For many retirees, retirement is a bit more challenging than they thought. Interest rates have been low, investment returns have been volatile and health-care costs are on the rise. There simply isn’t any room for excessive taxes in the retirement equation.
In an effort to make their funds go further, many retirees have been forced to relocate to more cost effective and tax-friendly states. There are plenty of areas that offer low income tax, sales tax, inheritance and estate taxes, not to mention significantly reduced real estate taxes. In fact, a few states provide low tax rates and some nice weather, too.
Since any reduction in taxes can be used to improve your personal cash flow, retirees may want to consider the following states which offer attractive tax rates.
As the state with one of the most tax-friendly reputations for businesses and individuals, Delaware can be a great place for retirees to call home. While Delaware does have an income tax ranging from 2.2 percent to 6.75 percent, residents do enjoy no sales tax and no estate or inheritance taxes for 2013. Social Security benefits are exempt from state income taxes and those older than age 60 can exclude $12,500 worth of qualified pension benefits, investment income, dividends, interest, rental income and even capital gains.
Additionally, eligible taxpayers age 65 and older may qualify for a credit equal to half the school property taxes up to a $500 limit. If that isn’t enough, the average property tax rate as a percentage of the average home value is only 0.52 percent, making Delaware one of the top five states in the nation when it comes to property tax affordability.
Retirees looking to stretch their dollars may find that Georgia offers some very attractive tax laws. Georgia does impose an income tax rate varying from 1 to 6 percent and an overall state sales tax rate of 4 percent. However, residents age 65 and older can exclude up to $65,000 of retirement income for those filing single and $130,000 for joint tax filers. Since this applies to pensions, dividends, interest, rental income, royalties and capitals gains, some serious savings can be realized.
While property taxes are not as low as other states, the average property tax rate as a percentage of the average home value is still only 0.97 percent. With no estate or inheritance taxes, Georgia may also offer those concerned about estate planning additional tax savings for beneficiaries.
Retirees might just hit it big in this state. With no state income taxes, retirement income sources including pensions and Social Security escape taxation. While there is a 6.5 percent sales tax imposed, it does not apply to food and prescription drugs leaving retiree with more dollars in their pocket.
Property taxes aren’t too high either as the average property tax rate as a percentage of the average home value is only 0.90 percent. Nevada residents also benefit from no estate or inheritance taxes.
The “snow birds” from the northeast have already begun making their annual migration to this retirement destination. Why do so many retirees make Florida their primary residence? Besides the weather, Florida offers some attractive tax rates.
Since there is no state income tax, retirees will enjoy more of their retirement income including pensions, Social Security, dividends and interest. Unfortunately, Florida does have a sales tax of up to 7.5 percent. However, it does not apply to food or prescription and nonprescription drugs.
Also consider that real estate taxes as a percentage of the average home value are only 0.97 percent and the assessed value of property will not increase more than 3 percent or the consumer price index, whichever is less.
Additionally, those who have a permanent residence in Florida may be eligible to receive a homestead exemption. Retirees concerned about estate planning also will benefit because Florida does not have inheritance or estate taxes.
From historic Charleston to Myrtle Beach, this retirement destination has a lot to offer retirees concerned about taxes. Although, South Carolina does impose an income tax of 3 to 7 percent and a sales tax of 6 percent, there are no taxes owed on Social Security benefits. Additionally, those 65 and older may be able to deduct up to $15,000 per spouse in qualifying retirement income.
Homeowners age 55 or older may qualify for a local tax exemption on the first $50,000 of their property’s fair market value. With real estate taxes as a percentage of the average home value reaching only 0.54 percent, South Carolina lands in the top five states nationally for real estate affordability.
Finally, South Carolina residents are not subject to inheritance or estate taxes.
There are many attractive retirement destinations for retirees to consider. While minimizing taxes may help improve the overall quality of your retirement, it should not be the only consideration as family and other factors may take precedence.
Keep in mind that while many states do not impose a state estate or inheritance tax, federal estate taxes may still apply.
Since everyone’s retirement goals are unique, consider speaking to your tax adviser to determine the most appropriate plan for your circumstances.
Kurt J. Rossi, MBA, is a certified financial planner practitioner and wealth adviser. He can be reached for questions at (732) 280-7550, kurt.rossi@Independentwm.com or www.Independentwm.com. LPL Financial Member FINRA/SIPC.