Everyone strives for financial independence. Particularly, that’s what most people want in retirement.
So, where should your client retire? Well, it really depends on what is important to them. Below, I discuss four common priorities and suggest places to live based on these.
The website www.gobankingrates.com researched “The Fifty Cheapest Places to Retire.” They based their analysis on cost of living indexes sourced from Sperling’s Best Places along with Bureau of Labor Statistics data on what retirees generally spend annually. These cities are 22 to 27.4 percent below the national cost of living. You can check out the full list at this link, but I’ve noted the highlights below:
| City | Annual Expenditures | Housing | Health Care |
|---|---|---|---|
| Birmingham, AL | $33,219 | $8,988 | $4,915 |
| Detroit, MI | $33,356 | $8,988 | $5,984 |
| Jackson, MS | $33,676 | $9,480 | $5,514 |
| Memphis, TN | $33,859 | $10,020 | $5,694 |
| Augusta, GA | $35,781 | $10,116 | $5,574 |
Your client is looking for something different and has significant income producing assets. They might live in a high-tax state like New Jersey, Massachusetts or New York. They want to retire someplace with lower income tax and property tax rates but are concerned about estate and inheritance taxes.
In November 2018, Kiplinger looked at the “Ten Most Tax Friendly States for Retirees.” They considered factors like exemption of Social Security and a portion of retirement income from state taxes as well as property taxes. Here are some highlights.
| State | State Income Tax | State/Local Tax | Estate Tax |
|---|---|---|---|
| Alaska | None | 1.43% | None |
| Wyoming | None | 5.39% | None |
| South Dakota | None | 6.40% | None |
| Mississippi | 3%/5% | 7.07% | None |
| Florida | None | 6.80% | None |
Even retirees in good health worry about what will happen if they develop a serious medical problem, and many want to retire in a state with great healthcare. US News and World Report published “Health Care Rankings” using 2018 data. All 50 states are ranked in numerical order in each category. Here are some highlights (health care is abbreviated HC).
| State | HC Access | HC Quality | Public Health |
|---|---|---|---|
| Hawaii | 2 | 1 | 2 |
| Washington | 9 | 3 | 9 |
| Iowa | 5 | 9 | 11 |
| Connecticut | 3 | 20 | 7 |
| Massachusetts | 1 | 31 | 4 |
Your client is pretty good at controlling expenses. Their concern is the costs they can’t control, with property taxes topping the list. They know New Jersey traditionally has the highest and wonder where they can find the lowest. The website www.wallethub.com published data on “Real Estate Property Tax Rates by State” using the 2017 US median home value of $ 193,500 for comparison.
| State | Effective RE Tax Rate | Taxes on $194K Home | Median Home/Taxes |
|---|---|---|---|
| Hawaii | 0.27% | $525 | $563,900/$1529 |
| Alabama | 0.42% | $817 | $132,100/$558 |
| Louisiana | 0.52% | $1,006 | $152,900/$795 |
| Colorado | 0.55% | $1,045 | $286,100/$1,575 |
| District of Columbia | 0.55% | $1,055 | $537,400/$2,930 |
If your client is thinking of moving, there are some great places to live in terms of keeping costs down. However, the best medical care seems to be in some of the highest tax states. You can’t have everything: A lot depends on what is most important to your client.
About Bryce Sanders
Bryce Sanders is president of Perceptive Business Solutions Inc. in New Hope, Pennsylvania. He provides high-net-worth client acquisition training for the financial services industry. His book, Captivating the Wealthy Investor, can be found on Amazon.com.
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