As you pass the Thanksgiving turkey over to your cousin Sam sitting next to you, you think to yourself, “Now is the time to tell the family.”

“Hey everyone, I have some great news. I’m retiring at the end of the year.”, you say emphatically.

This is met with the obligatory chorus from family members and friends of:

“Good for you!”

“What are you going to do with all of that free time?”

“Are you going to move closer to the kids?”

You answer all their questions with warm platitudes as the conversation fades towards other topics. The rest of the dinner continues as it normally does. You know the drill. The family friend, Freya, treats herself to some wine, your brother-in-law Doug talks about his fly fishing adventures, and your nephew Eddie barges in at the last minute to pile on a to-go plate before his swing shift at the factory.

As you eat, you know that you haven’t thought much about retirement. Questions of where to go or what to do never really crossed your mind. You were just getting a bit tired of the 9-5 life for 40 years. The only thing you know you want to do is relocate. You sit for the rest of the meal in deep contemplation, thinking it might be good to spend time with your family in California. You also hear that Florida is a nice place to retire. You’ve had friends relocate there because of the warm weather and no state income tax. Maybe you want to spend the summer months in Idaho and snowbird back to Nevada in the wintertime. You keep playing with the map of America in your head trying to figure out what state would be best for you to retire in.

And then some clarity presented itself to you.

Just as Uncle Frank was grabbing the last piece of pumpkin pie, Cousin Sarah commented about today’s political environment. Uncle Frank’s face got as red as the poinsettias in the corner of the room and proceeded to yell at Sarah about how asinine her political views were. Instead of taking the high road, Sarah went low (and snagged the last piece of pumpkin pie while Frank was distracted during his political diatribe against Sarah’s views). She told Uncle Frank that his political views were so ridiculous that if everyone thought like him the world would have ended yesterday.

“Frank lives in Washington State. Sarah lives in Texas. Ok, I’m not moving to Washington State or Texas now.” You think to yourself.

Aunt Claire heard the ruckus at the Thanksgiving table and had to intervene. As always, she had to calm the family down. Uncle Frank and Cousin Sarah calmed down and everyone finished the Thanksgiving meal in peace.

“Hey, Aunt Claire lives in Delaware. Maybe I should go there.” You think to yourself.

Now let’s examine this scenario a bit more seriously. I didn’t pick these states out by accident. Florida, Delaware, and Idaho are considered some of the best states to retire in while California, Texas, and Washington are considered some of the worst states to retire in (according to various metrics like affordability, access to healthcare, taxes, quality of life, etc.). Of course, the best state to retire for you is the state that you are happiest in and get the most fulfillment out of. However, if you are impartial to where you want to spend your golden years, it’s important to look at affordability, taxes, and quality of life.

Taxes

Let’s look at two properties, one in Tampa, FL and the other in Austin, TX.

Tampa:

Austin:

On the surface, they look similar. There’s also no state income tax in Texas or Florida. However, Texas has a higher average property tax of 1.60% compared to Florida’s 0.86%. Let’s do the math on both properties.

The property tax for the Texas home would be:

              $449,900 x 1.60% = $7,198.40 per year (or $599.87 per month)

The property tax for the Florida home would be:

              $465,000 x 0.86% = $3,999 per year (or $333.25 per month)

Saving around $266.67 per month helps, but Florida has higher home insurance costs than Texas because of natural disasters. Florida also has a large retiree population and access to best-in-class medical care because of it.

While we are still talking about taxes, now it’s time to mention California’s notoriously high state income tax rates that locals refer to as the “Sunshine Tax”. Yes, California has the highest income taxes in the nation and taxes basically everything. However, there is one thing that California doesn’t tax – Social Security income. If that is your main source of income in retirement, you probably don’t need to worry as much about income taxes as you might think.

Property tax rates are also lower in California than in Texas and Florida, with an average rate of 0.70%. However, you’d be hard pressed to find a 3-bedroom home in California for under $500k now.

There’s still another tax to consider. Say you like the Pacific Northwest but aren’t in favor of Washington state’s high cost of living. Even though Washington state has no state income tax and Oregon does, Oregon has no sales tax. Washington State’s sales tax is 6.50%, so if your effective state income tax rate is less than 6.50%, it might be more beneficial to live in Northern Oregon than in Southern Washington.

Here’s a helpful map of combined average sales and income tax rates for residents by state if you would like a quick guide:

Source: Tax Foundation

Quality of Life

Something to be mindful of is the weather where you are relocating to. Some clients we work with live in Idaho in spring to fall and relocate to Nevada during the winter. This strategy is called “Snowbirding”. Snowbirding is a nice luxury for clients that can afford to keep and maintain a second home, but others may not have that option. To help you decide, here’s a map of the contiguous 48 states and the average temperatures they have throughout the year:

Now let’s discuss healthcare. According to a 2018 study from the Agency for Healthcare Research and Quality, Delaware is one of the best states for healthcare quality. California, Texas, and Florida rank towards the bottom 10 states for healthcare quality. If this is important to you, then Delaware could be a good option for you. As a side note, Delaware’s property taxes average around 0.59% percent, even lower than California, Texas, or Florida.

Maybe you’re jumping for joy at what’s going on in Washington D.C., or not, or maybe you’re indifferent to the goings-on of government. You can search for areas by political affiliation on places like Niche to help with your relocation search.

Maybe being closer to your kids is important to you. If this is the case, it’s hard to put a dollar amount on happiness. One thing to keep in mind is if your kids are still working and you relocate to where they are, see how stable your kids’ jobs and lives are before uprooting your lives and moving somewhere else. Maybe your kids will get a new job offer in another state and decide to relocate there. Now you’re stuck in a place you might not have wanted to be.

Retiring Abroad

You may be thinking of retiring abroad. If this is the case, there are numerous things to think about besides where you plan to relocate to. Here are some examples:

• Some countries like Portugal offer a Golden Visa program which allows non-EU citizens a pathway to citizenship for $500,000 Euros.
• There is also confirming whether your pension provider has a reciprocity agreement with the country you plan to relocate to.
• Roth IRA distributions are normally tax-free under US law, but depending on the country, it might not be if you are a US citizen living abroad.

For these reasons along with many others, we recommend consulting with a tax attorney specializing in that country’s regulations before relocating abroad.

Estate Planning

The other thing to think about (and is probably the last thing on your mind) is what state is “best” to die in. I know we’re getting a bit morbid here but it’s something we need to discuss. Some states have an estate tax or an inheritance tax that could eat into your heir’s inheritance (see the map below for your state):

Some states like Texas normally do not need a Revocable Trust because their probate court system is very efficient. Other probate court systems like California’s are not, so a Revocable Trust is practically required for California homeowners. Most states have laws that a Trust must be dissolved within 21 years after the death of the last surviving person. This is called a law against perpetuities. If you have generational wealth that you would like to maintain in Trust, a state like South Dakota may be a good option to have the location of Trust administration in (because South Dakota allows for Trusts to continue forever, has no state estate tax, or inheritance tax, and Mt. Rushmore is cool if you haven’t seen it).

We recommend consulting with an attorney on making sure your estate plan meets your wants and wishes regardless of which state you plan to relocate to.

Conclusion

Let’s move forward in time to next Thanksgiving. You sit down and grab some turkey, while Cousin Sarah yells at Uncle Frank that the current presidential administration is very _________(adjective) while Uncle Frank shouts that the current presential administration is very _________ (opposite adjective). You’ve given some serious thought about where you’re looking to retire, and you let the family know.

“I’ve met with my Certified Financial Planner™ professional, and I feel confident about my decision to retire in ______________”

There seems to be a period of calm in the eye of the storm as your family’s normally tumultuous Thanksgiving festivities pause for a while as they congratulate you on making a thoughtful decision.

If you are retiring soon and looking to relocate, we will be happy to meet with you to develop your financial plan and work through your relocation plan with you. Please reach out to us at financialplanning@bfsg.com or give us a call at 714-282-1566. Let’s map out your relocation journey together during a free consultation meeting with our team.

Sources:

https://www.cnbc.com/2024/01/27/best-states-to-retire-in-2024.html

https://www.cnbc.com/2024/07/30/worst-states-to-retire-in-the-us.html

https://www.bankrate.com/retirement/best-and-worst-states-for-retirement

Best Places to Retire in the U.S. in 2025 | U.S. News

https://taxfoundation.org/location/washington/#:~:text=Washington%20has%20a%206.50%20percent,on%20owner%2Doccupied%20housing%20value.

https://www.ahrq.gov/data/infographics/state-compare-text.html

https://www.niche.com/places-to-live/search/best-places-to-live/m/los-angeles-metro-area

https://www.areavibes.com/irvine-ca/#amenities-jmp

https://www.climate.gov/news-features/featured-images/new-maps-annual-average-temperature-and-precipitation-us-climate

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