Retired people have one great asset that many younger people lack – mobility.
Retirees can choose to live in places where costs-of-living and income taxes are low, without regard to whether jobs are plentiful or wages are high. For many U.S. seniors, especially those living in the Northeast U.S. and California, the best move for upgrading personal finances could be relocating.
The tools you need to help clients compare relocation choices and benefits have just been published by The Tax Foundation: http://taxfoundation.org/blog/real-value-100-each-state
Using new Bureau of Economic Analysis data, the Tax Foundation has adjusted regional price differences into an index, based on how much value $100 of national-average income can buy, state-by-state. For example, in a high-cost state, New York, purchasing power shrinks to $86.66 per $100. In a low-cost state, Mississippi, it rises to $115.74. Moving from New York to Mississippi would result in a reduced cost-of-living of 25%.
These indexes can be further refined by metro area. For example, the index for the San Francisco-Oakland-Hayward metro area is $82.44. Go here to access metro-level BEA indexes on Regional Price Parity: https://github.com/TaxFoundation/data/blob/master/real-purchasing-power/real-purchasing-power-2012.csv
Cost-of-living is just one key relocation variable for retiree households. Another is income tax, and for that the Tax Foundation has another map here: http://taxfoundation.org/sites/default/files/docs/top_income_tax_rates.pdf
When you put these two maps together for clients, interesting options emerge. For example, Florida has always been a preferred retiree destination because it has no state income tax. Yet, Florida's cost index ($101.21) is close to the national average. What state has costs well below the national average and also low taxes for seniors?
It takes a little digging, but the best answer may be Tennessee ($110.25) and Ohio ($109.77). Tennessee has no state income tax, but a 6% tax on certain dividend and interest income exceeding an exemption. The tax only raises about 2% of Tennessee's state tax collections and is easy enough to plan around for most people age 65 and older. Ohio has graduated state income tax rates that should average about 3% of taxable income for most affluent retirees. Neither state taxes Social Security or has an inheritance/estate tax.
To check all tax impacts on retirement income, the best source is Kipplinger's Retiree Tax Map: http://www.kiplinger.com/tool/retirement/T055-S001-state-by-state-guide-to-taxes-on-retirees/index.php
© Arc, All Rights Reserved. Request academic re-use from www.copyright.com. All other uses, submit a request to TMSalesOperations@arc-network.com. For more information visit Asset & Logo Licensing.