By: Olivia S. Mitchell
Olivia S. Mitchell (@OS_Mitchell) is a professor of insurance/risk management and business economics/policy at the Wharton School of the University of Pennsylvania.
I am often asked what are the most retirement-friendly places to live, so I assembled some thoughts in talking with John Kiernan from WalletHub.com. Below I provided an updated version of my views:
What error do retirees make when choosing where to live in retirement?
Lots of people thinking about where to retire forget to take into account their destination state’s income tax rate and tax base. For instance, are pensions & Social Security subject to tax or not? How much will be taxed? Answers to these questions can come as a rude shock when people move but overlook this item!
Should retirees be exempt from certain state and local taxes?
The answer to this question varies by state: for more see this article detailing which state does what. But also be aware that low state and local income taxes can often mean that a state/city needs to raise revenue by property and sales taxes. So do your homework carefully!
What tips do you have for living on a fixed income in retirement?
Actually retirees are less likely to be living on “fixed income” than anyone else – insofar as Social Security benefits are (usually) indexed while paychecks are not! Nevertheless, the goal is to budget carefully, including for healthcare out of-pocket costs, Federal/state/local/property taxes, travel to the grandchildren, and health/long-term care insurance premiums (and then keep working a little longer, when you figure out that your predicted costs exceed your expected income!).
Should states work to attract retirees? What are the pros and cons to having a large retiree population?
Some states, like Pennsylvania, work hard to attract and retain retirees. Their philosophy is that this group has a relatively stable income power base that is less susceptible to macroeconomic fluctuations than other people. Yet if retirees live a long time and end up applying for SSI, DI, Medicaid, and other benefits, these states could bear some of the cost (and possibly raising taxes!). It’s not an open-and-shut case for states, clearly.