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Geoffrey Schmidt is a CPA and retirement planning expert with a YouTube channel called HolySchmidt.
In a recent video “The Map is Wrong” he analyzed the five best and worst states to retire and challenged the idea that the best choice was states with no income tax. He based his analysis on median home values and retiree incomes.
He used the estimated combined spending on property taxes, sales taxes, income taxes and property insurance. When added together the results showed no income tax is sometimes a misleading criteria, especially in places like Florida and along the Gulf Coast, even in parts of the Midwest where property insurance tipped the scale because of tornado alley.
Equally interesting, he showed how in some cases retirees in states with an income tax don’t actually pay such tax anyway because of deductions and exclusions applied to seniors.
NJ is a high tax state, especially property taxes. But in NJ for example, there is no tax on SS benefits and most seniors can exclude up to $100,000 of pension income (including distributions from IRAs and 401k plans) from income tax.
In addition, there are several property tax relief programs including the ability to freeze property taxes from increases if your income is $176,870 or less. The median household in for age 65 and older is $69,102.
I doubt many retires are planning to retire to New Jersey, (actually we are paid to stay). No matter, I’m stuck, my family has been here since the 1840s at least.
In any case the Schmidt exercise makes it clear it is a good idea to look at the big picture.
Good points. Florida has worked well for us in retirement, and the lack of a state income tax certainly doesn’t hurt. But as you point out, that’s only one piece of the equation. Property taxes, homeowners and auto insurance, housing costs and other expenses can quickly change the calculation.
I also agree with Jack’s comment about Jonathan. Ultimately, the “best” place to retire isn’t necessarily the place that costs the least. Family, friends, climate and simply where you feel at home can be worth far more than whatever you might save in taxes.
Finances, taxes and such were not a consideration. Only being near family which in our case all are within an hour drive.
In the 2000s when my tax business was not yet sufficient to be my sole source of income, I took a part time job with a trucking company who contracted with the Post Office to haul mail back and forth across the country. We were sort of like the Pony Express, here in Toledo, I’d pick up a truck that came in from Illinois, take it to Pennsylvania, and swap with a driver from Jersey. Our hourly rate was based on where the routes originated from. Our trips originated in Jersey City and San Francisco or Los Angeles.
The pay was about $300 per day. Just a couple days each week (in addition to my business income) was all I needed to make the ends meet. I always wondered what that income meant to the drivers from Jersey City. According to AI, “Overall, the cost of living in Jersey City is roughly 80% to 110% higher than in Toledo”.
I think this illustrated the importance of due diligence in selecting an area to retire.
With all the complaining New Jerseyans do about our high property taxes, according to WalletHub we are eighth in total tax burden. Not great but not apocalyptic either. New Jersey usually is in the top three in income and almost 10% of taxpayers have a net worth over $1,000,000 leading the nation. The reason I live here is simple; I have always lived here, and I know where everything is.
Yeah, but the net worth for the 65 and over population is only about $190,000 excluding a house and other tangible property.
And good schools too. Taylor Ham or Pork Roll?
I’m from North Jersey so it’s Taylor Ham (which I have never eaten).
Iowa has no tax on any retirement income, social security, pension, IRA, 401k, etc. That’s great, but then comes the post RMD years and those withdrawals I don’t spend begin to earn funds subject to Iowa income taxes, a flat rate of 3.8%. They more than make up for the retiree income with a higher property tax, 1.33% versus the US median of 0.99%.
For what it’s worth, I’m in a similar position but on the other side of the pond. I hold an EU passport, so I could legally relocate to any EU country — plenty of options with better weather and lower taxes than where I am now. But my friends, and more importantly my kids and grandkids, are all in Ireland or the UK. So that’s where I’m staying, tax rates and grey skies included.
You could do a lot worse. Alas no more retirement visas in the UK.
There is no state tax on public pensions in NYS, but they do tax private company pensions. (as ordinary income) That seems totally unfair.
The tax exclusion is the result of collective bargaining at some point in the past. I have no idea when that occurred but my wife, who was a NY state employee, was told that unions made salary and other concessions in return for the exclusion. I have no idea which side came out ahead.
It sure does especially considering the public paid for the state pensions.
In Ohio, the first $250K of self employment income is not taxed. In my tax practice I had retirees paying income tax while I paid none. The argument is that small businesses create jobs, but I never created even one job, and still got the break. Don’t get me wrong, I didn’t mind getting a free pass on state taxes, still, it doesn’t seem fair either.
I’ve read numerous such articles and various “top 10 lists” on this topic, and while they were entertaining to read, I found them to be of no value.
The smartest one-liner relevant to this discussion that I ever read was written by Jonathan. He identified a couple such desirable places from a list and then he wrote something like “…but if my grandkids and their family move to Cleveland, thats where I will be”. Not meant as a criticism of that great city of course, but a reminder of how important family was to him, and indeed most of us. I am with him on this.
That’s why we will never leave NJ. I could save $12,000 a year in property taxes alone just by going to Cape Cod, but that will never happen.
The only reason I am still in NYS is because my kids and grandkids are here.
Good point, Jack. I remain in the Toledo area because of the kids. If family were not an issue, I would probably live someplace with a warmer climate.
I’ve never watched HolySchmidt, but I love the name. All states except (I believe) Vermont have to balance their budget every year. Vermont balances theirs too, even though it is not constitutionally required. Services have to be paid for one way or another, so you really have to do your due diligence before deciding on which state to retire too.
Car insurance can also vary greatly from state to state, so include that in calculations as well.
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