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.
20 comments:
It, taxes, were a factor when we decided to leave California and retire to Georgia.
It never really bothered me that I paid taxes for schools even though we never had kids. That's kind of how it works for all taxes, paying for stuff you don't necessarily use, or even stuff you really wish they didn't spend your money on, like wars. But I just figure it's part of being a member of society.
As for California, the taxes are high, but I can't see ever leaving (family, friends, weather, variety). For me it's worth the premium.
Like Syd, we pay for schooling kids that are not our own, and I agree with her reasononing.
Also like Syd and her husband, my husband and I live in California, and most of the time, we say "You gotta pay for where you choose to live." There is a premium.
We have lived in our house for 30 years, so property taxes aren't the issue. We are just tired of seeing the same ol', same ol' and are ready for a change. We are kinda done with the SF Bay Area. We just haven't found the next spot, so we emjoy the quest.
At least I do.
But taxes and climate do play a role in where we look.
I like that you do your research. Taxes may be the #1 reason people move in retirement but I think it is money. After all, being retired means not having as much (money, that is) and wishing top make what you have last as long as possible. I moved from one highly taxed area to another (lowly taxed) area in the same state. My state isn't in the lowest list but is better than some. A lot of it has to do with housing prices. If housing is high and R.E. taxes are low, you can still end up paying more than if you had stayed where you were. Syd clearly spelled out the most important factors, in my opinion.
It's a sad state of affairs that retirees flee the very communities they helped build!
Having said that, we moved for other reasons entirely. We wanted a lower paced lifestyle, less traffic and more privacy. Taxes, after all, support the stuff we all enjoy, be they schools, roads, community centers.
I am fortunate that I didn't have to make that choice. My taxes are low (in Texas) because of exemptions for senior citizens and disabled veterans. I pay almost half what I did only four years ago.
See my senior blog at http://65andalive.blogspot.com
Warren
I could see moving if property taxes were tough to pay. But I have no problem paying for schools when my kids are grown and gone. Someone paid when I had students living in my house. We're all in this together, I think.
Unlike Rosario I Don't think it's a flee thing as much as a priority life style as well as none thing. I live in a very lovely albeit school and football centric suburb ( look up Allen Texas football stadium). I certainly have no need for 2500 square feet. On the other hand the overall cost of living will factor in someway to the new location search.
Interesting. I know a number of people who have moved seeking lower tax rates. It will be the responsibility and work involved in caring for our place in VT that will influence our eventual move.
Thanks for the useful information. Unfortunately, i don't want to live in any of those white states. Although I might have to one day.
I can support taxes, bonds etc. as long as they don't force long-time residents to move away. We have lost many of our older neighbors recently (replaced by upscale younger people).
Even if your house is paid for, the property taxes come due every year. Many retired, folks move to tax friendlier states. My cousins in Florida have stayed in Florida although the talked of moving to NC when they retired. No state taxes in FL I think. Texas is also a good state tax-wise. We have a pretty good tax rate in VA, but lots of folks from NY, NJ and northeast are moving here and bringing their liberal (tax-loving) ways with them. Only a matter of time before VA is just as bad as NY, unless we keep electing Republican governors like Governor McDonald.
My two cents. Dianne
"Who needs to pay those high school taxes, he ventured, when your kids are grown up and gone away?"
Clearly, other people's kids, and society as whole don't matter.
How timely is this post?
A few weeks ago I opened our school tax bill and could not breathe or speak for four minutes. It had risen to almost double what it was last year. I have no children in the school system. I have never had children in any school system. The children I know who are attending this school district do not impress me with their achievements, their personalities, or with much of anything else. I do know the teachers are rakin' it in. In spades. WHY DIDN'T I STAY IN COLLEGE AND GET MY TEACHING DEGREE??????
I love where I live, but this is only the first year of this abuse. After a few more, who knows....I might actually move to Tennessee as I have been threatening for a few years now. I'll need to bone up on my Bible teaching and buy a whole lot more hairspray, but hey, I could do that.
We didn't leave California because of the property taxes. Our taxes there on a much smaller but more expensive home than our present one were significantly lower than the taxes on our larger Arizona home that was half the price of the home we left. We left California because of the income taxes and the absolutely mind-blowing traffic that makes going anywhere an ordeal. We happily pay taxes for schools in our new community in Arizona. I agree that we all should be supporting schools -- whether we have kids or not.
Taxes will be the primary reason we leave where we are. As for the school taxes- you pay them anywhere you live. They seem to levy here like it is their right. We really had a laugh two years ago when our house appreciated over the 2007 value! No, we could not get close to that- but they stated that taxes did not rise.
My children were raised mostly in private schools. We paid $4500 a year for seven years when they were in public school. That happened to be the average expenditure per student in our district- so we paid their way...in taxes.
At least on New York you get a discount when you hit 65.
Our property taxes are running about $1,000 a month now, payable in two semiannual installments. I agree all citizens benefit from better schools, yet retirees, even those with good pensions and CoLAs, lose on average about 1% of relative buying power every year, so that is not an insignificant drain on our monthly cash flow.
Also, a high-tax state or area often reflects other higher costs, from housing to groceries. We consciously chose to stay in this costly urban area after retirement because of other amenities, but things can get to the point where the taxes start cutting into the amenities you can afford. We're not at the moving stage yet, but it could happen.
Hi Tom - I am a fellow blogger and actually one of the guys who writes for US News & World as well (Retirement-Only the Beginning)! I received a request for my free ebook from a visitor to your Sightings from 60 and wanted to thank you for pointing them my way. As a fellow Stephen King fan(atic) I enjoy your quotes and perspective as well. Thanks and good luck!~Dave Bernard
You have to look behind the rankings, too. For example, New Hampshire, one of the "white" states, has sky-high real estate taxes even though it has no income or sales tax.
Fred
Just read this posting, on NBC news. First, look up the definition of "common weal". That's the concept America was founded on...everyone pulling towards a common goal, contributing based on your abilities. If people who don't have kids (not just retirees but how about DINKs?)don't pay taxes, then our schools would have to default to a tuition system. Then you'd REALLY see our educational system go in the toilet. Alternatively, pay for scholls from the general state coffers, but then that takes away local control of educational quality. Paying taxes when you're retired or don't have kids may seem unfair, but it's better than anything else I can think of. Alternatively, rent an apartment or house so you don't see the tax bill.....but it'll still be included in your rent, and you won't get the benefit of your tax deduction.
Buy life insurance to replace assets given to charity and/or pay any remaining estate taxes.
reduce my inheritance tax
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