I'm not planning on retiring tomorrow but I wanted to know what things I should be doing far in advance of retirement to put myself in a better financial position. We set up meetings with a variety of professionals to find out what we needed to do prior to making such a big life change. We went to see an attorney to review our will (apparently my old one was 25-years-old and no longer reflected my family accurately). We met with an accountant to discuss future tax implications of social security, pensions and IRAs. There's a lot to learn. We saw a financial advisor to take a deep and hard look at what the financial picture will really look like. And lastly, we met with an insurance agent to discuss life insurance, long term care and other types of protective insurance.
After speaking with the attorney and accountant, one thing became abundantly clear. As residents of Connecticut, if we want to have more money in retirement, and keep that money and maybe even have money left over for our kids when we go to that "Spirit in the Sky", leaving Connecticut is kind of critical.
Our accountant said he has seen a huge trend of retirement age Connecticut residents electing to move out of Connecticut and into a state that has more favorable tax advantages for retirees. He said that over the past five years, a huge percentage of his older clients have been selling their homes in New York and Connecticut and moving to tax and cost of living friendly states like North Carolina, Georgia, Florida, Arizona, and South Carolina.
What to do? The downside is that my friends and family are in CT. My doctor and dentist and my favorite dental hygienist (who never causes any pain. Thank you, Monica) are in CT. My book group, my library, my local market are all here. And my yoga class and my favorite bike route where I can occasionally glimpse horses and even one home that has a pack of rescue donkeys (who knew donkeys needed to be rescued?). Nevertheless, when you really look at the big financial picture, putting yourself in a tax advantageous state could dramatically change your entire standard of retirement living.
Here's what we learned. When most people stop working, they will live on a combination of savings like IRAs or 401Ks, social security and for a few of the lucky ones, a pension. Regardless of what your combination is, it will essentially be, a fixed income. Many states like CT have a state income tax. It varies from state to state. Quite a few states will tax your pensions, earnings on your savings, social security and even your IRA disbursements that you must start drawing on at age 70 ½. When you start taking that mandatory money out of your IRA, you will be taxed on it by both the federal and state government, unless you live in a no income tax state. If you move to a state like Florida with no income tax, you will still be taxed by the federal government but Florida won't take a bite out of your social security or pension or IRA disbursements. That's major and could make a huge difference in your overall standard of living. Florida also has no estate taxes or inheritance tax. That could also be another huge factor to consider depending on your situation. Some states do have an income tax like Georgia or Nevada but Social Security is exempt and retirement income under a certain amount is exempt. For most of us, these states are also fine options.
Our retirement planning site, GangsAway!, provides direction, data and information to help people figure out where they are going to live and what they are going to do in retirement. Here are some suggestions of tax advantageous locations that might set you up for a fiscally greater second act and some pretty nice weather too.
Warm and sunny locations:
Wide Open Spaces:
Super Low Cost of Living:
Still confused? Try using the GangsAway! Destination Genie to help you figure it out.