Most of my retirement planning meetings with federal employees focus primarily on what age to retire or what the approximate expected income will be. These are critical questions to discuss prior to approaching your retirement. Yet there is another question that is part of the planning process: Where to retire?
There are many federal employees who have already decided to retire in their current home or at least in the nearby vicinity. Others are open to living their retirement years somewhere else. The planning process should go beyond simply choosing between the beach and mountains, or rural vs. city.
Some states have special tax breaks for retirees while several other states grant federal employee retirement benefits special tax status. I have a simple spreadsheet for all fifty states, including Washington DC. Seven states have no state income tax: Alaska, Florida, Nevada, South Dakota, Texas, Washington and Wyoming. Two others, New Hampshire and Tennessee limit their income taxes on individuals. They only tax dividend and interest income. Some of these also impose a tax on tangible property. There are 28 states that do not tax or impose a minimal tax on social security. Eleven states either do not tax or have a minimal tax on federal pension payments. There are some exceptions to this in situations where you retire to one of these eleven states but earned your pension in a different state. Nine states have no capital gains taxes during retirement, though be aware that some of these states make up for this shortfall via higher property taxes or gasoline and other usage taxes.
Finally, it’s important to note 13 states have taxation policies that appear to be hostile to retirees and tax virtually all income sources. Planning your retirement especially after a long career as a federal employee can be bittersweet. It’s likely the end of your professional career and the start of a new chapter in your life. It can be fun to dream about overseas travel, the cottage near the beach or a quiet cabin in the woods. It’s also important to make sure before you retire, someone has produced your personal retirement income and benefits report.
This is different than what a typical HR department may offer and likely will contribute to a better understanding of exactly what your total retirement affordability looks like. Contact me to learn more about this or to begin your free report.
Coming up short in retirement is the number one reason retirees are forced to take a part time job. Do you want to be the tourist or a working tour-guide?