By Craig Erwin, Ph.D.
During your working years, it matters where you live and how much you make. Typically, if you live in a state with high salaries, you are better able to save money for retirement. But when you retire, it also matters where you live. A lower cost of living makes your money go farther.
It may be tempting to retire somewhere warm with sandy beaches, but first check how you will be taxed there because some states tax 401(k)s, IRAs, and pension distributions.
According to the AARP, four states just passed laws that lower or eliminate income taxes on retiree income. As a result, there are now a total of thirteen states that don’t tax retirement income at all. And they are not all in the deep south. For example, Washington, Pennsylvania, New Hampshire, and Alaska don’t tax retirement income. And some states don’t tax most pension income.
Of course, you should not decide where to retire strictly based on taxes. The Balance.com recommends you research health care availability, the cost of living, the weather, the economy, the crime rate, and whether veterans’ pensions are taxed before you move.
Even people who retire to their dream destination change their minds sometimes, moving again when their dream destination turns out to be less dreamy than they thought. So, do your homework, but stay flexible. You will be ready to retire before you know it. Get ready.
Are you dreaming of retirement? What is your dream destination? Why?
For more on retirement, minimizing your tax bill, and accumulating enough wealth to retire, click on the following links: