Would you be willing to move in retirement to save money? Many people are, especially if they live in a state with high taxes and a high cost of living. And while we all know that where we live is not completely a financial decision, how the numbers stack up can really make a difference.
Now there are a number of things to consider when deciding which states are the cheapest to live in. Here are two of the big ones:
Cost of Living
Taxes
Cost of Living
The cost of living basically comes down to how expensive things are. And because of supply and demand, distance, and other factors, there can be huge differences in what it costs for the average Joe to live.
For example, the average price of milk in Kansas City is over $4 while only $1.85 in Louisville. And while paying an extra $1.15 for milk may not sound like a big deal, the big differences are usually in the cost of housing. Just ask folks in Manhattan, New York where the typical apartment rents for over $4,000/ month.
State Taxes
There are vast differences in tax types and rates across the 50 states. The 3 big ones are state income tax, property tax, and sales tax. The one that gets the most attention is state income tax.
There are nine states that don’t have income tax at all and they are: Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, Washington and Wyoming. Another nine states exempt federal pensions from taxation (atleast at the state level) and they are: Alabama, Hawaii, Illinois, Kansas, Louisiana, Mississippi, New York and Pennsylvania.
The majority of states don’t tax your Social Security benefits but there are 13 that do: Connecticut, Colorado, Kansas, Minnesota, Missouri, Montana, Nebraska, New Mexico, North Dakota, Rhode Island, Utah, Vermont, and West Virginia.
But as I mentioned, income taxes are not the only type of tax that can affect your retirement. You will also want to check the rates for property and sales tax for wherever you are considering. Some cities also have significant taxes depending on the location.
One More Thing
Everyone has a different picture of what an ideal retirement looks like but for many folks, it includes travel. Sometimes that means international travel and sometimes that means traveling to visit family. If you decide to retire in a state that has lower taxes and standard of living, you will want to consider the cost of traveling back to visit family and friends.
And if travel isn’t your idea of a fun time then what is it for you? Where places would make your activities the most convenient and enjoyable while also not being too far from family.
Retirement is an exciting time full of choices. Some choices are purely financial but most choices are a mixture of financial, emotional, and personal. Choosing where to live your golden years is definitely a mixture of all three.