Outside the sun is bright, the skies are blue and it couldn’t be a more beautiful winter day.
It also happens to be -30. Factoring in the wind, it “feels like” -50.
Schools, some government offices and many private businesses are closed. The local power company has just announced an urgent request for homeowners to dial back their thermometers to 60 to reduce demand on the power grid.
To me it sounds like a perfect day to work from home, break out the fingerless gloves, and get a jump on my 2018 tax return.
Of course, life doesn’t have to be this way. Some states never see temps fall below freezing and there’s even a few where state income taxes don’t exist.
However, the move to a more weather and tax friendly state comes at a price.
Before you sell the ice shanty and move to a state where the taxes and temps are more favorable, consider this:
The tax savings may not be as great as it seems. MN has a top tax rate of 9.85%, one of the highest in the country. That kicks in for married couples with 2018 taxable incomes above $266,700.
The other tax brackets are 5.35%, 7.05% and 7.85%.
You can see a chart of the brackets here, but most Minnesotans reading this will likely fall into the 7.05% bracket during retirement.
Let’s assume you have a taxable retirement income on the high side of the 7.05% bracket, just under $150k. That would give you a MN income tax bill of about $10,575 (or less).
A retired couple with the same income in Arizona would pay about $6,360 in state income tax – roughly $4,200 less. $4,200 is a lot of money, but is it enough to make selling your MN home and becoming a resident of Arizona or another low tax state really worth it?
Of course, you could move to a state that has no state income tax. Florida, Texas, Nevada and four other states have no state income tax at all. However, if better winters and lower taxes are your goal, you really only have a few states to choose from.
Keep in mind, even if you erase your entire state income tax bill by moving to a state with warmer winters and low-to-no-income tax, your total savings may be offset by sales and property taxes, a higher cost of living in new home sate, or the expense of relocating from Minnesota or maintaining homes in two different states.
Warm winters come with a trade off. Texas, Florida and Nevada all enjoy milder temps in the winter. And right now that’s sounding pretty good.
But have you ever been to these states in the summer?
San Antonio, TX averages 113 days with temps above 90. Austin isn’t far behind at 108. In fact, Austin experienced 51 of days with temps above 100 in 2018.
If you think the dry heat of Arizona is better, I hope you are right because Phoenix gets 168 above 90 degrees every year. Minneapolis comes in at a cool 13 days.
In fact, 2018 was Phoenix’s 3rd hottest year ever with 128 days that saw temps rise above 100.
Before you sell the cabin and move south, spend a couple weeks in your desired location during summer. July and August should give you a good sample of what you can expect.
Friends and family stay behind. You can have an active social life wherever you live. Making new friends in new places can be one of the joys of relocating.
However, the deep relationships you have with your closest friends, members of your church community, neighbors and others in your social circle will probably change. Some of these people you may never see again.
Adult children, grandchildren and other family members will still be an important part of your life, but you won’t see them as often either. FaceTime, Skype and annual visits will have to do.
While it’s tempting to pack it up and move to another state in retirement, few people actually do so. According to the Brookings Institute, only about 1% of retirees changed their state of residence last year. Most choose to stay near their adult children and in communities they are familiar with despite the weather or tax climate.
Yet, for some families relocating to a new state can be the right choice. Just be sure to do your homework, consider all the variables, and make your decision for all the right reasons before you make this major life change.
In the meantime, bundle up.