3 Steps to Prepare for an Out-of-State Retirement
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It's common for people to want to retire out of the state that they currently live in. The chAllenge is a lot of us have no idea what is actually going to look like. That's why today's episode for retirement, we're going to walk with the three things that you need to be taken into account before preparing for an auto state retirement.

This is another episode of ready for retirement. I'm your host, James. Can all and I hear to teach you how to get the nose of life with your money. Now on the episode.

the three things that were going to cover on today's episode is, number one, compare the cost of housing. Number two, compared the overall costs of living, and number three, dial in the right tax strategy. These are the three most important things that you need to do if you're going to consider an other state move in retirement. The common theme of all these before we actually start going through each them individually, as they all have to do with your expenses.

This is incredibly important because I ve been so many senior s for client in the past where we might run the retirement projection of what does that look like if you spend, say, seven thousand per month and retirement, the projection looks totally fine within increase that to see what what if your expense are actually eight thousand per month? S ince at seven in all the sudden, that really amazing. The projection looks horrible, things fall apart, you not projected to make IT anymore, and all is not universal.

But that happens quite frequently. And what IT really highlights is the importance of giving your expenses dialed in, first and foremost. But the number two, keeping us down to the extent possible without having a sacrifice, quality life. That's what all three, the topics are going to talk about today have in common, as they all have to do with the expenses are ultimately pain and retirement.

And we're going to help you come up with the framework for how should you think about what those expenses will be? And what are some strategies that you can employ to keep them as low as possible? Floods jumping. The first thing that you need to do is to compare the cost of housing.

So if you are living in one sa today and you're planning to retire in another state, chances are very good is not in a perfectly lateral move in terms of both the cost that new home in the expenses of that new home. There's a few different ways that can actually look different. One way in which I can look different is simply property taxes.

Even if you do move to a home of the same exact value, let just use a million dollars, which is a good size home in most places. What if you have a million dollar home in colorado and you know that you're gona retire to what colorado traditionally has low property tax rates. Taxes has, on average, very high property tax rates, relatively speaking.

So you might go that same million dollar home from paying about five thousand dollars per year on property taxes in colorado, as an example, to move in a taxi and saying what the same home value is, still a million dollars, while those property taxes could very easily jump up around twenty thousand dollars per year. So nothing changed about your home value, but the property tax rate jumped up significantly. That's an act of fifteen thousand dollars per year.

You are now pain. So make sure that if you can move out a state, you understand what's that look like in terms of the states property tax as a whole. But more importantly, the specific county that you might be moving to water property taxes there.

The second thing is probably most obviously that you, anna, look at when IT comes to comparing in the cost of hooker's is actually cost of the property is very common for a lot of people who live in high costs living areas to be living there in their working years because there's maybe more opportunity there with jobs. Maybe their career requires them to be there when they retire. Part the retirement plan is to downsize, is to sell their home, is to move somewhere else or is less expensive and they can get a less expensive home.

That might mean that they can pay off their existing mortgage potentially, that might mean that they sell their home and end up with the equity left over to purchase the next town. So whatever that looks like, make sure that you're taking that into account because of all you're doing is single. What's the cost of groceries? gas? No, all cost live in that matters were going to touch upon that next.

But your housing can have such an important impact on this that you need to take that into account and that probably should go without saying that should be pretty obvious, but understand the different ways in which this can happen, whether it's property tax changes, whether it's actually differences in the actual cost of the home that you're going on to acquire. Vers IT could just be a portfolio change, which ultimately determine how much income you can create your in retirement. What do I mean that? Well, even if you do hypothetically move from an equal value home to another equal value home and retired, that doesn't mean that you're gonna get all the cash, all the equity from your current home and be able to use that for the purchase of your retirement home.

Go back to that million doll home example. Let's assume that you bought a home in color rotter for three hundred thousand dollars. And now what's worth one million dollars, you know that you're going to retire and you're gna buy a million dollar home in texas.

Well, on paper, IT looks like a million dollar home here compared two million solar home there. That shouldn't really cost you anything. That should be a pretty lateral move in terms of expenses was not one because the property tax issue that we talked about.

But number two, let's assume that you sell that million out of property in colorado. Well, you're in a broker fees. Those broker fees, those commissions can be fifty to sixty thousand dollars as coming off the top.

On top of that, let's assume that you purchase that home and colorado o several years ago for three hundred thousand dollars. Well, when you sell IT, you are going to pay taxes on the gains. The gains are going to be the difference between three hundred and thousand dollars of original cost spaces and say, one hundred and fifty thousand, which is the proceeds after the commission, you paid your agent.

So what that is that six hundred and fifty thousand dollars of capital gains you have to pay taxes on. Now you're single, you get to exclude two hundred and fifty thousand dollars of those gains. If you're a married couple, you get to exclude five hundred thousand dollars of those games.

Assume when you've lived in that home for two the previous five years, as as soon your single in this case, in that case, you have six hundred and fifty thousand dollars of games. Difference between nine, fifty and three hundred. You get to ride off.

You get to exclude, I should say, two hundred and fifty thousand hours of those games because of the exclusion we talked about. That still leaves though, four hundred thousand dollars of gains you have to pay tax on depending on your tax bracket, probably tens of thousands of dollars. You're gonna tally own taxes on the sale of that based on those proceeds.

So when you say I sell my million doll home colorado, in this example, i'm going to buy the million dollars in texas. Well, on your property taxes increased ite substantially in the scene. In number two, you don't have million dollars.

After all, a setton done from your colorado proceeds. You might have summer betwen eight hundred and fifty thousand and nine hundred thousand dollars to use for that purchase. You either finance the difference or you might have to pull money from your portfolio to pay the difference. What that ultimately gets back to as now there's less money in your portfolio, which means there's less income that can be created and retirements all about cash low.

What are the income sources you have? How much income can you create and what expenses do you have that income needs to cover? So you can start to see how this home purchase decision impacts both the expenses that you're going to have as well as potentially impacting the amount of income you can or can generate.

And this can also Operate in reverse. This is that you have that only not home, and you sell IT and you move to somewhere where a cost of love in cost of homeownership is significantly less expensive. And maybe you walk away with nine hundred thousand dollars after taxes in commissions, but only purchase of five hundred thousand dollars, let's four hundred thousand dollars of equity of cash.

You have that over the you can invest to create even more income for yourself. So this can work out both ways, both in the negative and in the positive. But it's really important to understand how will that move impact you based on the difference.

And not as home Prices, but property taxes, the cost of living in home, others ship there, have a very clear understanding of what that will look like first and form us. The second thing that you need to consider if you're going to move out of state, and this is probably the most obvious of them, is just the overall difference in cost of living. If you are working in same and cisco and you retire to cleveland or detroit, that can be a pretty dramatic difference in the overall cost of living.

So if you are living on x man of dollars and sam ces go, you're not can need that same amount dollars to cover lifestyle in cleaning or detroit or another very low cost of live in area unjust, using that as an example, because everything goes one of highest cost of live in areas in the country, the other two are clever detroit. These just the lowest cost of living areas. Now obviously is a spectrum of everything in between there.

But when you're going to move, it's very common when you run a projection for your retirement to say how much is gna cost for you retire, most people will simply take a look at what they're currently spending. Here's our current lifestyle and here's how much we need to maintain that lifestyle. That's a great place to start.

But if you are going to move, if you're not going to stay exactly where you are retirement, you need to make adjustments. And those adjustments need to go downward if you're moving to a lower cost of living area, but they might need to go upward if you're moving to a higher cost of living area. Now I talk my general costs to live in, not just housing.

Housing is gonna. Be more specific. You can see exactly what your current home is worth and property taxes on that.

You can then compare that to the future. Hope you intend to purchase. That's very specific, but the overall cost of living is more general. What's the cost of fuel, what's the cost of groceries, what's the cost of utility is what's the general cost of living in the two areas and make sure that you're fact in the end.

Now here's another thing that people often times don't really think is IT easy enough to research a place and say, okay, this costs a living here in this city, is that this cost of living in my current city is this. You can compare the two, but you also like to taking to account your lifestyle and your goals. And what I mean by that is that assume that you want to travel all time and retirement in, you move to summer.

Remote place is very low cost living. They don't have a nearby airport in the airport that is nearby doesn't fly a lot of designs you want to fly to. So you and have has been lots of money to travel to the airport and lots of money to get connecting flights to fly to a hub to take that flight where you ultimate to want to go.

That really adds up. So share you're overall costs. Living where you live is low, but when, in fact, in the things specific to you, you start to realize that significantly more expensive than maybe that would have been if you lived closer to a hub, maybe in a bigger city.

And that is example, not saying you live in a big city, but if you're going to travel, if you have some specific things about your retirement, think about that. How is that going to time into your overall plan? Or maybe you love hiking, you love being in the mountains.

I use colorado again as an example. If you see some mountain towns and cause you just love, so that's why I want to live in my retirement. But you looked at the cost of living there.

You say, gosh, it's a little bit higher than I would like. So you move somewhere further away from the mountain, somewhere further away from where you want to be, because this lower cost of living. But then you have to spend a lot of money deriving to the mountains.

And when you are there, you have to rent to cabin, you have to renter airbnb, you have to rent to hotel. And you start to realize that your lifestyle on paper is lower, where you chose to live. But because of the added cost of all things you want to do now, all of sudden it's much higher.

Now I am just using a couple of arbitrary examples, but the key point is understand the general cost of living where you are and how that compares to where you might be. But in factor in the overall cost of how much is are gonna cost and what's a difference in that? Manufacturing things like travel or health care, some these other one of things that are going to be a bit different depending upon where you ultimately end up.

So that's the second thing compared the live in in the third thing is to really dialing your tax strategy. This one is so, so important to I see people miss this all the time. A big question a lot of people have in their working years.

If should I contribute to pretax accounts? Should I contribute to raw accounts, or should I contribute to broker accounts? The in retirement?

A big question is, where should I pull money from? Show the rough conversions. There's all kinds of questions. They all have to do a tax strategy.

I cannot tell you how many people i've seen who are living in working in california, and I obvious i've seen that a lot because that's where I live. And they'll be in high tax. They might be in the twenty 20， thirty two to thirty five percent federal tax accounts.

And in california, tax accounts is another nine, eleven percent or so of their high owners. And they love rock accounts. They say we're preparing for retirement. We wanted in my taxes and retirement. So we're prioritising saving to our rough.

For one came doing back to rough contributions, whatever IT might be IT won't the analysis and will say they look, every dog you contribute to rough, there's an opportunity cost for that. Every dog that you put in there you could have put into your pretext for N. K, for example.

And if you're in, for example, the twenty four percent federal tax bracket, plus the nine point three roels runned to nine percent california state tax racket as a thirty three percent tax bracket, you could be saving thirty three cents on the dollar if you put that dollar into a traditional for a one key as opposed to rap for a one key. So that's where we are to start then will compare the individual and this individual is going to move to florida or they are going to move to taxes or they going to move to nava when they retire and when they were tired. We're gona live on social security, in dividends and interest in low, but of iraq withdraws.

And in social security, when we look at their blinded tax rate, we say, you know what, you're probably not couldn't be any higher than swell percent tax bracket when you were higher. So why are we putting money into rough accounts today and for going to thirty percent on the dollar tax savings that we could have received if we put money to free taxi account instead, when we're just going to paid twelve since lion dollar, when we pull that money out in retirement? The smarter thing in this specific case would almost certainly be to see to maximize pre tax accounts today.

Think about tax arbitrage. When you do this, you get thirty three percent deduction on every goal that you put in. And then when you pull that money out in retirement, you're only paying twelve cents on the dollar because you're the twelve percent federal tax bracket dannon, a state that doesn't have any state income taxes.

So this is just something that require more awareness and forward looking planning because I see IT so often and I love rather accounts too. I love rather for one k and raf. I am all that stuff. But what I love more than that is having a tax strategy that can to minimize the overall taxes you're going to pay over the course of your lifetime.

So when you're moving on the state, this is a big one because if you are in california and you're in a retire in california or you're going to be subject to the same state tax accounts or if you're already in taxes and you're gna stay in taxes, you're going to be subject to the same state tax brackets, which are the income tax level zero. So in those instances, all you would focus on is the federal tax bracket. But when you're going to move states, what you need to do is be very mindful of how state tax brackets are different depending on where you're going to retire.

For those of you are listening to and yeah, I do intend to move at the state just for your reference, there are nine states to have any income taxes at all. Those are alaska, florida, va, new hampshire, e new hampshire tax division and interest and cum south to code a tennessee, texas, washington, my me. So if any of those states of states you've thought about in terms of you're gona retire there, well, that my impact where you should choose to put money into your retirement savings today, then beyond that, there are other states that do have take income taxes, but they don't tax four one k withdraws.

They don't tax I ray withdraws. They don't tax pensions. So states actually have a wide variety of different ways they treat income and really does matter when you look at things. If you intend to retire one of these states that should inform the way that you are saving, where you are saving, what account you're saving to in your working years.

And then it's going to help inform how you should implement your tax strategy, meaning where you would thraw all money from and retirement, whether you do raw conversions, whether you other strategies, that can be very different state to state. So as we rap up for today, a lot of people and they retire they intend to retire at a state, whether because they are family there, whether because of its Better place for people retire and what that is because where they want to be, there's a number of reasons people do this. If that you if you're going to do that, make sure that you're focused on these three big things.

What's the cost of home owner ship and how does that change between where you are and we're going retire to whats the difference in overall costs of living, including some different nuances, things like travel, as we mentioned then how should that impact your tax strategy based on the differences in tax rates between the state or in and the state might retire to that is IT for today's episode. Thank you, as always, for listening. If you're watching on youtube, please make sure to like and subscribe you're watching or listening on apple podcast.

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