going to base your retirement location purely on state taxes, then according to Kiplinger's you should move to Wyoming, Nevada, Arizona, Alaska, Louisiana, Mississippi, Georgia, South Carolina, or Florida.
State-by-State Guide to Taxes on Retirees-Kiplinger
According to Money the best overall retiree bargains are in North or South Dakota, but Wyoming is in the top five:
The best states to retire in are a little surprising - May. 5, 2014
Clearly there's a few flaws in these calculations, or maybe you need to adjust your criteria. Otherwise you'd better buy a snow shovel.
Keep in mind that Hawaii only taxes your deductible contributions to your 401(k) and your conventional IRA, as well as the gains. It does not tax employer matches, gains on employer matches, or non-deductible contributions. It does not tax Roth 401(k) distributions or Roth IRA distributions. Here's an old reference for that assertion, so check with a CPA who knows current Hawaii tax law:
Avoid taxes, roll over 401(k) into IRA | The Honolulu Advertiser | Hawaii's Newspaper
Although the tax difference between defined benefit pensions and defined contribution accounts generates a lot of political theater, it might not make much of a financial difference.
In addition to the real taxation, you can still avoid taxes on a 401(k) by rolling it to a conventional IRA and then converting it to a Roth IRA. The key is doing the conversions in small annual increments up to the top of a 10% tax bracket, where your standard exemptions and deductions may wipe out most of your taxable income. You might be able to avoid paying any state tax on your 401(k), even after you move here.
It's not easy to find Hawaii's property tax rate. I calculated 3.5 mils (0.35%) on the assessed net taxable value of our home, and that sounds about right from my memories. We have an $80K homeowner exemption on our property taxes, and there are higher exemptions over age 65. However Hawaii's median value of a condo is over $300K and the median single-family home value is over $600K, so you may choose to rent. That's zero property tax.
We do not have a property-tax exemption on rental property, and
gross (not net!) rental income is taxed at 4% (4.5% on Oahu). Short-term rentals are subject to the hotel tax of something like 11%. Then net rental income from Schedule E is taxed all over again. So although renters don't pay property tax, they're paying the landlord's excise taxes in the form of higher rent.
Here's more info on Hawaii state tax.
Tax brackets:
State taxes: Hawaii (click on the tabs for the details)
Instructions on the tax form, especially Line 13 on page 13:
http://files.hawaii.gov/tax/forms/2013/n11ins.pdf
If you are moving here purely for tax reasons and warm weather, you will be very unhappy. Hawaii is a large cultural adjustment and you should spend at least six months renting here (preferably from August through February, and not in Waikiki) before making your decision.
Lifestyles in military retirement: Living in Hawaii - Military Guide
(Ko'olau's book recommendation at the end of this post is worth buying but might be in your local library)
Good reasons NOT to live in Hawaii - Military Guide
(many more links in the "Related articles" section at the end)
Lifestyles in Hawaii: Hawaii Island (the Big Island) - Military Guide
(with even more links-- particularly on tsunami, hurricanes, and lava).
