10 May I’m retiring. Should I move out of New Jersey?
Q. I’ve lived in New Jersey for most of my life. As I approach retirement, my friends say it will be time to move to another state like Florida, the Carolinas or Delaware. I know that property taxes are high in New Jersey but is there that much a benefit and cost savings to move? My wife will have state workers’ pension and she thinks we should go to a state with little or no income tax. Are things really that golden in other states?
— Getting out, maybe
A. The taxes and cost of living in New Jersey are an important consideration for soon-to-be retirees.
But they shouldn’t be your only consideration.
“Depending on your personal situation, it’s quite possible to pay less in overall taxes by moving to a lower-tax state than New Jersey,” said Gene McGovern, a certified financial planner with McGovern Financial Advisors in Westfield. “Despite the old proverb, however, the grass isn’t always greener on the other side.”
Let’s begin with taxes.
You need to consider not only state income taxes, if any, but also state and local sales taxes, property taxes, gasoline taxes, and state estate and inheritance taxes, McGovern said.
“The details are important, too,” he said. “For example, even for states that levy income taxes, certain types of income, such as Social Security, may not be taxed.”
McGovern said for years, New Jersey has – justifiably – had a bad reputation as being expensive for retirees.
“It continues to have the highest property taxes in the nation, and its income tax rates range up to 10.75 percent for those making more than $5 million,” McGovern said. “However, certain exclusions from taxable income, as well as recent tax law changes, have lessened somewhat the tax burden for retirees, especially those with modest incomes in retirement.”
For example, while New Jersey levies an income tax, it does not tax Social Security benefits. Nor does New Jersey tax pension income if your total income (in 2019) is $80,000 or less. For 2020, the pension exclusion income limit rises to $100,000, he said.
So, if you and your wife will be relying primarily or exclusively on Social Security and pension income, and your income next year doesn’t exceed $100,000, you would pay little or no New Jersey income tax, he said.
“Also on the brighter side of the New Jersey tax picture, the estate tax, which was burdensome, has been repealed as of Jan. 1, 2018,” he said. “New Jersey still has an inheritance tax, but that applies only if your beneficiaries aren’t your immediate family such as your spouse, children, grandchildren, or parents.”
For comparison, Delaware also has an income tax, but has low property taxes and no statewide sales tax, he said. Florida has no income, estate or inheritance taxes, which makes it a popular retirement destination.
“So yes, other states are more tax-friendly to retirees than New Jersey, and can potentially, but not necessarily, have a lower overall cost of living,” he said. “The savings on property taxes alone can run to thousands of dollars per year.”
That said, as the old saying goes, you shouldn’t let the tax tail wag the dog.
Another major factor to consider is your social and emotional well-being.
“If you have children, other family, or close friends nearby, moving to another state can potentially result in a feeling of isolation, as you are giving up the comfort and familiarity of your existing home and established connections and now need to make new ones at a later point in your life,” McGovern said. “That’s not always easy, particularly if the social and cultural climate of the new location differs significantly from your current one.”
Access to quality medical care, the availability of cultural events and institutions, and geographical preferences such as living near the ocean or in the mountains, and climate could also be factors.
Another significant consideration are the one-time costs of selling your home, moving and buying/furnishing a new one.
“If the gain on the sale of your current home exceeds $500,000, you could owe taxes,” McGovern said. “Moving costs can run up to several thousand dollars. Then there are the costs of refurbishing the new home and possibly buying new furniture and appliances.”
In the end, relocation is a personal decision for you and your wife, he said. It’s best to make it with an awareness of all these factors, not just the tax and financial ones.
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This story was originally published on May 10, 2019.
NJMoneyHelp.com presents certain general financial planning principles and advice, but should never be viewed as a substitute for obtaining advice from a personal professional advisor who understands your unique individual circumstances.