Join the conversation and feel free to submit a question to our experts.Submit a question
Stay up to date and have the STA Weekly Report and 401k Plan Manager emailed to you.Subscribe
Read STA's Featured ArticlesRead More
as appeared on CNBC.com on October 20, 2014
When reaching retirement age, some people feel the impulse to sell everything and move to a warmer climate. Not to be a killjoy regarding any retirement dreams, but there are some things to consider when deciding to pack up and move to sunnier shores. Here’s a look at some of the top financial and tax considerations individuals and families should consider before moving to their dream house in retirement.
Most of us, apart from those lucky enough to live in Texas or Florida, have to pay state income taxes. State income-tax rates vary by state, as do the types of income taxed and the rates on various types of income, such as interest, dividends and retirement distributions.
Therefore, it is important to determine the impact of an additional tax burden on long-term financial planning. For example, if a retiree is selling his or her home in a state with low income taxes and moves to a state such as Georgia or North Carolina, he or she will incur a tax of 6 percent on all income over $7,000, or 7 percent on all income over $60,000, respectively.
Read More Retirement plans at the 11th hour
If a retiree is planning on having a secondary or vacation home, it may be beneficial to maintain a primary residence in the state with a lower income tax. This can be an even bigger headache if one decides to move overseas, as income taxes both in the United States and in the new country of residence may apply.
Additionally, a move out of the U.S. may raise some estate and probate issues that must be addressed in financial planning. These rules can be tricky, so please get professional tax advice before making the move overseas. One last thing: Don’t forget about local sales tax, as that can also affect cost of living.
As counties, cities and other municipalities try to provide more services and keep their budgets under control, one popular place to attempt to increase revenue is by increasing property taxes. This can be done through uncapped valuations and/or increased property-tax rates.
Read More Time to level retirement playing field
When considering the size and value of the house in which you plan to retire, don’t forget to consider property taxes. However, some municipalities “cap” or “freeze” property-tax valuations and/or rates at retirement ages (such as age 65).
One thing to keep in mind is the possibility of rising homeowners insurance costs. This is something to remember when looking at that beautiful beach house. The closer one is to water, the more expensive the insurance may be.
While sales tax has already been mentioned, different states and cities also have different costs in terms of monthly expenses. Before making the move to another city, state or country, make sure to look into how much more everyday life will cost.
Keep in mind how travel, dining out and driving costs—including insurance, fuel and driving distances—add up in the grand scheme of things.
Read More Debt the ‘new black’ for seniors
This may be even more of an issue if you’ll be living outside of the U.S. and therefore traveling back and forth to see family.
It can be surprising what a big impact these expenses make on retirement financial planning, especially under a tight budget.
As a retiree, you may be making doctor and hospital visits more frequently. Over the years, this has become more common as people live longer—but often with health issues.
With this in mind, it is a good idea to look into the availability of doctors and hospitals in any area an individual may move to for retirement. If a retiree is on Medicare, it is important to see if doctors in or around the area of the big move are taking new patients.
Read More Become an empowered patient
Most clients I work with have retiree health care from their prior employers. This is a wonderful thing, but if retirees move to a remote location, they may want to check to see if there is insurance coverage there.
If they do not have retiree health care, they may want to look on the Obamacare website at Healthcare.gov to see what plans, including coverage and premium levels, are available.
“Most clients I work with have retiree health care from their prior employers. This is a wonderful thing, but if retirees move to a remote location, they may want to check to see if there is insurance coverage there.”
Many people own two- or three-story houses before retirement, and they may want a similar layout after they stop working.
However, as retirees age, they may want to consider a more accessible house, with just one level or possibly an elevator, to assure that they can safely move around their home as they get older. Ensuring accessibility may also necessitate costly additions, such as ramps and accessible bathrooms.
Read More Homes are top retirement expense
In fact, buying a more accessible—if not necessarily more attractive—house earlier, before retirement, could save future retirees a lot of money later.
Although none these issues are “fun” to think about, they are important considerations to help assure a financially secure retirement.
—By Scott Bishop, special to CNBC.com. Bishop is a certified financial planner and director of financial planning at STA Wealth Management
Financial Planning and Investment Advice offered through STA Wealth Management (STA), a registered investment advisor.
STA does not provide tax or legal advice and the information presented here is not specific to any individual’s personal circumstances. To the extent that this material concerns tax matters or legal issues, it is not intended or written to be used, and cannot be used, by a taxpayer for the purpose of avoiding penalties that may be imposed by law. Each taxpayer should seek independent advice from a tax professional based on his or her individual circumstances.
These materials are provided for general information and educational purposes based upon publicly available information from sources believed to be reliable—we cannot assure the accuracy or completeness of these materials. The information in these materials may change at any time and without notice.
As always, a copy of our current written disclosure statement discussing our services and fees continues to be available for your review upon request.