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

Tyler Gardner (0:00)

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

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. So let's get started and get you one step closer to where you need to be. Last week, we broke one of the great unspoken commandments of retirement planning, thou shalt move to a no-income tax state. We peeled back the glossy brochures and the 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. Not all no-tax states are created equal. 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. 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. Which, let's be honest, is not something you'll ever see on a billboard off I-95. 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. 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. 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% effective tax rate. We'll talk in more detail about why being married can shave as much as 6 percentage 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. Because that's what this series is ultimately about, the reality of trade-offs. 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. The cheapest zip code might not be the most comfortable one. The sunniest state might have you quietly cursing your property tax bill while sipping a margarita. 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. 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. It helps grow the show, and it helps me appreciate that what we're doing here together actually matters. 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. 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. 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. 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. That's a vacation every year to the state of your choosing. 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. But here's the too long did not read version for all of you who have to go in five minutes. 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. Meanwhile, Oregon, Minnesota, and Hawaii were among the most punishing. Gorgeous scenery, yes, but your effective tax rate might make you wonder if the moss-covered trees are secretly laughing at your portfolio. 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. 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. 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 it's just spilled paint on canvas. 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. Others treat them like a polite guest and ignore them entirely. 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. 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. That's the total you actually pay in taxes, all taxes, as a percentage of your total income. 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, age to perfection. 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. 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. There are some expenses that I prioritize above everything else. And my health is without a doubt number one. 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. 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. 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. 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. 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. 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. 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. I've given up on so many supplements in my life because of wasteful packaging. 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 one, don't check your bags, and they take up almost zero space. So, if you're working out, fasting, traveling, or just trying to feel better throughout the day, Element's worth trying. And right now, they're offering a free sample pack with any purchase. Just go to www.drinklmnt.com/tyler.