Tuesday, September 18, 2012
The No. 1 Reason Why Retirees Move
B and I were at dinner over the weekend with two other couples. One of the couples had, until recently, been a neighbor of ours. They lived in a big house, in a development more upscale than ours, about two miles from us. But last year they sold their home and moved away, right after their youngest child graduated from high school and went off to college.
The husband, in his early 60s, lost his job a few years ago. Now he's semi-retired, doing some consulting, although his wife still works fulltime for a nonprofit. They moved into a smaller house in a lake community, about 15 miles farther upstate. The wife told us they love living on their little lake. They go swimming. They go kayaking. They love the view.
But a while later, the husband offered his own reason why they had moved: Taxes. The real-estate taxes on their new house, in a modest community with a not-as-well-regarded school system, are less than half of what they were at their old place. Who needs to pay those high school taxes, he ventured, when your kids are grown up and gone away?
It made me wonder. Taxes? Do they make really that much of a difference?
On the one hand, it does seem like a waste of money to pay thousands of dollars a year in real-estate taxes -- the majority of which go to the school system -- when you're not getting a benefit because your kids are no longer attending the schools. But, do we not have an obligation to contribute to our community and help pay to educate the next group of children growing up in our neighborhood?
Tom Wetzel, president of retirementliving.com, cites high property taxes as the single most important reason why retirees living on a fixed income decide to move elsewhere. John Brady, editor of topretirements.com, agrees. "The most significant tax threat to most retirees is the property tax," he explains, "because it is based on the value of your home and bears no direct relation to your income."
Meanwhile, I found this map showing relative state-and-local tax burdens, state by state. (Go to taxfoundation if you want a bigger, clearer version of the map.)
I'm not necessarily advising anyone to move away from their high-tax town, or their high-tax state, if that's where they live. After all, I myself live in New York State, which by all measures ranks among the Top 10 highest-tax states. And, I'd argue, sometimes you receive a lot in benefits and services for those high taxes you pay. Besides, high taxes are just one factor in what makes a state financially attractive for retirees.
For example, Pennsylvania which according to the Tax Foundation ranks as the 10th highest tax state -- due to its sales tax, an inheritance tax and relatively high real-estate taxes -- nevertheless offers other incentives to help keep its retirees solvent. According to a Kiplinger website article, The 10 Most Tax-Friendly States for Retirees, "Pennsylvania is one of only two states (Mississippi is the other) that exempts all retirement income -- including public and private pensions, IRAs and 401(k) distributions -- from its state income tax."
And of course there are plenty of other reasons to live where you live -- family, friends, climate and a host of other factors. But then . . . I see that school tax bill sitting over there on my desk. It arrived in the mail last week. It's due at the end of September. It's the single largest bill that B and I face all year long, by far. And our youngest child graduated from the local school system three years ago.
Hmmmm . . . forget the Red and Blue states. Lemme take a look at one of those White states up there on the map.