Whether you're retiring in two years or two decades, it's important to think about where you'll spend your time as a senior, as this can affect many aspects of your finances.
While there are a lot of things to think about in planning where you'll live after leaving the workforce, there are 13 states where one particular rule may disadvantage seniors. You may want to think twice about retiring in one of them if you're hoping to bring as much money home as possible.
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Retirees in these 13 states could be left with less
If you're considering retiring in one of these 13 states, you could face a big financial hit that seniors in the other 37 states don't have to worry about. That's because you could find that at least part of your Social Security benefits are taxed on the state level.
The 13 states where this is a potential issue include:
- Colorado
- Connecticut
- Kansas
- Minnesota
- Missouri
- Montana
- Nebraska
- New Mexico
- North Dakota
- Rhode Island
- Utah
- Vermont
- West Virginia
Now, not everyone in these locations will end up facing taxes on Social Security benefits. Most places exempt some lower-income individuals and families from taxes on retirement benefits. But it does leave you with the possibility of losing a portion of your retirement income that you may have been planning on using to help you cover necessities.
Be sure to consider the tax implications of your retirement choices
If you're thinking about retiring in one of these 13 states, you should research whether you're likely to be subject to state tax on benefits based on what you project your income will be as a retiree. If you find that you'll have a big bill to pay to your local department of revenue, relocating could help your Social Security income stretch further.
Of course, Social Security probably won't be your only income source -- and taxes on benefits aren't the only state and local tax bills that you need to worry about. Seniors from every state should take taxes into account when looking at the big picture of what their cost of living will be in their later years. This includes:
- Taxes on pension income
- Taxes on retirement account distributions
- Property taxes
- Sales taxes
Low-tax locales may allow your money to go much further, which can be a big concern on a fixed income. Of course, taxes do often fund important social services and amenities, so you'll also have to think about the quality of life in different low-tax areas when you're researching places to live in your later years.
If you do want to retire in one of these 13 states despite facing taxes on Social Security benefits, it's important to plan for this as you estimate the amount of retirement income that will be available for you to spend. A high tax bill on Social Security (or high taxes on any of your income or purchases) could mean you need to have a larger nest egg in order to make ends meet. You'll want to be prepared for this in setting retirement savings goals if living in one of these locales is important to you.
