Retirees Should Avoid These 5 States With High Taxes and High Cost of Living:
If you’re thinking about where to retire — or more specifically, where not to retire — you’re in the right place. Here are some states to avoid due to their taxes and overall costs, according to experts.
California
Typical annual cost of a comfortable retirement: $100,965
California has one of the highest state income taxes at 12.3%. This tax rate applies to all forms of retirement income (aside from Social Security). Property taxes can also be high for newcomers, though this depends on factors like property condition and county.
If you want to buy property in a city like San Diego, you might also want to consider an alternative — even if that’s just a nearby, less expensive location.
“Though San Diego is a desirable retirement location because of the weather, it’s not desirable in terms of affordability,” said Seamus Nally, CEO of TurboTenant. “It is already one of the most expensive cities to rent and buy in, and on top of that, California is one of the highest-tax states.”
California also ranks second-highest in terms of overall cost of living with a cost-of-living (COL) index of 143.
Massachusetts
Typical annual cost of a comfortable retirement: $103,422
Massachusetts is the fourth most expensive place to live in the U.S., right behind the District of Columbia, California and Hawaii. Its overall COL index is 139.9. Everything, but especially housing and utilities, are far more expensive than the national average.
Zack Ellison CFA, CAIA, founder of A.R.I., advised against retiring in Massachusetts if you want your money to last. The freezing winters could also be a turnoff.
“Thinking of retiring in Massachusetts, New Jersey or Connecticut?” he said. “Think again. Your savings could vanish faster than the autumn leaves.”
Massachusetts’ individual income tax rate is 5%. Property taxes range from 1% to 2%, depending on where you live.
New Jersey
Typical annual cost of a comfortable retirement: $80,728
As Ellison pointed out, New Jersey might not be the best retirement destination either. The state ranks 45th highest in terms of overall COL. Everything, including healthcare, is more expensive than in other parts of the country.
New Jersey has a graduated state income tax ranging from 1.4% to 10.75%. When you tack on federal income tax, that’s a hefty chunk out of your money. The state’s effective property tax rate is also high at 2.08%.
Connecticut
Typical annual cost of a comfortable retirement: $82,680
With a slightly lower overall COL index of 110.7, Connecticut is the least of these expensive states to retire on this list. But if you’re on a fixed income or simply don’t want to deal with excessive costs, you might want to move elsewhere.
Connecticut is also one of the few states that will tax your Social Security benefits, though there are limits here. Only 50% of your benefits amount will be taxed, regardless of how much of your total earnings are subject to federal income tax.
Don’t forget about property taxes, though. Connecticut has an effective property tax rate of 1.96%, the third-highest in the country.
New York
Typical annual cost of a comfortable retirement: $91,497
The fifth-most expensive state to live in, New York has an overall COL index of 123.5. Aside from utilities, which are a little lower than the national average, retirees can expect to spend a good deal more on everyday things there — including housing.
Taxes are high, too, even if you don’t live in the big city.
“New York is another state that is very high in terms of taxes,” said Nally. “So, even retiring well away from Manhattan may prove to be an expensive decision.”
New York state pensions are tax-exempt, but other sources of income are taxed at a rate between 4% and 10.9%. The average property tax rate is 1.4%.
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