Deciding Where to Retire

For many retirees, part of the fun in retiring includes the possibility of a permanent relocation to another area of the country. Florida and Arizona seem to be the main draws, based on conventional wisdom and stories we hear (and jokes about those states and their drivers). But if you are contemplating a move to another state for your retirement, it’s worth spending some time to investigate how those states will treat you tax-wise.

A good place to start is on the Tax Foundation’s web page (; then click on “Data, Charts and Maps” on the left side of the page, then click on “Tax Burdens,” and finally click on “State and Local Tax Burdens” for the latest year). What you will find is a listing (by year or by state) of all the states’ tax burdens, so you can easily see an approximation of how much retirement income you’ll lose to state and local taxes.

Let’s start with Indiana, for example. The Hoosier state ranks 25th in the survey (a lower number is better, in this case) with about 9.5 cents of every dollar going to state coffers. The national average is 9.8%, so Indiana is a little better there. The worst state? New Jersey at 12.2%, while Alaska is the lowest-cost tax haven at 6.3% (but unfortunately not a popular retiree hangout).

So as you are planning your retirement budget, it looks like you can figure roughly 10% of your retirement income will be lost to state and local taxes. Some states do tax retirement income differently (some a little more heavily, some less so), but 10% is probably a good number for budgeting purposes.  In 2010, the average total tax burden (federal, state and local) was about 25%. So subtract the roughly 10% due to state taxes, and figure you’ll lose another 15% to federal taxes. All told, as a retiree, you can figure 25 cents of every dollar will go to taxes of one form or another. The rest of your budget is yours to enjoy.

Let’s say you live in Indiana now but are contemplating retiring in another state; is it worth running the state tax numbers first? I think so, but it ultimately depends on the size of your budget. Translate that 10% number into dollars for your situation. For instance, let’s say you expect to live on $60,000 of total income as a retiree. 10% of that amount is $6,000. If you move to a state where the state tax burden is say 8%, that’s $4,800 annually, or a savings of $1,200 per year. If you live in that same state another 15 to 30 years as a retiree, you could save $18,000 to $36,000 over your retirement lifetime. Of course, if you move to New Jersey, the opposite would be true.

You can do the math for your specific situation. And the point is, do the math before you move. It may not make a big difference in your final decision on where to live out your retirement years, because ideally quality of life trumps any financial decision. But at least you’ll be making an informed choice. As a rule, the more informed you are as a decision-maker, the better you feel about your final decisions, and the better your odds of maximizing your retirement readiness.


About Mike Wilson

Michael L. Wilson, MBA, CFP®, CRC®, is the owner of Integrity Financial Planning. Prior to founding Integrity in 1998, he worked for two years as a faculty member at the College for Financial Planning in Denver, training other financial advisors. Mike has 10 years of experience in the mutual fund industry, having worked with Fidelity Investments and Invesco Mutual Funds. He holds an MBA in Finance from Baylor University. Learn more about his work at
This entry was posted in Retirement Wealth and tagged , , , , , , , , . Bookmark the permalink.

Leave a Reply

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out /  Change )

Google+ photo

You are commenting using your Google+ account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )


Connecting to %s