Moving for retirement tax reasons

[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.

 

[braumeister]

we plan to move to the greater Portland, OR area. The suburbs in WA look tempting when I take into consideration the difference in income tax between OR and WA. DW is skeptical.

A good friend recently retired and moved from here in the midwest to Vancouver, WA. As you point out, no state income tax and nearby shopping with no sales tax. Best of both worlds in a way.

He is delighted with the situation, but there were other considerations in the forefront (family nearby). Still, it could easily be a consideration for some ...

 

[Bestwifeever]

.... And now Oregon and Washington are tagged in worst states to retire FWIW.

Ten worst states per the link:

Bankrate.com compiled its rankings on the basis of healthcare, crime, taxes, climate and bang for your buck. Oregon got dinged for its cost of living (37th), below-average temperature and hospital bed availability, as well as its above-average tax and crime rates.

Alaska, Washington, California, Wisconsin, Maine, Maryland, Vermont, Minnesota, Delaware and Connecticut round out the worst 10.

Aside from that being 11 states in the list of 10 worst, Illinois and Michigan are feeling mighty good about themselves .

 

[F4mandolin]

I am still surprised that so many people/articles keep saying how drizzly/damp it is in the NW. Over half the land is on the dry side.....Portland and Seattle get the attention though....and they are damp, but usually nice summers. As far as WA being expensive....maybe if you live in the Seattle/Vancouver area that might be true.....plenty of other places in the state where the costs are a lot lower.

 

[M Paquette]

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.

Don't forget the poisonous spiders, toxic fungi, rattlesnakes, and of course, land cephalopods.

 

[Shawn]

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.

I'm still working and my effective CA state income tax rate is about 7.5%. Throw in other state and property taxes and the total effective rate is 10%. Much of this is not federally deductible because I am subject to AMT. When I retire, if I decide to immediately take my pension, my state taxes will continue to be high.

On an annual pension income of $85K and $15K interest/dividends, I will pay over $10K in state and property taxes in California. There are other taxes such as 9.75% sales tax and relatively high vehicle registration fees. Future RMD's and dividends growth will be taxed at 9.3%. The same with realized capital gains and Roth rollovers, if any.

If I move to a medium tax state such as Colorado and live in an equivalent house, my total state and property tax burden will be about $5K (back of the envelope calculation). If I move to a no income tax state such as Nevada or Wyoming, my total state/property tax burden will be less than $2K. Factoring in the general high cost of California living, I will generalize and estimate a $10K/yr premium to live in California. If anything, this estimate is overly conservative. The California premium may be higher, especially considering future RMD's and potential Roth rollovers that will be taxed at the higher California marginal rate (granted, reverse factors such as one-time moving costs need to be considered). But a $10K+ premium is not insignificant.

Is it worth it to me to spend an additional $10K/yr (or more) to live in California instead of another state that I find desirable? Maybe. Probably not.

 

[marko]

Somehow I think that what the move (and the lawyers!) would cost will far exceed the tax savings for the rest of my life.

Mass has a flat 5.2% income tax (no deductions or "effective rate"). For a lot of folks that means $5K to $8K or more a year to the bottom line..a lawyer would hit you with a one-time $500 fee (per the ads anyway)

 

[sengsational]

I wouldn't put myself in the "in depth analysis" club, but, just by accident, while noodling a strategy for Roth conversions, I noticed that state income tax was HUGE compared to any improvement to be gained shuffling IRA money around.

Since there are probably a lot of folks that just plain don't like the idea of moving (count me as one), you probably should take at least some of the 'don't move' comments with a grain of salt. I mean, it seems like most (>50%) here have not moved, yet they all are super smart with their finances. So to suggest moving for tax efficiency, something many didn't do, might generate pangs of cognitive dissonance, hehe!

I'm lucky in that I can move about 20 miles, stay in the same MSA and get lower taxes. And be closer to DW's family! But I STILL probably won't move because it's a PITA! I also have my entire extended family in Florida, so that's probably the move we will be making, but not until there is 'less family' here, if you know what I mean.

I think a good question would be, "what would you do with the extra money?" Of course you'd need to price out the null hypothesis, and a specific other location. Although there is some satisfaction gained from just not letting the particular state get their mits on your funds, it's more important to figure how those few bucks will translate into a more joyful or meaningful existance. We all know that just having the extra bucks won't make you a bit happier!

 

[travelover]

A good friend recently retired and moved from here in the midwest to Vancouver, WA. As you point out, no state income tax and nearby shopping with no sales tax. Best of both worlds in a way.

He is delighted with the situation, but there were other considerations in the forefront (family nearby). Still, it could easily be a consideration for some ...

We have a daughter on the coast, due west of Portland. I consider the coastal area great to visit, but I can't see living there, thus considering Portland and environs..

 

[Gumby]

Virtually anywhere else in the US would have lower taxes. But I like it right here and I'm not planning to leave.

 

[tfudtuckerpucker]

Don't forget the poisonous spiders, toxic fungi, rattlesnakes, and of course, land cephalopods.

Lol- we never saw a single poisonous snake or spider while we lived in Oregon. Texas, on the other hand, is quite different. The large scorpions in the house no longer bother me, but last year my daughter found a coral snake under her bed. Coral snake venom is much more potent than a rattler, and if you step on one with bare feet, well yall'd better vamoose to the ER. It's creepy to have to check under the bed each night.

 

[REWahoo]

Texas, on the other hand, is quite different. The large scorpions in the house no longer bother me, but last year my daughter found a coral snake under her bed. Coral snake venom is much more potent than a rattler, and if you step on one with bare feet, well yall'd better vamoose to the ER. It's creepy to have to check under the bed each night.

I need to add "coral snakes under the bed" to my list...

 

[Brian]

Thanks for all the responses. I agree there needs to be other factors which make you want to move and then it's just a cost optimization of the place you would consider moving to.

I think I've fulfilled my need to see if there was some big secret financial saving reason that was not readily apparent to me. So it looks like we'll stay in Iowa until we find a place we would like better.

 

[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.

 

[W2R]

P.S. We're not in a position to rent someplace for a while first. Would be nice, but not workable.

If you can't afford to rent even a tiny studio apartment in your new location for a few months before moving there and buying, how do you plan to assess your new location and decide if you are sure that you want to live there? How will you know what neighborhood in the new location will be right for you? You don't appear to be certain at this point, after your internet search. Do you intend to depend on the advice of people on a message board, to make these determinations for you?

Could you sell your present home, put your things in storage, and THEN rent for a while before buying?

Maybe you simply can't afford to move right now. Lacking any further information, my advice is to stay put.

 

[Mulligan]

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]

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]

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]

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]

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]

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]

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]

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).