The Best (And Worst) States to Retire To - Part 2 of 2

Speaker 1 The best place to retire isn't necessarily the cheapest.

Speaker 1 The best place to retire is the place where you're happiest, after you take into account all taxes, and after you let go of the comforting, but ultimately misleading myth that you can hack fulfillment by simply crossing a state line.

Speaker 1 It's about freedom, comfort, and waking up in a place that makes you smile. Not just saves you a few thousand dollars while your heart quietly sighs.

Speaker 1 Hello friends, this is Tyler Gardner welcoming you to another episode of your Money Guide on the Side, where it is my job to simplify what seems complex, add nuance to what seems simple, and learn from and alongside some of the brightest minds in money, finance, and investing.

Speaker 1 So let's get started and get you one step closer to where you need to be.

Speaker 1 Last week, we broke one of the great unspoken commandments of retirement planning. Thou shalt move to a no income tax state.

Speaker 1 We peeled back the glossy brochures and sunshine-soaked marketing images and discovered something that might make you choke on your morning coffee, or at least not enjoy it quite as much.

Speaker 1 Not all no-tax states are created equal.

Speaker 1 In fact, sometimes moving to Florida, yep, the land of retirees, retiree sandwiches, and the all-too-common Florida slogan, it's too cold to go to the pool today because it's under 85 degrees.

Speaker 1 That can cost you more than stubbornly staying put in New Jersey, a state you may have spent decades telling yourself you'd flee at the first opportunity.

Speaker 1 Which, let's be honest, is not something you'll ever see on a billboard off I-95.

Speaker 1 Somewhere between welcome to paradise and no taxes here lies a hidden landscape of deductions, exemptions, and quirks that can make the difference between having a little extra in your retirement portfolio or just enough to fund your mildly impressive collection of novelty socks.

Speaker 1 Which, don't get me wrong, very important component of a well-lived life. Today, we're diving back into some of the math behind the Mirage.

Speaker 1 The real winners and losers, the states that quietly reward retirees for showing up, and the ones that might leave you wondering if Oregon's mossy beauty is worth the extra 13%

Speaker 1 effective tax rate.

Speaker 1 We'll talk in more detail about why being married can shave as much as 6% points off your tax bill, which, let's face it, makes marriage look a lot more like a tax shelter than a romance sometimes, and how to think about where to live in retirement in a way that's about far more than just the tax tables.

Speaker 1 Because that's what this series is ultimately about, the reality of trade-offs.

Speaker 1 We could sit here and talk optimization all day long, but if you want to move somewhere just because you'll ultimately save a few dollars, well, we'll get to that by the end of the show.

Speaker 1 The cheapest zip code might not be the most comfortable one. The sunny estate might have you quietly cursing your property tax bill while sipping a margarita.

Speaker 1 And if you've ever thought, I'll just move somewhere cheap and call it a plan, well, buckle up because this episode is directed to you.

Speaker 1 And as always, if you find this episode helpful in any way, please consider leaving a review on Apple Podcasts or Spotify, or sharing it with a friend who still believes income tax is the only tax that matters when optimizing our financial future.

Speaker 1 It helps grow the show, and it helps me appreciate that what we're doing here together actually matters.

Speaker 1 So let's start once again by also giving credit where credit is due. Last week's and this week's episodes are both brought to you by Fidelity.

Speaker 1 No, they don't sponsor the show, but they did do the research of comparing all 50 states' tax structures and isolating some of the components that we should be thinking about before making a leap of faith across state borders.

Speaker 1 And what they found, the part that tends to get buried under a thousand blog posts shouting move to Florida and retire to Texas, they took a hypothetical couple withdrawing $100,000 a year from a traditional IRA, same income, same portfolio, same dreams of early morning walks on the beach, and they ran the numbers for every single state.

Speaker 1 The difference between the best and worst state tax outcomes? Over $8,000 a year. It's not a rounding error or a quirk of rounding up to the nearest nickel.

Speaker 1 That's a vacation every year to the state of your choosing.

Speaker 1 Or if you're a golfer, that's one shiny new set of irons and three rounds where you still lose to your buddy Dave, who insists on playing winter rules year-round every year and has been known to use his foot wedge from time to time.

Speaker 1 But here's the too long did not read version for all of you who have to go in five minutes.

Speaker 1 Iowa, Pennsylvania, and New Jersey came out as some of the most tax-efficient states for retirees, which is shocking because these aren't exactly the first states that pop into your head when you think retirement paradise.

Speaker 1 Meanwhile, Oregon, Minnesota, and Hawaii were among the most punishing.

Speaker 1 Gorgeous scenery, yes, but your effective tax rate might make you wonder if the moss-covered trees are secretly laughing at your portfolio.

Speaker 1 And then there's Florida, Texas, and Tennessee, the no-tax darlings of every retirement brochure, which, despite their marketing charm, landed somewhere in the middle.

Speaker 1 Not terrible, not perfect, just adequately tax-friendly, like a lukewarm cup of coffee you keep drinking anyway because the label says it's somehow more healthy than the alternative.

Speaker 1 In other words, the map of retirement tax logic looks less like a neat red and blue chart and more like modern art, or maybe one of those abstract paintings your neighbor insists is worth millions, but you're pretty sure is just spilled paint on canvas.

Speaker 1 Why does it look like this? Because every state plays by its own rules. Some tax Social Security, others don't.
Some tax IRA withdrawals.

Speaker 1 Others treat them like a polite guest and ignore them entirely.

Speaker 1 Some give retirees generous deductions, while others make you fill out forms so complicated that you start questioning whether aging gracefully was really worth it.

Speaker 1 But, and this should be review for those who were here last week, and it's always good to review key concepts, the real number to watch, the only number to watch, the one that actually determines whether you're retiring in comfort or just imagining it while clipping coupons, is your effective tax rate.

Speaker 1 That's the total you actually pay in taxes, all taxes, as a percentage of your total income.

Speaker 1 That's the number that decides whether you're buying the top shelf bourbon for your porch evenings or the one that tastes faintly of linoleum, but comes in a cheerful orange label and promises that it is, in fact, aged to perfection.

Speaker 1 Because at the end of the day, it's not just what the state says you owe on paper, it's what actually disappears from your nest egg that matters.

Speaker 1 All right, before we get back into it, I want to talk about something that might seem off-brand for a finance podcast, hydration. But here's the thing.

Speaker 1 There are some expenses that I prioritize above everything else, and my health is without a doubt number one.

Speaker 1 Doesn't matter how much money is in my bank account or how well my assets are invested if I don't feel good enough to actually enjoy any of it.

Speaker 1 And for years, I got hydration completely wrong, because I thought all sports drinks were basically the same. If it said electrolytes on the label, great.

Speaker 1 Turns out, you don't need to drink liquid candy with 30 grams of sugar per serving to feel healthy and hydrated. That's why I started using Element.

Speaker 1 It's an electrolyte drink with a thousand milligrams of sodium, 200 milligrams of potassium, 60 milligrams of magnesium, and zero sugar. So no crash, no nonsense, just what your body actually needs.

Speaker 1 And I work out every morning for about an hour or two because that's what I need to get into a headspace where I can produce daily content. The newsletter, social channels, podcast.

Speaker 1 And Element is what sets me up for success. I feel good all day, not just while I'm on the bike or at the gym.
And full transparency, I'm a salt fiend.

Speaker 1 My favorite flavor is, I kid you not, mango chili. And I could drink it all day.
In fact, usually I do. And don't knock it until you try it.
Also, the packaging is brilliant.

Speaker 1 I've given up on so many supplements in my life because of wasteful packaging.

Speaker 1 Element comes in these tiny stick packs that I can throw five or six of in my carry-on when I travel because as we all know, Rule 1, don't don't check your bags and they take up almost zero space.

Speaker 1 So if you're working out, fasting, traveling, or just trying to feel better throughout the day, Elements worth trying. And right now they're offering a free sample pack with any purchase.

Speaker 1 Just go to drinklement.com/slash Tyler. That's drinklmnt.com slash Tyler and trust me on the mango chili.

Speaker 1 So, let's pick up where we left off last week and explore something that almost nobody I've ever talked to about retirement considers when it comes to where and how they're ultimately taxed. Marriage,

Speaker 1 or one of life's great underrated financial advantages. Now, I am not suggesting you rush down to the courthouse purely for the tax benefits.

Speaker 1 Love, companionship, joint Costco memberships, and the endless debate over whose turn it is to unload the dishwasher, all excellent reasons in and of themselves.

Speaker 1 But from a purely tax-centric point of view, marriage can also be one of the most powerful financial moves you'll ever make, especially when it comes to retirement.

Speaker 1 Because in some states, being married can drop your effective retirement tax rate by as much as six full percentage points. Six points.

Speaker 1 That's like getting a permanent discount at life's checkout counter just for sharing your Netflix password. And here's how it works.

Speaker 1 Married couples filing jointly often benefit from much higher income thresholds before hitting certain tax brackets.

Speaker 1 Layer that with states that exempt Social Security or IRA withdrawals, and the difference can be dramatic. Fidelity's analysis of all 50 states' effective tax rates offer us the following gems.

Speaker 1 Two retirees in Oregon paid an effective rate of about 13%

Speaker 1 if they filed as singles, but only around 9% if married. Four percentage points might not sound like much, but on $100,000 a year, that's $4,000.

Speaker 1 Multiply that over a decade, and suddenly we're talking about $40,000 before we take into account potential compound interest, enough to fund several serious vacations, or perhaps one very elaborate apology if your spouse ever discovers you've been referring to marriage as a tax strategy.

Speaker 1 And the benefits don't stop there. Some states go even further, offering additional deductions specifically for married retirees.

Speaker 1 These are sometimes labeled pension exclusion benefits, which can double the amount of tax-free retirement income you're allowed.

Speaker 1 In other words, while the IRS may not exactly be Cupid, it does have a soft spot for commitment, especially when that commitment comes with joint bank accounts.

Speaker 1 So yes, while love might be why you say, I do, your effective tax rate may be quietly cheering on the sidelines too.

Speaker 1 It's not romantic in the traditional sense, but it's the kind of financial romance that grows your nest egg without your even noticing.

Speaker 1 You could even argue, somewhat irreverently, that some of the best retirement planning advice ever begins with those two little words, I do.

Speaker 1 And if nothing else, it makes for a charming footnote in your tax return alongside all those deductions you'll actually enjoy.

Speaker 1 Okay, so now that you're contemplating getting remarried, have crossed Texas and Florida off the list, and still have that sense of alpha energy enough because, you know, you listen to personal finance podcasts, let's name some names and take a hard look at the leaderboard.

Speaker 1 Because even though Matt Wilpers always tells me not to look at the leaderboard on Peloton when we're doing a power zone training day, you know I'm looking, Matt, and you know if someone sneaks up behind me and high-fives me as they pass, well, game on, and I'll be the one high-fiving you after I ride PowerZone 5 for the rest of the endurance ride.

Speaker 1 And if you know, you know.

Speaker 1 Alright, according to Fidelity's study and confirmed by independent analyses from Kiplinger and SmartAsset, the picture that emerges when you consider effective tax rates for retirees with moderate income levels is a mix of predictability and surprise.

Speaker 1 First, here are the winners. We went over them last week, but we'll review the states where your retirement dollars actually stretch further.
At the top, as we mentioned last week, Iowa.

Speaker 1 Yep, Iowa, land of the hawkeyes, and apparently land of tax efficiency.

Speaker 1 For anyone 55 or older, the state exempts all IRA withdrawals, and when combined with the modest property taxes and general cost of living, retirees often end up paying less than in so-called no income tax paradises.

Speaker 1 Then there's Pennsylvania, which exempts most retirement income entirely.

Speaker 1 Add in reasonably low property taxes for seniors, and it suddenly starts to feel more like fiscal paradise than the state where the office and always sunny in Philadelphia took place.

Speaker 1 New Jersey, as we mentioned, also makes the list, which will shock anyone who spent decades avoiding toll roads and thinking of it as a financial purgatory.

Speaker 1 The state allows retirees to exclude up to $100,000 of retirement income under certain conditions. Yes, property taxes are high, but the math works out in your favor if you play it right.

Speaker 1 Illinois, meanwhile, exempts retirement income from state taxation entirely, though property taxes can bite, a reminder that tax planning isn't just about income.

Speaker 1 And rounding out the top five is, in fact, Florida, which of course levies no income tax, though higher living costs, insurance premiums, and the occasional hurricane tax mean it's not quite the unmitigated bargain its postcards suggest.

Speaker 1 On the other end of the spectrum, and we've been over a couple of these, the why does this actually feel like it's hurting me physically list includes some real surprises.

Speaker 1 Oregon, beloved for its coffee culture and artisanal everything, is actually one of the worst states, fiscally speaking, for retirees.

Speaker 1 Its effective tax rates are high, and there are a few exemptions to soften the blow.

Speaker 1 Minnesota joins the list, taxing both Social Security and retirement income, while also serving up high property taxes, making it a kind of double espresso shot for your wallet.

Speaker 1 Hawaii might seem like paradise, but its high cost of living and surprising taxes on certain pensions make it a heavier lift than expected. New Mexico lands here too.

Speaker 1 It partially taxes Social Security and offers only limited deductions, so retirees can quickly feel pinched.

Speaker 1 And then there's Washington, D.C., whose progressive income tax system hits retirees harder than you'd guess from a casual glance at those Instagrammable moments.

Speaker 1 So, if you're sitting in your condo in Florida thinking, at least I'm not in Jersey, well, financially speaking, you might actually want to be in Jersey.

Speaker 1 And if you're in Oregon, sipping single origin espresso while congratulating yourself on escaping sales tax, that latte might just be the most expensive beverage you've ever enjoyed.

Speaker 1 Retirement tax planning, it turns out, is less about stereotypes and more about some of the fine print.

Speaker 1 But here's where I want to zoom out a bit and take a wider view, because a lot of what you just heard obviously was in part one. We've seen that.

Speaker 1 But I want to take a wider view because, well, taxes absolutely matter. And yes, we spend a lot of time obsessing over them.
They're not everything.

Speaker 1 I've met retirees who devoted decades to optimizing every decimal point of their financial plan, only to discover they'd moved somewhere they didn't actually enjoy living.

Speaker 1 They saved 2% on their taxes, but lost close to 100% of their sense of community. That's not a good trade.

Speaker 1 It's the classic mistake of letting spreadsheets dictate life choices, which if you ask me, is the financial equivalent of drinking decaf and pretending it's espresso.

Speaker 1 Here's a quick anecdote that I share frequently with people going through this forever optimizing phase. When I used to be a portfolio manager, I worked with a client who I'll call Doug.
Great guy.

Speaker 1 Had all the financial success you could imagine for someone, and was very happily living in Vermont.

Speaker 1 When I caught up with Doug recently, he told me he and his wife, we'll call her Linda, were thinking about moving moving to another state to save on income taxes.

Speaker 1 Their CPA had crunched the numbers, they'd save $13,000 a year. I said, that's great, but I followed it up by asking him what he wanted to do with that extra $13,000 a year.
We'd invest it, Doug said.

Speaker 1 We want to retire with as much as possible.

Speaker 1 Fair enough. My guess is Doug is listening to this episode and taking notes.
And he'll remember I asked him the following, perhaps obvious, question.

Speaker 1 And what will the extra money actually let you do in retirement? He hesitated. Well, anything we want, I guess.

Speaker 1 So I pushed it a little further. Doug, let's start here.
Where would you want to live?

Speaker 1 Another pause. Well, honestly, I'd want to move right back here to Vermont.
We love this house, we have good neighbors, and we've built a life of amazing memories here.

Speaker 1 Then why do you want to move to New Hampshire just to save money that would ultimately be better spent living where you want to live now?

Speaker 1 Especially as the future is not guaranteed, I asked. And just like that, the math started looking a lot less important than the life they had already created.

Speaker 1 Though I hope the lesson's obvious, it's not just about optimizing the bottom line. It's about optimizing where you want to be and what you want your money to be exchanged for.

Speaker 1 This was a modern-day equivalent of the old fisherman tale, and if you don't know that one, look it up. It really is fascinating to consider.

Speaker 1 Because more money in an account means nothing if it could have just been spent living where you want to live all along. And that in many ways is the real moral of this great tax mirage.

Speaker 1 The best place to retire isn't necessarily the cheapest. It's not the one with the lowest effective tax rate, and it isn't the one that looks perfect on a glossy magazine spread.

Speaker 1 The best place to retire is the place where you're happiest, after you take into account all taxes, and after you let go of the comforting, but ultimately misleading myth that you can hack fulfillment by simply crossing a state line.

Speaker 1 You want to live somewhere that has friends to share a meal with, where your doctor is actually accepting new patients, where February isn't a month you actively try to avoid.

Speaker 1 In short, a place that feels like home, not just a clever tax maneuver. Because retirement, in and of itself, isn't about maximizing deductions or obsessing over phase-outs.

Speaker 1 Nobody ever turns to their spouse and says, you know what I want to do when I retire?

Speaker 1 Obsess daily over tax breaks and endlessly optimize our strategy so I never get to experience the retirement for which I waited all these years in the first place.

Speaker 1 Retirement is about maximizing life after the taxes. It's about freedom, comfort, and waking up in a place that makes you smile.

Speaker 1 Not just saves you a few thousand dollars while your heart quietly sighs. And if you take one thing from this two-part series, let it be this.

Speaker 1 Let the numbers inform your choices, but don't let them define your life.

Speaker 1 A spreadsheet can't tell you which February morning will feel like magic, or which neighbors will become lifelong friends, or how many Sunday walks you'll actually look forward to.

Speaker 1 That, my friends, is something the tax code will never be able to touch.

Speaker 1 And before we get back into it, let's talk about taxes. I've been running my own business for just over a year now.

Speaker 1 And honestly, the hardest part hasn't been creating daily content, managing sponsors, or even dealing with internet trolls.

Speaker 1 It's been figuring out taxes when you're self-employed for the first time in your life. Should I be an S-Corp? What are quarterly estimates and why am I suddenly responsible for them?

Speaker 1 What counts as a write-off versus what gets me audited? And as I'm sure you know, nobody explains any of this stuff until after you've screwed it up.

Speaker 1 Which is why I've been looking into firms like Gelt, a modern CPA firm that specializes in small business owners and solopreneurs, not individuals filing basic returns.

Speaker 1 Business owners running LLCs, S-Corps, media companies, people who need actual tax strategy, not just someone to file forms in March. What I like about their approach is they're proactive.

Speaker 1 They help you restructure your business tax setup, explain what you should be doing throughout the year, and focus on maximizing things like PTET credits, QBI deductions, and retirement optimization.

Speaker 1 The stuff that actually saves you real money and real time.

Speaker 1 The kind of tax strategy you'd expect from someone who talks financial optimization daily, not the wait until April and hope for the best approach.

Speaker 1 So if you're running a business and managing your taxes feels like running yet another business, take advantage of scheduling a free consultation with GELT.

Speaker 1 And if you sign up by January 31st, they'll be able to help you calculate your taxes due by April 15th, so you're not scrambling at the deadline.

Speaker 1 Head to joing.com slash Tyler to see if they're a fit for you. If you're running a business, this is one of those moves that actually matters.
Again, that's joing.com slash Tyler.

Speaker 1 In closing, here are five key takeaways for this two-part series, and these will be especially helpful for anyone who did not get get to tune in last week.

Speaker 1 Number one, remember, no income tax is not a golden ticket. Oregon tops the charts as the most expensive state for retirees, with Hawaii, DC, and Minnesota not far behind.

Speaker 1 Meanwhile, some of the no-tax darlings like Florida, Texas, and Tennessee land smack in the middle once you factor in federal taxes, missed deductions, and the hidden costs of property, insurance, and living expenses.

Speaker 1 So the palm tree paradise might not be paradise for your wallet. Number two, New Jersey is an unexpected hero.

Speaker 1 Despite high property taxes and a reputation for being, well, New Jersey, retirees here can actually come out ahead.

Speaker 1 A married couple withdrawing $100,000 from an IRA can pay an effective tax rate of just 7.9%,

Speaker 1 almost half the rate a single filer would face. Turns out, the garden state occasionally can garden in your favor.
Number three,

Speaker 1 marital status matters way more than you think. Across the board, married couples filing jointly can save around six percentage points on combined state and federal taxes compared with singles.

Speaker 1 In high-tax states like Hawaii, that difference could amount to $7,690 a year, enough to grow into over $100,000 over a decade at a modest 7% return.

Speaker 1 So yeah, marriage can be the ultimate tax shelter, legally speaking, of course.

Speaker 1 Number four, high-income, high-tax states aren't always your enemy.

Speaker 1 States like California or Illinois, which have hefty headline income tax rates, can be surprisingly favorable for retirees with moderate withdrawals, especially if you're married.

Speaker 1 Meanwhile, some Sun Belt or Midwestern states, New Mexico and Kansas, may hit you harder than their retirement-friendly marketing suggests.

Speaker 1 Finally, number five, if you haven't heard it enough, I'll say it one more time. Effective tax rates beat headlines every single time.
It's not about the sign at the state line.

Speaker 1 It's about what actually comes out of your pocket. Your real scorecard depends on a mix of federal and state rates, exemptions, social security rules, IRA treatments, and even your marital status.

Speaker 1 Look at the effective tax rate, not the bumper sticker promise, because that's what will ultimately determine whether you can actually afford the boat, the bird feeders, or the slow-roasted pickleball sessions.

Speaker 1 And if we put both parts of the series together, state income tax laws are a mirage. From a distance, they look simple, clear, and reassuring.

Speaker 1 But the closer you get, the more they blur, twist, and occasionally start whispering, surprise,

Speaker 1 the phrase no income tax does not magically translate into no tax. All of these other costs can make you question every life decision, and they will do it quietly as they chip away at your nest egg.

Speaker 1 Some of the best financial moves you can make in retirement involve more than just the letters on a license plate. They're about where you live, who you live with, and how you withdraw your money.

Speaker 1 The state might set the stage, but your choices, and sometimes your spouse's choices, ultimately write the script.

Speaker 1 And if you want one final piece of advice before you pack up the U-Haul, just sit down and do the math.

Speaker 1 Although I'm not ever looking to judge others and their financial choices, I am endlessly amazed at how averse many people are to just sitting down for one hour or two hours and just crunching your own projected numbers.

Speaker 1 And now that we're in the world of AI, it's even easier to just ask Gemini or Claude or ChatGPT to help you run projections based on your values, your desired state, and your potential withdrawal strategies.

Speaker 1 And it might do you the favor of telling you that your dream house in a no-tax paradise might come with hidden costs that you had simply never thought about.

Speaker 1 And while we're on the subject of things nobody warns you about, have you ever tried playing pickleball in August in Texas?

Speaker 1 It's less recreation and more slow roasting under an unforgiving, relentless sun, which I promise doesn't pair as well as you think with pride.

Speaker 1 So if you've enjoyed this two-part series, please consider leaving a review on Apple Podcasts or Spotify, or share it with a friend who never appreciated how few snakes were actually in Vermont until they moved to some of those no-tax states.

Speaker 1 Your feedback helps me know what works, what sparks curiosity, and what keeps you listening and engaged.

Speaker 1 Until next time, remember the cheapest place to retire is not necessarily the one with no taxes, it's the one that still feels like home when the math is done.

Speaker 1 Thanks for tuning in to your Money Guide on the Side. If you enjoyed today's episode, be sure to visit my website at tylergardner.com for even more helpful resources and insights.

Speaker 1 And if you are interested in receiving some quick and actionable guidance each week, don't forget to sign up for my weekly newsletter where each Sunday I share three actionable financial ideas to help you take control of your money and investments.

Speaker 1 You can find the sign-up link on my website, tylergardner.com, or on any of my socials at socialcapicial.

Speaker 1 Until next time, I'm Tyler Gardner, your money guide on the side, and I truly hope this episode got you one step closer to where you need to be.