Welcome to Pension Attention, the best show for first responders who want to take control of their finances.
After advising Los Angeles city firefighters for over 12 years, financial advisor, Brad Barrett now shares how you can grow your wealth, build your legacy and enjoy a life of freedom. And now here's your host, Brad Barrett. [00:19.9]
Brad: Welcome to Pension Attention, the show for you, first responders who want more out of their deferred compensation and pension plan. My goal with this podcast is to reach you where you are. At whatever stage in your career, you are in, in order to provide my nearly 15 years of experience working exclusively with both active and retired service members on their investment and retirement planning. My team of fiduciary advisors here at One Capital Management are dedicated to ensuring you not only take control of your finances and build the life you deserve. To find out more about myself or Toby Rodriguez or any one of our advisors here at One Capital Management, you can go to our website at PensionAttention.com or give us a call. You can call us at (805) 409-8150. And before we get started on this week's episode of Pension Attention again, the website I mentioned earlier, PensionAttention.com, there on the website you can actually set some time with myself, with Toby, with Nick, with any one of our advisors here that are dedicated to serving first responders and their investment in retirement planning. You can now set an appointment directly on our website by clicking the multiple different buttons inside of there to schedule some time. So do it now, if you're listening right now and you don't have an advisor and you're going through all the changes that are going on quite honestly, which is what this week's episode is going to be largely about. Going through those changes and we haven't sought that counsel out, do it, we're happy to help. Again, PensionAttention.com and there you can set your complimentary again, free retirement track review meeting, which is for you to take a look at where you are. I don't care if you've got 5 years on or 25 years on, taking a look and making sure you're on track to live a happy and healthy retirement is the ultimate goal for anyone that we work with here at One Capital Management. [02:09.7]
On the website as well, you can actually go to the media tab and there you can download and subscribe the Pension Attention podcast as well. And as I say each week, leave us a message. Let us know how we're doing. I get a lot of texts and emails, and I really appreciate all of you who reach out and let us know how the show's going. It really does help to hear back from you and to say each week too, if you like the show, share with someone you like, and if you don't like to show, I guess, share with someone you don't like. But today's episode is around taxes in retirement or taxes in particular in other states. Now you might be thinking that's very specific Brad, why are you going to that? Well, in the past 18 months, as an advisor with first responders, who's been working with first responders solely for nearly 20 years now I've seen more move out of state for different reasons to be fair than I ever have before. [03:00.4]
So, I thought it was a good idea to discuss some of the very conversations we're having around the lifestyle, but largely for this show and purposes, largely around the finances, because finances do play a factor. And I'll say this right out of the gate. If you're living in California, which we are you're living in California or New York, or maybe Hawaii, the three highest tax bracket, state tax bracket incomes in the entire nation. If you're living in those three states, anywhere else you move is just going to be cheaper. It's just math. Now there's more to that story, but just taking the state tax is out for a second. If you're living in basically California in New York, which has the highest state taxes in the union, you take those out, you're going to save yourself somewhere between seven to 9% as a, just a state tax, let alone the cost-of-living adjustment. So, from a financial reason, it makes a lot of sense while we always talk about maybe moving out of California, moving East a little bit. And so, I actually went through and did some research on how all 50 states tax individuals. And a lot of the research I was doing came from experience. As you can probably imagine over little over 20 years in the financial services industry, I have clients in a lot of different states. So, I happened to know a lot of how they operate for different reasons and for different clients, but of the 50 I actually want to focus on nine. Now you might be thinking Brad, why nine? Well, the nine that I'm going to focus on, probably won't be that much of a surprise to you, but the nine states with no income tax at all is what I think is important. [04:41.5]
So, to be clear and just for fun, because I'm an absolute nerd, I labeled them in alphabetic order, starting with the last frontier, Alaska heading into Florida, man, do we wish we had a governor like him sometimes. Then Nevada, New Hampshire live free or die South Dakota, Tennessee, Texas, Washington, and Wyoming. So those are the nine states that do not have a state income tax. So, we're going to go through each of those and we're going to discuss some of the things you should know. And some of the things that you should probably look at when you're thinking about moving. And in starting that sentence real quickly, something you should know and if you're a client listening, you've probably heard me say this, especially if we've had a conversation around a move, whether that was while you're still working or in retirement, which leading up to the last 18 months, a lot of our conversations were around retirees, moving out of state. [05:40.7]
Now it's become more apparent that if we can and especially what's going on in the city right now, if we can move out to get a better lifestyle for what we want for our families to move out of the California, then maybe we want to look at that prior to retirement. But either way, what I'm going to say is important on both sides of that fence. And the biggest thing I want to say, and this comes from experience and just being an advisor and a planner for many clients for many years, finances is one aspect. Yes, and an important one, don't get me wrong. But lifestyle, which many of you are looking at, which I love to see, and I love to hear looking at the quality of life you're receiving is massively important, as important as maybe finances. But the biggest thing about that second camp of the lifestyle and the quality of life you're looking at is to also make sure you have a community. So, I say this a lot with clients, when we're talking about a potential move out of state, as we run through the finances, we run through the numbers, the numerical data that we need to see from a state tax perspective, cost of living adjustments, how Medi-Cal, Medicare, all those things are treated differently for different clients across the way. Okay? It's important that you know that those are all there and we're going to run through that planning. But what I also want you to know is community is a big deal. [06:58.0]
Moving to a state, moving out of state, especially for those of us who've been in California our entire lives have worked here and whatever stage in your career you're in and whatever stage you're in you and your family are in, it matters to make sure you plug into a community, whether that's a friend, a relative that you're close with, or church, something that you have a connection to will help you get plugged in and will ultimately make your experience and the move itself more palatable, because it is a big move. And a lot of people have to get over that hurdle to say all we're how are we going to do this? I mean, yes, the finances look great, but I got to commute back if I'm still working or I've got a commute back to see family and friends, if we're not working, but we're retired, but our entire community base is still in California. So, I guess what I'm trying to say is something to consider as much as the numbers and the finances, which we're going to talk about today on the show. But as much as that to consider is also the aspect of a community and have being involved and having a plugin somewhere that you're moving. I just think that that's vitally important. [08:03.3]
All right so, let's jump in to the nine, no state tax states. Okay. First and foremost is Alaska. Let's just talk about it out of the gate. So currently again, no state income tax range, the average combined state and local sales tax rate there is about 1.76%. The median property tax rate is about 100182 per 100,000 of assessed home value. So essentially about 1.1%, there is no estate tax or inheritance tax there. Now, although the last frontier has no state income tax or sales tax, as I mentioned, it isn't necessarily a tax Haven for mainly for retirees. High property taxes have a lot to do with the mixed tax picture for seniors there. So, the state also has very high tax rates for alcoholic beverages, things of nature. So, we don't want to cry in your beer when you get to your property tax bill in the mail. There is however, one unique perk if you live in Alaska, something, just to note. The state sends all permanent residents who have lived there for at least one year, an annual dividend, get that. An annual dividend check from its oil wealth savings account. So, for last year 2020, when I was researching this, the pale was 992 bucks, which goes a long way, honestly, and balancing out any bad tax news. So just some nuances there about Alaska. [09:25.4]
So, let's dip into Florida. Now, I've had a lot of recent inquiries about Florida, for many different reasons and many good reasons. It is tax friendly. We do know it's no state income tax range. The average combined state and local sales tax though is nearly 7%. And the median property tax rate is a little bit lower than Alaska. So, it's a little bit less than 1% essentially. And there's no estate tax. The sunshine state is the, as we all know it, the quintessential retirement state. It was the state where most people retired prior to what's going on in the, basically the sheer publicity of what's going on in Florida in particular, it was really largely known as the retirement state. There was no getting around, it's very popular with retirees in particular, not just because of its forgiving climate, but also because it has no state income tax. Sales tax though can go as high as 8.5%, depending on where you live in Florida. The average combined state and local sales tax, as I mentioned is on 7, so just something to look at. Property taxes in particular in Florida are also reasonable and residents aged 65 and older who meet certain income, property value and length of ownership. And some different restrictions can also receive an extra homestead exemption, probably won't pertain to many of you listening, but just that's out there. And any widow or widower who is a Florida resident may actually claim an additional $500 exemption as well. So just some studies about Florida, again, no state income tax, but a decently high sales tax rate, but also a pretty great city to live in given what's going on lately. [10:53.8]
So, third on our alphabetical list, this is not in priority, but an alphabetical is because again, I'm a nerd and I did it that way is Nevada. Now, most of us know Nevada as Las Vegas, but it's pretty tax friendly, state income taxes, none. Average combined state and local sales tax like the others is relatively higher on 8.2%. But again, just like Florida and even just like Alaska come from California, that doesn't shock us too much. The median property tax rate is actually lower than Florida and Alaska, which is right around basically half percent give or take and also no estate tax or inheritance tax. And you had a big if you're retiring in Nevada, a lot of people I've seen goes to Nevada. The silver state offers retirees a jackpot in my opinion of tax savings. There's no state income tax so, you can cash in your retirement plans and collect social security if you have those checks really without worrying about any big state tax bill. Property taxes again are considerably below the national average in Nevada as well, which is good as the state offers no property tax breaks really for anyone above the age of 65. Sales tax is one area where Nevada could do better, if you want to look at it from a scale. Again, the state imposes a 6.85% tax and counties may tack on up to another one and a half percent, as a result the average combined state and local sales tax we're on 8.2. But again, coming from California, like I said, in the onset of the show, many of these states still look lower than our state here in California [12:23.2]
Do you know how much you should be contributing to your deferred compensation plan? Are you getting the most out of your current investment options? Looking at entering or about to exit the DROP program? Go to www.pensionattention.com to find out how we can help. [12:38.8]
And Nevada's is an interesting one because unlike Alaska and Florida, the two we've already spoken about, it's really close to us, in fact, we border with Nevada, as we all know. So, Nevada comes up on the list quite heavily. Nevada and Arizona in particular, but Arizona has a state income tax. So, of the nine that I'm choosing to focus on today, mainly for length, just have to do with the no state income tax, but Nevada and Arizona are likely ones that we talk about quite heavily. As is Idaho and Tennessee. Tennessee, we'll talk about because again, in a second, it's no state income tax. Idaho we won't discuss today's show, but have a lot of guys that went up to Idaho, which is really great to see as well. They have state income tax, but the cost of living is really low. It's just a great lifestyle. So again, just because we're talking about the nine, have no state income tax doesn't mean there's other states that have low state income tax. In fact, any most states across the nation have lower state income tax than what we have here in California. So again, just focus on the nine, just for purposes of the show, but Idaho, Nevada, Arizona, Tennessee, these are the three or four that I see most of the active duty and retired LAFD LAPD guys moving, at least that I've worked with. [13:51.4]
So next on the list is New Hampshire. Aah, the live free and die state, no state income tax, as we mentioned none, but there is a 5% tax on dividends and interest in excess of $2,500 for individuals or $4,800 for joint filers. So, something to consider there. The average combined state and local sales tax is none. So that's an interesting one when it comes to New Hampshire. Median property taxes is actually a little bit higher. It's right around 2% versus the other one’s at one, one and a quarter. So, residents of the grand state pay no taxes on a social security benefit, not that it would pertain to many of you there or on pensions, which will pertain to most of you listening or distributions from your retirement plans, but there's no general income tax, which is really good. There's no sales tax in New Hampshire either. So, you can shop to your heart's content without having to pay any tax. In fact, I know a lot of clients that live in the Massachusetts New England area that actually go to New Hampshire for things to buy because there's no sales tax. Now here's the hitch though, the medium property tax rate, as I mentioned before, New Hampshire is the fourth highest in the U.S. So, some property tax relief is available for some certain age groups above 65, but the programs run by the towns and cities are complex and not overly generous. So just something to consider when we talk about New Hampshire. [15:13.3]
Next up is South Dakota. Again, no state income tax, as we're talking about all of those, the local sales tax, about 6.4% property tax is right around 1.2%. So relatively low compared to the other ones. The Mount Rushmore state, in my opinion, offers both good tax news and bad tax news for certain individuals. First, the good news as I mentioned before it doesn't have any income tax. So again, pension benefits, social security benefits, that's all good. The bad news is you take a look at the state's property tax rates, which are on the high side, the property tax relief programs are also limited to only basically. I mean, they'll, they'll say otherwise, but basically low-income residents only. So, the news is split between good and bad when it comes to South Dakota, but again, great quality of life there. Lot of good government and lease going on there from a [inaudible]. So, an interesting state to consider as well. [16:04.4]
Next up is Tennessee, again, also no state income tax. The combined state and local sales tax rate is around 9.5. So that's relatively high. The median property tax rate though is right around 0.6, a little bit above half percent, so that's relatively low as well. Retirees in the volunteer state, in my opinion, I think we'll be seeing in the rocky top tune. You like my corniness there all the way to the bank, because again, thanks to lower overall tax burden, especially for those of us here in California. Again, has no income state tax though the state did levy a 1% tax on stock dividends and interest income from bonds and other investments from 2020, but that tax was phased out. So again, property taxes are also well below the average too. The state also offers some property tax relief programs for income for certain senior citizens. You'll be singing the blues though with Tennessee at the cash register, so be prepared to fork over some substantial sales taxes in Tennessee as I mentioned. 9.5%, that's pretty high. Great state, great quality of life. It's on the east coast a little bit so, for many of my guys, it's a little bit far, but I do have a few right now that are moving there. So, it's been an interesting tick up. Usually, like I said, I see Idaho, Nevada, Arizona, but Tennessee has been coming up on the radar quite often lately. So, it's a great state that I've seen. I've had a lot of clients move there. We've looked at property there. We we've gone through the pension and the retirement and investing forecasting to live there. And it's really shaken out to be a really great financial benefit for them, but also an overall benefit based on my comment I made earlier around them also having community and being plugged in and knowing the area. [17:46.0]
Next up is Texas. Believe it or not Kiplinger, when I was researching this, they actually rank it as one of the least tax friendly. But that was interesting because a lot of us think, okay, no state income tax. And again, I'm just talking about taxes here and numerical data. There is a whole other thing to be said when it comes to quality of life, lifestyle in general, that kind of stuff. But just talking about the numbers, they actually ranked it as one of the least tax friendly states. I was surprised. So, I went into it. There's no state income tax, which is good. The combined state and local sales tax though is around 8%. So that's relatively high. And their property tax rate is relatively high, it's about 1.7%, not nearly as high as New Hampshire, but high, nonetheless. So, you got to think, right, how does this stay with no income tax at all end up on the least tax friendly list. It starts by having again the seventh highest median property tax rate in the country as I mentioned, right around 1.6%. The lone star state doesn't offer seniors in particular. And the way Kiplinger wanted to write this was the larger, the breaks for seniors above the age of 65, the brakes from the heavy property tax burden with an additional homestead exemption evaluation freeze program, and the ability to defer property tax. A lot of these states have these little hidden things that goes on when it comes to their higher property taxes. However, these benefits that they have they're, they're not enough to make Texas a tax friendly state for retirees because the sales taxes are also high. The average combined, as I mentioned, 8.9, which is the 14 highest combined rate in the U.S. [19:21.4]
Now I actually technically don't agree with their assessment of the ranking being one of the least tax friendly states, because when you look at it, it's like, okay, wait a minute. The combined tax rate of the sales tax and local sales tax is still relatively in line with those of us in California, a little bit higher, depending on what county we live in, but a little bit higher. The property tax rate is definitely about a half percent higher, if not almost 70 basis points higher or 0.7% higher, but again, no state income tax. So, I think it all has to do a context as well. If again, if you're moving from California to New York, the most expensive states in the union right now. Moving to Texas, it definitely does not look not that tax friendly to us. It definitely looks tax friendly to those of us here in California. So, I would definitely rank it higher, but again, they do have higher sales tax rates and higher property tax rates. But again, Texas is a great place to live traveled there a lot, have a lot of clients. There have a lot of friends there. It is a great state. [20:16.9]
Our next up is Washington. The great north, the evergreen state. Now this one's mixed, Kiplinger's rating on this one, I was reading through and doing some research, they were mixed. Again, being of one of the nine with no state income tax, they have a pretty high state and local sales tax rate, 9.3%. They're median property rates just under 1%. So that's good for us here, but it's one of seven states with no broad-based personal income tax as we mentioned. Therefore, retirees don't have to worry about paying taxes on your pensions as we talked about, which is good. Okay. However, the sales tax in Washington, as I mentioned, are extremely high at 9.3%. It makes it the fourth highest in the nation. The property tax is again, a more reasonable, but sales tax is the big deal when you're buying things. So, it's just important to up there. And again, the weather's different so, a lot of us here in California, you know, those of us were born and raised here. You know, it's hard. We, we get some, sometimes take it for granted the weather and that's why we all are here, right. The location we'll we can do here. But again, when you go to other states, that's another thing to consider. And again, the reason why I'm focusing on the nine is even though some states have no state income tax, there's other things to consider in terms of state and local sales tax rates as I mentioned, property tax rates, all of those things that come into play. But then again, I'll always say this always backs up against the quality of life and the weather and all the things that come with a move. [21:36.4]
All right, last, but maybe not least is Wyoming. Now I saved this one for last, not just because it was the last in the alphabetical list, but this is actually one of the most tax friendly states you can find. Now I'm not saying it's the right thing to do for anybody, but think about it, of all the things I just said of all the numbers I've thrown out, get this for Wyoming. No state income tax, just like the other eight that I've previously mentioned. They're combined state and local sales tax rate is 5.39%. That's one of the lowest of this entire list. Their property tax rate is about half percent. That's also the lowest on this list. The equality state as it's known is a tax friendly to all residents, including retirees. Thanks to when I researched this an abundant revenue that the state collects from oil and mineral rights, not to dissimilar to Alaska, Wyoming, they shoulder one of the lowest overall state and local tax burdens in the U.S. And to start, as I mentioned, there's no income on state tax or estate or inheritance taxes. Sales taxes again are also super low. It's the eighth lowest average combined in the U.S you also won't pay high property taxes to own a home on the range. It's beautiful there. The statewide median property tax rate, as I mentioned, is tied for the 10th lowest in the United States. So again, of the nine, we focused on that don't have state income taxes, believe it or not Wyoming, when you combine property tax rates and local sales tax rates is right up there. Pretty interesting when you think about it. [23:11.6]
So, I hope that helps anyone listening today when they're looking at certain things, I know it's always a topic for a lot of people, but I wonder these go through the, again, I keep using this word, but the numerical data, the numbers around things that we'll look at when it comes to the cost adjustments. Now, I didn't look at necessarily pricing of oil and gas and things that would come into play on a daily or monthly basis. But those are also considerable when you look at states that are different than us here in California.
And I want to thank you for listening to this week's Pension Attention around the nine states that don't have state income tax, which a lot of people tend to focus on, but I wanted to break down a few more numbers in each of those states so you can take a look at. And if you were at all, considering this kind of stuff, it really is important to make sure you run through all of the numbers, not just the numbers too, the qualitative data, the quality of life, which many of you are taking consideration, which I love, but it's also being involved with a community, a church, some sort of organization that you have a partnership in a neighborhood a relationship family or friends. It's really good to make sure that all those come into play when it comes to a move out of California. [24:25.5]
And as always before acting on anything discussed today, remember speak with a financial advisor near you about your specific situation. Or again, if you'd like our help, you can visit us at PensionAttention.com or give us a call. You can reach us at (805) 409-8150. And until next week, stay safe. [24:45.2]
The information in this podcast is educational and general in nature and does not take into consideration the listeners personal circumstances. Therefore, it is not intended to be a substitute for specific individualized, financial, legal, or tax advice.
To determine which strategies or investments may be suitable for you consult the appropriate qualified professional prior to making a final decision. [25:08.4]
