Editor’s word: That is the second of a two-part sequence. Half one explores errors individuals make and the 2 prime components to think about, even earlier than value.
When eager about the place you’ll reside, value is an apparent issue, particularly for retirees who’re residing off their financial savings and should make that cash final a lifetime … nevertheless it’s not as clear lower because it may appear.
In my earlier column, Three Steps for Evaluating a Downsize in Retirement: A Monetary Planner’s Information, I outlined what I consider must be the first drivers of the place you find yourself once you downsize: well being and social relationships.
Subscribe to Kiplinger’s Private Finance
Be a better, higher knowledgeable investor.
Save as much as 74%
Join Kiplinger’s Free E-Newsletters
Revenue and prosper with the perfect of skilled recommendation on investing, taxes, retirement, private finance and extra – straight to your e-mail.
Revenue and prosper with the perfect of skilled recommendation – straight to your e-mail.
I wish to repeat that I consider that the price of your new residence must be the first driver provided that it is a necessity. However for in the present day’s functions, let’s assume that you’ve checked the well being and relationship packing containers for the areas you might be contemplating, and now are onto weighing value.
The Kiplinger Constructing Wealth program handpicks monetary advisers and enterprise house owners from world wide to share retirement, property planning and tax methods to protect and develop your wealth. These specialists, who by no means pay for inclusion on the location, embrace skilled wealth managers, fiduciary monetary planners, CPAs and legal professionals. Most of them have certifications together with CFP®, ChFC®, IAR, AIF®, CDFA® and extra, and their stellar data could be checked by way of the SEC or FINRA.
Under are seven key standards to think about:
1. Housing prices: Extra than simply {dollars} and cents
All the opposite classes we’re going to discuss include extra black-and-white numbers than housing, as a result of the true value of housing includes much more than simply the itemizing worth.
I had a pal shifting right here to Washington, D.C., after finishing his Ph.D. at Penn State. He despatched me an inventory for a wonderful new townhouse on the water simply throughout the bridge.
It was near D.C. and to a Metro subway cease, and it seemed like a very good deal. The catch? It was in a really harmful space. It might be arduous for him to know that, as an out-of-towner.
It is also arduous to decipher housing prices as a transplant. You may take a look at median housing prices, however they seemingly will not inform the entire image.
Here is what we do know. Cities are dearer. The Northeast and West Coast are very costly. The farther you get from these locations, sometimes, the much less you’ll have to pay.
I all the time suggest that shoppers take a month-long journey to the metro areas they’re contemplating. VRBO and Airbnb are making this a lot simpler with long-term leases. Cook dinner meals in your rental. Stroll round. Go to a espresso store. See in case you like life as a resident, not as a vacationer.
The query most individuals ask when contemplating a transfer to a less expensive house is: “How far more will I be capable to spend per 30 days?”
After all, you’ll be able to back-of-the-envelope this by simply seeing how a lot decrease your housing prices could be. However if you would like the complete image that components in tax charges, upkeep prices, and many others., you want monetary planning software program.
You may entry the free model of what we use. Enter “main residence relocation” as a objective to see the affect.
2. Property/inheritance taxes can fluctuate broadly
From my workplace window in Virginia, I can see Maryland and D.C. Virginia has no property or inheritance tax.
The District of Columbia has an property tax however no inheritance tax. Maryland has each an property tax and an inheritance tax. I would actually swim throughout the polluted Potomac River to keep away from the Maryland taxes.
As of 2025, fewer than a 3rd of states have an inheritance tax, property tax or each. Because the federal property tax exemption has grown so massive, states have moved away from this tax. That mentioned, that is nonetheless a consideration for a lot of of our shoppers in high-tax states.
In the event you’re in Pennsylvania and might transfer 5 minutes down the street to Delaware, it could be value it. In the event you reside in Maryland, and might swim to Virginia, it could or will not be value it.
3. Fastidiously examine state revenue tax charges
On the West Coast, in case you’re searching for a tax-friendly place to place down roots you progress to Washington or Nevada. On the East Coast, it is Florida or Tennessee. Within the South, tax-friendly Texas is for the cowboys and Musk-lovers. There at the moment are 9 states that don’t have any revenue taxes.
Having no state revenue taxes is a reasonably good signal that the state is general tax-friendly, however it will possibly usually result in larger taxes on among the different classes we’ll talk about subsequent.
As soon as once more, the Northeast is dear, particularly in terms of revenue taxes. The image is just not all the time black and white.
For instance, in Maryland, the taxes look akin to Virginia, with a progressive tax charge that tops out within the 5% to six% vary.
Nonetheless, Maryland has county dietary supplements that add as much as a further 3.2%, which places the state in the identical vary as D.C.
This locality tax is just not distinctive to Maryland and should be thought of when evaluating new residence states, counties and townships.
4. Property tax charges play a task
Typically when revenue tax charges are low, property tax charges are excessive. See Florida and Texas. This could get slightly muddy when you think about market worth vs. assessed worth.
In idea, these must be the identical, however there are lots of areas the place assessed values are significantly decrease. Each Zillow and Redfin can help you see previous tax assessments.
Searching for skilled tricks to develop and protect your wealth? Join Constructing Wealth, our free, twice-weekly publication.
Many states additionally provide property tax reductions for seniors who’ve lived there for a specified variety of years. It will not be an element for that motive, until you might be contemplating downsizing in the identical state.
5. Taxation on retirement accounts and pensions
Apart from your own home, your retirement accounts are seemingly your greatest property, and the way they’re taxed may have an enormous impact in your backside line.
Retirement accounts. This is applicable to IRAs, 401(ok)s, 403(b)s, TSPs and principally any retirement account that you’ve but to pay taxes on.
Clearly, the 9 states that don’t have any revenue taxes won’t tax distributions out of your retirement accounts. However there are a handful of states which have a state revenue tax, however don’t tax distributions from retirement accounts.
That is one motive that, whereas Pennsylvania is just not usually thought of tax-friendly for staff, it’s pleasant for retirees. The extra you have got stashed away in pre-tax accounts, the extra this issues.
Pensions. The rationale these two classes are grouped collectively is that a lot of the states that exempt retirement account distributions exempt a number of sources of retirement revenue.
It’s best to pay explicit consideration to this class if a big proportion of your retirement revenue is from a public or personal pension.
An growing majority of states totally or partially exempt navy pensions. As of 2025, California and D.C. are the one two locations that totally tax navy pensions.
6. Taxation on Social Safety
Most states don’t tax revenue from Social Safety. A few of the few that do embrace Colorado, Connecticut and Vermont. Like so lots of these items, this isn’t black and white. The vast majority of the states that don’t tax Social Safety have revenue bands or AGI limits on these tax advantages.
7. Do not be dazzled by states with no gross sales tax
Delaware is sometimes called the “tax-free state.” That is deceptive. Delaware has property taxes and revenue taxes however doesn’t have gross sales taxes.
I believe the deal with gross sales tax is usually overrated. For example that you just spend $10,000 per 30 days. In lots of states, solely about 50% of that spending is topic to revenue taxes.
For example you pay 5% on that $5,000, that is $250 per 30 days or $3,000 per yr. That is the distinction in case you’re evaluating 5% to 0%. The purpose is that you shouldn’t let a couple of factors’ distinction make or break your resolution.
The underside line on contemplating housing prices in retirement is that it’s essential look past the house’s worth. Taxes could be a big issue for retirees, and taking them into consideration is all the time a wise thought.
Associated Content material
This text was written by and presents the views of our contributing adviser, not the Kiplinger editorial employees. You may verify adviser data with the SEC or with FINRA.
