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Deciding where to spend your retirement is a big decision.
For most Minnesotans, the answer is…Minnesota. (Most of the state’s retirees remain local.) But warmer weather and economic factors tempt some elsewhere.
A reader wanted to know the financial advantages and disadvantages of remaining in Minnesota after retirement, including taxes and medical costs. They turned to Curious Minnesota, the Star Tribune’s reader-driven reporting project, for answers.
If minimizing taxes is your top priority when choosing a retirement location, Minnesota has some distinct financial disadvantages for retirees. However, there are trade-offs to be considered for the cheaper route.
“You have to look at the big picture,” says Steven E. Warren, a certified public accountant in Minneapolis. “Some people think, ‘Oh, Florida has no income tax, so it’s obviously going to be a better, cheaper place to retire.'” For others, there’s more to quality of life than taxes. It is clear that there is a problem. In those respects, Minnesota has generally done well. ”
“99% of states are maintaining the status quo.”
Some popular financial websites rank Minnesota as the best state for retirement, and it’s not for economic reasons.The state is 8th wallet hub For example, this list balances Minnesota’s high cost of living with the state’s top health care and quality of life. Motley Fool We rank 3rd overall in the state for retirement benefits, but 39th in the nation for taxes.
Economic issues are important given that most Americans: I don’t have enough money According to the National Institute for Retirement Security, to live a financially secure retirement. The institute attributed the problem to the transition from pensions to 401(k) plans that began in the 1980s. Not only are 401(k) plans affected by stock market volatility, but savers may underinvest or tap into the plan during a financial crisis.
State demographer Susan Brower said very few seniors are leaving Minnesota. About 19,000 Minnesotans age 60 and older move out each year, while 11,000 more move in.
“I think a lot of times people tend to think of it as a one-way ticket, but that’s definitely not the case,” she said. “About 99 percent of states are maintaining the status quo.”
Brower noted that moving costs can outweigh the tax savings, and that only a “select group of very high-income people” choose housing based on taxes.
increase in taxes
Taxes are Minnesota’s most obvious fiscal disadvantage. First, only 10 states impose taxes. income from social security According to Time magazine, filers who exceed a certain income threshold are eligible.
There is also a tax in Minnesota. public and private pension systems (Excluding military pensions and some public pensions) Distributions from Individual Retirement Accounts and 401(k)s.
Unlike 38 other states, Minnesota collects estate taxes on large estates (usually over $3 million) after a person’s death. However, inheritance tax is not levied and is paid by the heirs.
Minnesota is 6.87% consumption tax This rate is the highest in the country and lower than six other states.
What about everyday expenses?Minnesota ranks moderate overall Cost of living, according to World Population Review, is calculated based on groceries, medical care, housing, transportation, utilities, and miscellaneous expenses. Especially when it comes to health care, the state has the 17th highest per capita spending in the nation. federal data.
financial trade-off
Given these fiscal measures, Minnesota doesn’t seem like an ideal place to settle for retirement. But the reality is often more nuanced when it comes to what you get for your money.
“If you look at the broader fiscal picture, Minnesota is actually doing okay,” said author Chris Farrell.The new frugality: How to spend less, save more and live better” and is a writer for the Star Tribune’s “Your Money” column.
Farrell said some states may seem more affordable at first glance, but “you’re going to end up paying for it one way or another.”
For example, states with low or no income taxes may have higher sales, property, and excise taxes (additional taxes on products such as tobacco, alcohol, and gasoline). Or they may compensate for reduced taxes by providing fewer government services.
Michael Schumacher, a financial advisor at Golden Valley, agrees. “Each state has to generate revenue,” he said. “How are they doing?”
Higher taxes can improve the quality of government programs and services.Minnesota is known for its greatness. infrastructurefor example.
Other financial considerations include non-tax costs such as insurance, which can be more expensive in areas with high crime or flooding.
Farrell said it may be easier for retirees who want to work part-time to find a job where they have social networks.
Some retirees want the best of both worlds. Snowbirds who move back and forth between Minnesota and states with favorable tax policies, such as Florida, may prefer to claim residency in the cheaper option. Warren, the accountant, said it was important to keep the proper documentation. In audits, the IRS looks at factors such as where your driver’s license was issued, where you are registered to vote, and even where you attend church.
“They may ask for all your credit card transactions,” Warren says. “A lot of different things that say, ‘Okay, now I’m really spending most of my time and putting myself out there as a person from this other state.'”
Culture, climate, medicine
Of course, there’s more to retirement than money.
In addition to taxes and expenses, retirees may be concerned about amenities such as Minnesota’s great theaters, cross-country ski trails, and proximity to the Mayo Clinic. Living close to family is often the biggest reason Why do retirees live where they do?
“For me personally, what is the cost of leaving behind my grandchildren?” Farrell said. “I think that’s a huge deal.”
Living closer to family is also practical. Elderly people can rely on relatives for support that they have to pay for themselves.
Climate is a non-economic factor in retirement and typically does not work in Minnesota’s favor. But even in old age, there are always hardy souls who do not want to live in a place without a solid winter.
After all, feelings of comfort and enjoyment derived from the environment are probably the most important factor when choosing a place to live.
“I always tell everyone I work with not to make choices based solely on taxes,” Schumacher said. “If you’re going to live a miserable life in Texas, why would you do that? Mental health is also important.”
If you would like to submit a “Curious Minnesota” question, please fill out the form below.
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