K-12 Tax & $pending Climate: Retiring to Low Tax States

Veronica Dagher and Anne Tergesen:

Many Americans dream of relocating in retirement to stretch their nest eggs, and they often do it by moving to low-tax states.

Choosing a state with no income tax, like Florida, or lower tax rates promises relief for retirees tapping 401(k)s. But such moves are rarely just about savings. For some, total spending remains almost the same, or even rises, but funds shift toward upgraded amenities or travel.

About 60% of retirees who move after retiring went to a more affordable area, and pocketed capital gains from their houses, according to a 2023 Vanguard study. It found these retirees can also typically unlock around $100,000 in home equity by doing so.

But lower-cost areas aren’t always what they seem. While state income-tax burdens might shrink, property taxes can jump, or vice versa. Many states exempt Social Security from state income tax, but only a few offer similar treatment for retirement-account withdrawals. Other costs, such as homeowners’ association dues or home insurance, may rise.

Seven retirees opened up to us about their finances, the tax breaks they gained, the costs that surprised them and how their new ZIP Codes changed their lives.