Are you living in the wrong place? Would you be better off financially if you moved a few miles, or across country, and got a tax break on your federal or state annuity, private pension or Social Security? And the move took you somewhere where the cost of living was much lower? Worth checking out, right?
When people shop for a place to retire they consider lots of things: Weather, living costs, proximity (or not!) to relatives. And last, but definitely not least, the tax situation: What will moving from your current location do to your civil service annuity, your Social Security check and others sources of income? The short answer is, it depends. In some cases a lot.
Picking the “best” of the 50 states, tax-wise, can mean hundreds of thousands extra dollars that will be yours, not the Great State of Whatever, for as long as you are retired. Which could be several decades. More time, in some cases, than you actually worked. A time when there won’t be anymore pay raises, and keeping up with inflation will be one of your primary concerns. Feds retired under the CSRS program, people who get Social Security and military retirees have considerable protection. They get a COLA (cost of living adjustment) each January to help them keep pace with inflation in the previous year. Last January they got a 3.9% catch-up under CSRS and Social Security, while FERS retirees under a different system got 2.9%.
No matter how stoic you want to be, in general having more money is better than having less money! So how do you do that? A good start is the worth-its-weight-in-gold April issue of NARFE magazine. Members of the National Active and Retired Federal Employees get it monthly. Along with other info including lobbying and legislative updates. The April issue is always a hot one because it includes a 50 state tax roundup. Things you should know, but probably didn’t, that might influence your decision to move when you retire. Or if you can work remotely, move now! And the differences are both huge and complex in many situations. For example:
- In Nebraska public and private pension income is FULLY TAXED. Lots of caveats, but you need to know that if you are searching property in Omaha.
- On the other hand, New York State, which you’d think would be pretty hardball in this area, Social Security, federal, state and local retirement benefits are EXEMPT from taxes. As they are in New Jersey and a surprising number of states.
- North Dakota exempts Social Security and military retired pay from state taxes. Other sources, including income from CSRS and FERS, are subject to state tax.
And the beat goes on. Some of the exemptions are very complex. In some cases they depend on how long a resident worked before getting a pension. In others a limited amount of the retirement benefit is state-tax free. But the rest is taxable. Some let you keep some or all of your retirement income but only if you are a certain age. Or disabled.
If you are confused now, just wait. In this case the federal worker-retiree association has done all the work. It’s available to members in the April issue of the NARFE magazine. And NARFE has given Federal News Network readers special access to the tax rundown. Check it out.
Nearly Useless Factoid
By David Thornton
All cows in the United Kingdom require a passport, in order to track disease outbreaks. Cows without a passport are not allowed into the food chain.