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Which States to NOT retire in
Old 02-22-2010, 04:41 PM   #1
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Which States to NOT retire in

These articles were little eye-openers about which States you might want to think about twice if you move to them in retirement:
Beyond California: States in Fiscal Peril

Here's another article:
With Some States in Trouble, Be Careful About Worst States to Retire Topretirements

Being that Florida, Arizona and Nevada are probably 3 of the most popular retirement States--and on these lists--would you still move there if you had a choice of where to retire?
More than which States are in fiscal trouble, I was surprised at some of the States that were fiscally healthy right now (except I knew Wyoming actually has a surplus of money in the kitty).
It IS something to think about if you are looking for a new home for the next 15 years for retirement. I'd hate to move to a State that starts cutting services and upping my taxes because it was broke.
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Old 02-22-2010, 04:57 PM   #2
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In defense of California - yes the state budget is a basket case and I won't even try to defend it.

However for longtime residents like myself who bought their homes many years ago, we have the advantage of low property taxes due to proposition 13. If one has a modest income in retirement our income taxes will be modest too. Yes the income taxes will be higher than other states but the overall taxation level (including all taxes) will be low.

The tables of state taxes just don't catch that little tidbit.

For comparison look at Texas. They have no state income tax but sky high property taxes.
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Old 02-22-2010, 05:04 PM   #3
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For comparison look at Texas. They have no state income tax but sky high property taxes.
Sky high *rates* but relatively low property values, making the overall property tax burden moderate overall.

If you're content in a smaller, cheaper home (as we are), it's not that bad -- our property tax was a little over $1100 last year, which is nothing compared to the savings we have with no state income tax. In contrast, someone with a large, valuable home and a moderate income would be in trouble here.

Anyone considering a retirement location needs to look at their specific financial situation and compare it to how each state taxes "the big three" (income, sales and property). If you don't buy much "stuff," a high sales tax isn't a big deal. If you don't have a high income, a high income tax isn't that big a deal. And if you have a small, cheap house, high property taxes aren't a big deal.

I'd also echo the OP's sentiments in that some states and cities are in terrible shape -- largely (but not exclusively) with public pension liabilities -- and that's worth looking at ahead of time as well. If you're largely motivated by taxes to find a place to retire, that could result in rude shocks down the road.
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Old 02-22-2010, 05:07 PM   #4
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I was just glad to see that neither Missouri nor Louisiana was in the "Top Ten Worst States to Retire".

Louisiana must be on a roll!! First the Superbowl win, and then we aren't at the top of a Top Ten Worst list, for once. Maybe things are turning around here, at last.

Louisiana has a lot of benefits for retirees, such as low cost of living, low property taxes and I believe we have no income tax on SS and public pensions. Not only that, but the oppressive humidity is good for the skin.
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Old 02-22-2010, 05:14 PM   #5
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Glad to see Virginia isn't ranked so bad. Gotta wonder though, what happened to DC? Curious cause DH and I are close by.
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Old 02-22-2010, 05:24 PM   #6
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Sky high *rates* but relatively low property values, making the overall property tax burden moderate overall.

If you're content in a smaller, cheaper home (as we are), it's not that bad -- our property tax was a little over $1100 last year, which is nothing compared to the savings we have with no state income tax. In contrast, someone with a large, valuable home and a moderate income would be in trouble here.

Anyone considering a retirement location needs to look at their specific financial situation and compare it to how each state taxes "the big three" (income, sales and property). If you don't buy much "stuff," a high sales tax isn't a big deal. If you don't have a high income, a high income tax isn't that big a deal. And if you have a small, cheap house, high property taxes aren't a big deal.

I'd also echo the OP's sentiments in that some states and cities are in terrible shape -- largely (but not exclusively) with public pension liabilities -- and that's worth looking at ahead of time as well. If you're largely motivated by taxes to find a place to retire, that could result in rude shocks down the road.
Well Texas is a great place, don't get me wrong. I actually lived there years ago and have some fond memories of Texas and my younger self.

But if you want to live in one of the "nice" houses, in a "nice" neighborhood in Houston for example, then by my calculation your property taxes would be upward of $5k/year or more. If you want one of the great houses then double (or more) those costs.

If you are House-rich but of modest income, then Texas will be expensive.

That was the point of my post.
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Old 02-22-2010, 05:25 PM   #7
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For some reason I was somewhat surprised at the fiscal health of Pennsylvania. Must be that high property tax base...

I tried to figure out DC, too. Since it's squeezed between Maryland and Virginia--and they appear relatively healthy--maybe we are to assume DC is healthy, too? Lots of tax money from businesses that deal with the government there, anyway. And has DC ever really been broke? I don't think so...has it?
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Old 02-22-2010, 05:31 PM   #8
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Well Texas is a great place, don't get me wrong. I actually lived there years ago and have some fond memories of Texas and my younger self.

But if you want to live in one of the "nice" houses, in a "nice" neighborhood in Houston for example, then by my calculation your property taxes would be upward of $5k/year or more. If you want one of the great houses then double (or more) those costs.

If you are House-rich but of modest income, then Texas will be expensive.

That was the point of my post.
Well now, is that a "nice" thing to say? I think Ziggy's house, while small, is quite nice (I believe he posted a photo of it once or else I just imagined it was nice). My ex and I owned a house in Texas with disgustingly high property taxes but way less then $5K/year ($2K? I'd have to look), and I thought it was "nice".

Just pulling your chain! But you know, beauty (or niceness of houses) is in the eye of the beholder.
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Old 02-22-2010, 05:38 PM   #9
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But if you want to live in one of the "nice" houses, in a "nice" neighborhood in Houston for example, then by my calculation your property taxes would be upward of $5k/year or more. If you want one of the great houses then double (or more) those costs.
Right. In the cities and nicer suburbs that will be true. But they have considerably higher property taxes overall than smaller towns.

When we lived in west Houston -- a nicer than average but not "rich" neighborhood, we had a home assessed at $197,000 (4/2.5, 2200 sf) with property taxes of around $5,000 a year.

Our current house out in a small town is appraised at $86,000 and we paid a little over $1100. The baseline exemption and the lack of a dozen taxing authorities in a small town are part of the difference. The school taxes are not that different from one place to another, but the other taxes can be. Here the only taxing authorities are the school district, the city, the county and the hospital. And if you live outside the city limits, you can avoid the 0.4% city tax as well.

Of course, the lower property values come at the price of few decent j*bs, but if you're firmly retired, that's not a big deal. Then again, if you want to be close to a lot of opportunities to spend money shopping, restaurants and culture, you'd have to be closer to the city, and for any reasonable nice urban or suburban area, the housing prices combined with more property taxes make it harder for the math to work.
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Old 02-22-2010, 05:41 PM   #10
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I really like the PEW's centers work. Was anybody surprised to see that flyover states NE, WY, TX, SD, ND, UT were the among the most fiscally responsible states in the countrys?

Like W2R I am always happy a bit surprised to see that Hawaii didn't make the top 10.

Last week PEW issued a report on a subject that I have been railing about unfunded state pension.

Quote:
The Trillion Dollar Gap: Underfunded State Retirement Systems and the Road to Reform

$1 trillion. That’s the gap at the end of fiscal year 2008 between the $2.35 trillion states had set aside to pay for employees’ retirement benefits and the $3.35 trillion price tag of those promises.
Why does it matter? Because every dollar spent to reduce the unfunded retirement liability cannot be used for education, public safety and other needs. Ultimately, taxpayers could face higher taxes or cuts in essential public services.
A new report from the Pew Center on the States, The Trillion Dollar Gap: Underfunded State Retirement Systems and the Road to Reform, shows why states must take strong action now—or taxpayers will suffer later.
To a significant degree, the $1 trillion reflects states’ own policy choices and lack of discipline:
  • • failing to make annual payments for pension systems at the levels recommended by their own actuaries;
  • • expanding benefits and offering cost-of-living increases without fully considering their long-term price tag or determining how to pay for them; and
  • • providing retiree health care without adequately funding it.
I haven't read the report yet but I will here is the press release. Oh BTW, a trillion is roughly 10K per household.
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Old 02-22-2010, 05:42 PM   #11
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Interesting. Most of the troubled states I would have guessed right, but I did not expect to see Oregon or Wisconsin on the list. Wonder what's hurting them? Just curious, not planning to retire to any of those states, all my choices are middle to better - boring places with a lower cost of living.
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Old 02-22-2010, 05:53 PM   #12
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All 4 of the states I would consider retiring in are on the top 10 worst list In order of likelihood: Wisconsin, Florida, California, Arizona
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Old 02-22-2010, 06:04 PM   #13
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When we were looking to bail out of Maryland my choice was Delaware, DW's was PA. She won. So far so good. Just a tad more snow here.

We do have tons of crooked politicos, though there is a movement afoot to dump the full time state legislature and make it similar to Texas'. That would cut down supporting a bunch of crooks full time. We'd only have to pay for them part time. Hope it passes.
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Old 02-22-2010, 06:26 PM   #14
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Interesting. Most of the troubled states I would have guessed right, but I did not expect to see Oregon or Wisconsin on the list. Wonder what's hurting them? Just curious, not planning to retire to any of those states, all my choices are middle to better - boring places with a lower cost of living.
My mom lives in Oregon and I read the report. In nutshell the problem that Oregon had was that unemployment doubled from 6+% to 12% in a couple of years. The losses were from the traditional trouble spots lumber, but also tech a medium semiconductor company shutdown, as did a RV manufacturer, and the big guys also had layoffs.

However the crux of Oregon's problem is they don't have a sales tax. Income tax receipts are like equities for individual investor, in good times they provide lots of revenues but they are highly volatile. So when people got laid off it was a double whammy not only did the state lose revenue but it incurred higher expenses like unemployment benefits, and higher social service costs. With a sales tax, the state still collects revenue from unemployed people spending savings.
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Old 02-22-2010, 06:43 PM   #15
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I'm amazed that good ol' NY is not in the Top 10 Worst States lists at the OP's links. It is usually right up there on the "Worst Dressed for Fiscal Success" list.

One of these days...I will be outta here.
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Old 02-22-2010, 06:47 PM   #16
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However the crux of Oregon's problem is they don't have a sales tax. Income tax receipts are like equities for individual investor, in good times they provide lots of revenues but they are highly volatile. So when people got laid off it was a double whammy not only did the state lose revenue but it incurred higher expenses like unemployment benefits, and higher social service costs. With a sales tax, the state still collects revenue from unemployed people spending savings.
So here's what will happen. Your state will impose a "temporary" sales tax. Then over time the temporary tax will become permanent. Then spending goes up. Then during the next downturn you'll be short again. Then it's time to increase taxes again. and so on and so on.

Some think the solution isn't to have more taxes, It's to have a real rainy day fund that you can draw down in hard times. When times are good you would then build up the rainy day fund. The hardest part is resisting the chorus of spending calls to use up the rainy day fund.
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Old 02-22-2010, 07:02 PM   #17
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In our area of Texas, $7,000 of property tax buys you 3,000 sq ft, new home, on 1.2 acres of lake front property! At age 65 if the house is paid off you can defer your taxes until you and your spouse die. Admittedly your estate would have to pay the tax or loose the home, so you have to make up your mind how much estate do you want to pass to your kids, or weather you want to spend it.

At any rate that is Zero income tax, Zero property *over 65, and a state with a budget surplus.
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Old 02-22-2010, 11:20 PM   #18
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So here's what will happen. Your state will impose a "temporary" sales tax. Then over time the temporary tax will become permanent. Then spending goes up. Then during the next downturn you'll be short again. Then it's time to increase taxes again. and so on and so on.

Some think the solution isn't to have more taxes, It's to have a real rainy day fund that you can draw down in hard times. When times are good you would then build up the rainy day fund. The hardest part is resisting the chorus of spending calls to use up the rainy day fund.
Such a change in taxation has to go before the voters in both Oregon and Washington. Oregon has tried to get a sales tax and Washington has tried to get an income tax. It has been political suicide to back such measures. The citizens of both states know damn well what will happen.
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Old 02-22-2010, 11:50 PM   #19
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So here's what will happen. Your state will impose a "temporary" sales tax. Then over time the temporary tax will become permanent. Then spending goes up. Then during the next downturn you'll be short again. Then it's time to increase taxes again. and so on and so on.

Some think the solution isn't to have more taxes, It's to have a real rainy day fund that you can draw down in hard times. When times are good you would then build up the rainy day fund. The hardest part is resisting the chorus of spending calls to use up the rainy day fund.
I don't disagree with you are saying and I certainly hate to see my money go to foolish government programs but.. There are fair amount of government services that I like to see funded. For instance several years ago, an entire county in Southern Oregon closed all of their libraries and eliminate police services from 2AM-6AM week days.

Oregon voters actually voted by fairly large margin to increase taxes last month, of course since the taxes were on corporation and high income folks maybe they really were voting to tax the guy behind the tree
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Old 02-23-2010, 12:21 AM   #20
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In our area of Texas, $7,000 of property tax buys you 3,000 sq ft, new home, on 1.2 acres of lake front property! At age 65 if the house is paid off you can defer your taxes until you and your spouse die. Admittedly your estate would have to pay the tax or loose the home, so you have to make up your mind how much estate do you want to pass to your kids, or weather you want to spend it.

At any rate that is Zero income tax, Zero property *over 65, and a state with a budget surplus.
That's an interesting point on the deferred income taxes once over 65. DW and I have lived here for 10+ years and its the first I've heard of it...

TX definitely is great if you are comfortable with the more modest house. Our constitution requires a balanced budget which drives a lot of the fiscal discipline.

DW and I are still many years away from FIRE but the property tax issue is a concern. Austin is an 'expensive' city for TX and our newer 3000sf, $500k home in an area with great schools lands us a $11k property tax bill each year. Not a big deal while we are working with good incomes (and no income tax) but a big chunk to pay when we want to FIRE.
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