Could moving in retirement save you on taxes? I ran three scenarios for a hypothetical couple looking to move from New York to Florida. These findings will also be similar for a move from California to Texas, or any high income tax state to a no income tax state. Be aware I did not consider changes in property taxes and sales tax. Let me summarize my findings for you.
Video version: https://www.youtube.com/watch?v=SeD9hMFiQpQ&t=264s&ab_channel=MarlinFinancialAdvisors
Scenario 1
· 62 yr old couple
· $1M 401k
· $3500 a month combined SS income at age 62
· Spending about $6000 a month, with LTC costs built into the plan.
Results: Moving in this situation, “Proposed Plan”, due to transaction costs from the relocation of their home, led to a slightly worse result in their plan, as expected ending net worth fell.
Now you may be as surprised as I was but let’s go over why this is the case.
Roughly half their income comes from Social Security. In New York, California, or a lot of states, Social Security is not taxed anyways. So, there is no tax benefit there.
After you eliminate Social Security income their income falls considerably and are taxed at more acceptable rates within those states. Conclusion – Moving in lower retirement income situations does not provide much income tax benefit.
Scenario 2
· Added a $30k pension
· Increased 401k balance to $2 M
· Spending was adjusted accordingly
Results – Here we can see there was a more meaningful improvement to their retirement plan. Expected ending net worth jumped ~60k, but more importantly probability of success jumped 3%.
Scenario 3 – We will now use scenario 1’s numbers but start to account for the cost-of-living adjustment retirees might enjoy moving to Florida from New York. I’ve now made two adjustments:
Reduce monthly expenses by $500 to account for cost-of-living adjustments.
Reduced the home price to $400,000 assuming the real estate market is a bit more reasonable, and the savings were invested.
Here we find a 4% jump in the probability of success due to each of the cost-of-living adjustments I made. As you can see, cost of living adjustments may be a more important factor than saving on income taxes.
Before you leave, remember that retirement isn't just about saving money. Staying in a high-tax state might be worthwhile for reasons like proximity to loved ones, quality of life, or personal preferences. Take these factors into account alongside financial considerations.
Hopefully that helped, reach out if you have any questions.
Take care
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