Many people find themselves tethered geographically to a job during their working years. The upside of being retired is not having to worry about proximity to an office. And that might give you the flexibility to relocate to a state you've always wanted to live in, whether for the climate, the amenities, or the chance to be closer to family.
But while there are certain advantages to relocating during retirement, you'll need to be careful when making those plans from a Social Security standpoint. That's because some states impose taxes on Social Security. And if you don't want to lose a chunk of your benefits, you may need to steer clear of them.
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Choose your retirement home wisely
The good news is that most U.S. states do not impose taxes on Social Security benefits. But there are 12 states that do:
- Colorado
- Connecticut
- Kansas
- Minnesota
- Missouri
- Montana
- Nebraska
- New Mexico
- Rhode Island
- Utah
- Vermont
- West Virginia
Now, many of these states offer an exemption for lower earners, and in some cases, moderate-income seniors, too. So you shouldn't automatically assume that moving to a state on this list will mean losing a chunk of your Social Security benefits to taxes.
However, if you're a higher earner, you may end up having your Social Security income taxed at the state level. And that's something you'll need to come to terms with.
Don't base your decision on Social Security alone
The idea of having your Social Security benefits taxed might be unappealing -- especially if you expect those benefits to be a pretty substantial retirement income source of yours. But it's important to look at the big picture when deciding where to live in retirement. And taxes on Social Security should be one factor of many you consider.
Many seniors seek out states with a generally low cost of living, and several on this list fall into that category. So while you might lose some money in the form of taxes on your Social Security income, you might benefit in the form of cheaper housing, food, and general living costs.
Then there's access to healthcare to keep in mind. As people age, their medical needs tend to increase. Moving to a state with a solid healthcare network could benefit you tremendously as a retiree, even if that means losing a chunk of your Social Security income to taxes.
Also, consider your social needs. If many people you know are gearing up to retire to New Mexico, then moving there could mean getting to enjoy an active, engaging social life -- as opposed to retiring somewhere that you don't know a soul.
And you can't discount the benefit of living near family. So if yours lives in Montana and you don't mind the colder winters, you may want to look at a move there, even if Montana might take a chunk of your Social Security benefits.
All told, the decision to relocate as a retiree is a big one. You should know which states tax Social Security so you can work that into your thought process. But you shouldn't necessarily let taxes on benefits be your deciding factor.
