By Krista McBeath, McBeath Financial Group
I have numerous clients who are planning to retire out of state or have already relocated. Chances are, you know someone who has chosen to retire outside of Illinois. It may even be something you dream of for yourself.
After enduring a brutal winter, it’s understandable why many would seek a warmer climate. However, our current tax burden in Illinois is more likely the reason why Illinois led all states in population losses for the decade ending in 2020. The Illinois state and local tax burden is the highest in the country, according to Wallethub. Furthermore, even after voters rejected a progressive income tax amendment, we can still expect to pay more in state and local fees and taxes in years to come. No wonder so many are feeling the pinch and considering crossing the border as a way to stretch their retirement dollars.
As a comprehensive financial planner, it’s my job to help people achieve their goals. When those goals include moving, I can help plot the financial course. What’s harder to quantify is the happiness one might achieve by living elsewhere. Factors beyond a better climate might include moving away from, or possibly closer to, family and friends. Other considerations might be how much you enjoy what a particular community has to offer. If you feel rooted in your community, it may be difficult to walk away. All of these and more will weigh in a decision to move or stay once you retire.
While other factors may be involved, I can offer a few financial considerations when analyzing your options.
Moving costs—Moving your household isn’t a small expense. With estimates of $10,000 or more, it’s important to realize that this and other relocation expenses may reduce retirement savings. Factoring in the lost growth could affect retirement income.
Realtor and closing fees—When selling your current house, you’ll most likely pay a realtor fee of six percent of the selling price of the house. This means you’ll have less money to purchase your home out of state. Closing fees on your new home will be an added expense, and these fees can vary greatly from state to state. Finally, if a mortgage is needed, interest rates are on an uptick, so you may be paying more monthly for an equivalent size loan. This possible change is something you will need to consider when factoring your monthly expenses.
Property values—Depending on where you choose to live, you may find that you get an equivalent house for a reduced price or it may be much more expensive. People moving to areas of Tennessee have been amazed at the houses and land they get for the money, while those that dream of beach-front living can expect to reach deep into retirement accounts. The general cost of living is another variable that people often fail to take into consideration. Certain goods and services can be much pricier in other cities and parts of the country.
Property taxes—Property taxes will likely be lower in another state. While Illinois does have a Senior Citizens Assessment Freeze Homestead Exemption (SCAFHE) available to those that qualify, the criteria includes a minimum age of 65 and $65,000 or less in income. It’s worth noting that with the new tax code enacted for 2018, there is a maximum of $10,000 federal tax deduction for state and local taxes.
State income taxes—Currently, Illinois state income tax is a flat 4.95 percent. There is no guarantee that there will not be further tax increases. However, retirement income is currently exempt from Illinois state income tax. Exempt income includes withdrawals from qualified accounts such as 401Ks, 403bs, and IRAs. Pension and social security income are also exempt. Regardless of age, income from a job in retirement, dividends, business income, rental income, and all other earned income will still be subject to state income tax. Four other states do not tax retirement income, while seven states have no state income tax at all.
State and local sales tax—This tax is easy to overlook, but the nibble every time you purchase gasoline or a meal out can add up quickly. With rising state and local gas taxes, as well as food and beverage taxes that are topping 10 percent in many Illinois areas, a move may be a cost savings that adds up.
Property insurance—Overall, Illinois has below-average costs for both auto and home insurance. States that are prone to natural disasters, such as Florida, tend to have much higher rates. If contemplating a move to another state, it’s worth checking into what you might pay for your property and casualty insurance.
Healthcare costs—When choosing a location for retirement, it’s important to plan for healthcare and assisted living. The availability and cost of top-notch healthcare should factor into a decision as healthcare costs and insurance can vary from state to state. It is a good idea to look into assisted living facilities to compare accommodations and costs. Most facilities recommend beginning your research process ten years or more in advance.
Just as there are many factors that play into a well-planned retirement, there are even more financial considerations for those that wish to retire out of state. When planned well, many have seen an improved lifestyle with more disposable income as a result.
If your dream is to relocate in retirement, the financial planning process should begin two to three years in advance. You’ll want to have a detailed retirement plan that accounts for these simultaneous major life changes in order to reduce stress and avoid surprises.
Beginning the planning process with a local investment advisor can help you navigate before, during, and after the transition. That means if you feel comfortable with the relationship you have with a financial advisor, you may continue to work with them after you’ve moved out of state!
Krista McBeath is an Investment Advisor, Chartered Financial Consultant, a Licensed Insurance Advisor, a Fiduciary, and an experienced tax advisor who specializes in financial planning, investments, and insurance. Phone 309-808-2224 or email [email protected] for appointment information.
Advisory services are offered through Landmark Wealth Management Inc, dba McBeath Financial Group, an Illinois Registered Investment Advisor firm. Insurance products and services are offered through McBeath Tax and Financial Services, LLC. McBeath Financial Group and McBeath Tax and Financial Services, LLC. are affiliated.
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