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Old 10-07-2011, 10:13 PM   #21
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Here's two more answers to questions in my "Thanks" queue:
- Our health insurance comes from Tricare Prime for military retirees at a fee of $460/year (about $38/month). Congress just raised it to $520/year (~$43/month) for new retirees, and by Oct 2012 that'll be the rate for all military retirees. I forgot to add that line into my spending thread.

- "Why hold a mortgage when you could just buy the house outright?" Heh. That's a popular perpetual topic here, and I should update my "keeping a mortgage" thread. FWIW the median Oahu single-family home costs about $500K (well, the home costs about $150K and the land costs the other $350K) and the median condo is about $300K.

We bought our "dream home" in late 2000 while we were still a dual-military working couple, and it was far easier to borrow the money than to sell our other home. (We're still landlords.) I also didn't feel comfortable cashing in our portfolio to buy the house. Since that first 8% mortgage we've refi'd down to 3.625%, so now we feel that we'll make more money from the stock market than from paying off the mortgage. Our military pensions give us a high tolerance for volatility and the risk of principal loss.

2000 turned out to be the pit of Hawaii's decade-long real-estate recession. Our initial 10% equity at closing has ballooned to over 60% and we've only paid down a fraction of the mortgage principal. We couldn't buy this house today at its assessed value, let alone at its market value. (I don't think we'll ever leave this place, either.) Our familyroom renovation is taking a big chunk out of our ER portfolio's cash stash, too, although it's absolutely the right thing to do. We'll have a lot of dead equity locked up in this place.

The "good" news is that home improvement is taking up so much of our time that our discretionary spending is way down across the rest of the board. We'll be spending quite a while paying down our HELOC balance from "cash flow" while we paint drywall and move furniture...
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Hawaii taxes for retirees
Old 08-24-2014, 04:05 AM   #22
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Hawaii taxes for retirees

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Originally Posted by Nords View Post
- Hawaii is one of the nation's most tax-friendly states for retirees. As in top three.
I realize that this is an old thread, but I was searching and I stumbled across it so I created an id in order to ask a question. Would it be better for me to start a new thread?

My wife and I have been thinking for some time about moving to Hawaii. We have spent quite a lot of time there over the last several years. Like many early retirees we have income from dividends, interest (very, very little of that these days), and capital gains when we choose to sell some stock. I was under the impression that Hawaii taxes were very high so reading what you wrote suddenly made my heart start bumping and thinking Hawaii may be possible for us. I think our retirement income is high enough, but it was the taxes that has made us hesitate a lot. Also, in the years when we sell stock our income goes way up for that year. In some years we don't need to sell stock. Actually, I sold a fair amount a few years ago so we have rather large cash holdings at the moment.

Anyway, would you mind expanding on your statement about Hawaii be tax-friendly for retirees? Thank you.
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Old 08-24-2014, 08:00 AM   #23
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Originally Posted by tizlo View Post
I realize that this is an old thread, but I was searching and I stumbled across it so I created an id in order to ask a question. Would it be better for me to start a new thread?

My wife and I have been thinking for some time about moving to Hawaii. We have spent quite a lot of time there over the last several years. Like many early retirees we have income from dividends, interest (very, very little of that these days), and capital gains when we choose to sell some stock. I was under the impression that Hawaii taxes were very high so reading what you wrote suddenly made my heart start bumping and thinking Hawaii may be possible for us. I think our retirement income is high enough, but it was the taxes that has made us hesitate a lot. Also, in the years when we sell stock our income goes way up for that year. In some years we don't need to sell stock. Actually, I sold a fair amount a few years ago so we have rather large cash holdings at the moment.

Anyway, would you mind expanding on your statement about Hawaii be tax-friendly for retirees? Thank you.
Another Hawaii resident here:

First the bad news. The income sources you mention (sale of stock, dividends, etc. etc.) are not tax exempt in Hawaii. Hawaii's income taxes go higher as you have more taxable income (think it goes from 0% to as high as 9.5 or 10% at the highest. BUT, the good news is that most pensions and Social Security are exempt from taxation for retirees. Every couple of years (hhhmmmm, maybe around election time) someone goes on record as being FOR dropping this provision of the tax code. So far, not enough traction to get-r-done.

Everyone pays the state's GET tax (General Excise Tax) on all purchases. On Oahu, it's a bit over 4.5% at point of sale for almost everything (including food). Doesn't sound too bad - much lower than most state sales tax. Problem is that some level of GET is added at every level (wholesale, distributor, point of sale, etc.) So the GET you pay is "hidden" in the price (except the 4.5%.) Real estate taxes are actually pretty low. On $0.5 million house, I pay less than I did on the mainland for $0.15 million house. Car tags don't go down as your car ages (mine are in the $300/year range) All in all, Hawaii can be a tax hell, but for retirees (with most income from pension and SS) it's probably more on the "average" end of the scale with other states. Nords might have more detail.
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Old 08-24-2014, 09:43 AM   #24
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The unfairness of Hawaii's retirement tax system (exempting pensions but taxing 401Ks) is a reason I would not consider it even if I could afford it. Those who move there and just pay the tax are perpetuating the problem.
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Old 08-24-2014, 10:09 AM   #25
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The unfairness of Hawaii's retirement tax system (exempting pensions but taxing 401Ks) is a reason I would not consider it even if I could afford it. Those who move there and just pay the tax are perpetuating the problem.
Michigan used to exempt pensions from state tax, but does tax them on a tiered scale, now. Just one more reason to move to a tax friendlier state.
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Old 08-25-2014, 03:27 AM   #26
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Another Hawaii resident here:

First the bad news. The income sources you mention (sale of stock, dividends, etc. etc.) are not tax exempt in Hawaii. Hawaii's income taxes go higher as you have more taxable income (think it goes from 0% to as high as 9.5 or 10% at the highest. BUT, the good news is that most pensions and Social Security are exempt from taxation for retirees. Every couple of years (hhhmmmm, maybe around election time) someone goes on record as being FOR dropping this provision of the tax code. So far, not enough traction to get-r-done.

Everyone pays the state's GET tax (General Excise Tax) on all purchases. On Oahu, it's a bit over 4.5% at point of sale for almost everything (including food). Doesn't sound too bad - much lower than most state sales tax. Problem is that some level of GET is added at every level (wholesale, distributor, point of sale, etc.) So the GET you pay is "hidden" in the price (except the 4.5%.) Real estate taxes are actually pretty low. On $0.5 million house, I pay less than I did on the mainland for $0.15 million house. Car tags don't go down as your car ages (mine are in the $300/year range) All in all, Hawaii can be a tax hell, but for retirees (with most income from pension and SS) it's probably more on the "average" end of the scale with other states. Nords might have more detail.
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.

We will still consider Hawaii. We think we probably could be okay with our retirement income, but losing a big chunk to Hawaii in addition to the chunk Uncle Sam takes would certainly make things much more difficult.

After we read your post my wife and I started discussing another aspect to this. This is sort of a psychological thing. It is clear that in Hawaii we could end up having retired neighbors and friends who have higher income than we do and pay no taxes while we would be paying taxes. We would be glad for them, but we have to decide if that would spoil it for us. We don't want to start feeling any resentment or negative feelings because of the two class system. Anyway, we have lots of things to consider. I thank you again for your help with my question. I hope I didn't come across as negative, just very disappointed.
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Old 08-25-2014, 07:41 AM   #27
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Michigan used to exempt pensions from state tax, but does tax them on a tiered scale, now. Just one more reason to move to a tax friendlier state.
I don't have a problem with a state income tax, I just want it to be applied to everyone of a certain income level. Having a caste system where a previous employer determines how the state treats you in retirement seems wrong to me.

in Hawaii you could have one person with a $70,000 a year pension pay zero state tax and a person withdrawing $70,000 from their 401K paying $4,752 in state tax (from online calculator, single taxpayer with standard deductions). $70,000 would be a fairly high pension but not out of the realm of possibility for someone who worked in the government as a engineer or manager for 30 to 35 years.

Almost $5,000 more in the pocket of the person with the pension. Not an insignificant amount.
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Old 08-25-2014, 07:52 AM   #28
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I think you end up driving yourself crazy if you look at what other people get or have or are taxed. There will always be someone better off no matter where you are; there will always be someone else who could look at you with envy. I think the only thing you can do is do the math for yourself and your situation and see if it works.

I think it would be a mistake to rule Hawaii out on a point of principle; it wouldn't be a mistake to rule it out if the math meant you couldn't live the life you wanted.


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Old 08-25-2014, 07:56 AM   #29
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I think you end up driving yourself crazy if you look at what other people get or have or are taxed. There will always be someone better off no matter where you are; there will always be someone else who could look at you with envy. I think the only thing you can do is do the math for yourself and your situation and see if it works.

I think it would be a mistake to rule Hawaii out on a point of principle; it wouldn't be a mistake to rule it out if the math meant you couldn't live the life you wanted.


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If the $5,000 a year you pay in tax in Hawaii that some other person does not just because of where they used to work means your budget struggles, then it certainly does matter.

What if Hawaii based their tax rate on the color of your skin or if you were male or female? Would you have an issue if you were black and were taxed $5,000 but whites got an exemption if you could still afford to live in Hawaii and pay the $5,000?
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Old 08-25-2014, 07:57 AM   #30
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I don't have a problem with a state income tax, I just want it to be applied to everyone of a certain income level. Having a caste system where a previous employer determines how the state treats you in retirement seems wrong to me.

in Hawaii you could have one person with a $70,000 a year pension pay zero state tax and a person withdrawing $70,000 from their 401K paying $4,752 in state tax (from online calculator, single taxpayer with standard deductions). $70,000 would be a fairly high pension but not out of the realm of possibility for someone who worked in the government as a engineer or manager for 30 to 35 years.

Almost $5,000 more in the pocket of the person with the pension. Not an insignificant amount.
Michigan not taxing pensions was a strategic move signed into law by a conservative governor after realizing that retirees were moving out of state like crazy. The state likes to retain retirees because they have no kids in school and tend to spend most of their income on taxable consumables - thus profitable citizens. So, just as some businesses get a big tax break to locate in an area, while others pay full taxes, it was a judgment call by the legislature on the unfairness. I was counting on something that was revoked. They made their move, now I'll make mine.
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Old 08-25-2014, 08:05 AM   #31
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Fermian, I am obviously not saying that kind of discrimination is something that should or could be acceptable. I am saying that the tax code is filled with weirdness that seems horribly unfair to some but is rooted in logic somewhere. Take the carried interest treatment for private equity, for example. Take even the mortgage deduction. Etc etc. all any of us can realistically do is just do our calculations and make a choice.


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Old 08-25-2014, 08:35 AM   #32
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I haven't figured out why every retiree doesn't live in a no state income tax state. It's fairly easy to establish residency. Nobody in Texas cares how much time you spend in the state. The only risk is if you spend over 6 months in an income tax state where they have a vested interest in catching evaders. You can rent and do most of your dealings in cash to reduce the odds of getting caught. Hawaii may be one of the hardest places to "hide in plain sight" but I also don't know how aggressive they are in hunting down people that may exceed six months in the islands.
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Old 08-25-2014, 08:39 AM   #33
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2B, that would be an option I would find acceptable. If you had residence in Florida or Texas and actually lived in Hawaii it would be a good way to bypass the unfair tax system.

Probably you would do best by renting a house in Hawaii and possibly not having a car. In this way you would have very little to identify you as a Hawaii resident and not just a long term vacationer.
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Old 08-25-2014, 10:08 AM   #34
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DW and I are also considering Hawaii. We would also be living off of taxable investments, and we would be managing income to the ACA subsidy limit. I estimate that we would pay about $3,300 in state income tax. We figure that our vacation travel budget would be reduced by at least that amount if we lived there.

Also, it seems to me that property taxes are generally on the low side in Hawaii (although they seem to vary quite a bit across the different islands).
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Old 08-25-2014, 10:43 AM   #35
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2B, that would be an option I would find acceptable. If you had residence in Florida or Texas and actually lived in Hawaii it would be a good way to bypass the unfair tax system.

Probably you would do best by renting a house in Hawaii and possibly not having a car. In this way you would have very little to identify you as a Hawaii resident and not just a long term vacationer.
That's the beauty of tax advantaged residency. You don't need an actual residence. There's a RV park north of Houston that has PO boxes for hundreds of people that hardly ever actually move their RV into that park. The county had been strongly dem and swung to repub supposedly based on the massive number of absentee ballots. The dems sued a few year back and got stomped in court.

You could own a car in Hawaii or possibly rent one by the month. You would have to clearly leave the islands to keep from being a tax target. I have no clue as to how aggressive Hawaii is at tracking down marginal tax payers. I do know that California is aggressive and can be pretty nasty to people moving to Arizona and Nevada if they retain any residual ties inside the state.
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Old 08-30-2014, 10:22 PM   #36
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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).
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Old 08-30-2014, 10:58 PM   #37
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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.
Very easy to live in Chiang Mai, Thailand on $1,500 per month. That is around 48,000 Thai baht. To put that in perspective a new Thai college grad would probably earn around 15,000/month.
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Old 08-31-2014, 09:43 AM   #38
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I haven't figured out why every retiree doesn't live in a no state income tax state. It's fairly easy to establish residency. Nobody in Texas cares how much time you spend in the state. The only risk is if you spend over 6 months in an income tax state where they have a vested interest in catching evaders. You can rent and do most of your dealings in cash to reduce the odds of getting caught. Hawaii may be one of the hardest places to "hide in plain sight" but I also don't know how aggressive they are in hunting down people that may exceed six months in the islands.

I have a fairly high pension and my first thought was moving to a no state income tax location, but after looking at it closer, (in my situation anyways) the math really doesn't work when you add it all in. Though I am partially shielded currently from state taxes, my income through interest and COLAs will push me over the income exemption limit in a couple of years and my state obligation will jump from around 3k to 5k in taxes. But in MO property taxes are low along with energy, health insurance, and housing. This 5k savings by moving would be mostly negated by other increased costs.


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