Strategic Moves
If you are between the age of 50 and 65, Barbara McDonald wants you.
McDonald, director of the Hometown Mississippi Retirement program, is traveling the country trying to woo prospective retirees to the Hospitality State with an argument sure to appeal to the pocketbook--a low cost of living and no taxes on pension income.
Boosted by a federal law that says that your old state can’t tax you if you move away, Mississippi is one of about half a dozen states actively courting baby boomers who think they may want to relocate when they leave the workaday world behind them. Arizona, Alabama, North and South Carolina are among the other states actively pursuing prospective retirees.
For good reason. One household of retirees produces the economic equivalent of 3.7 manufacturing jobs, McDonald says. That’s because retirees come with substantial assets, and they support local merchants by using some of those assets to buy homes, furniture and cars. Their tax dollars support public services such as schools and jails, yet they are unlikely to tap them, she says.
In addition, some retirees aren’t really retiring, says Patrick Mason, co-founder of the Center for Carolina Living, a firm that promotes moves to North and South Carolina. About 15% of the individuals who move to the Carolinas say they’ll start or move a business there, bringing an average of 15 new jobs with them.
“Economic impact is the key denominator,” Mason adds. “We know that they bring wealth and create housing starts and invest in the new community. We are really importing capital in the form of people.”
For retirees, the personal economic impact can be equally compelling. That’s because the cost of living--including food, housing and taxes--in highly populated areas such as Los Angeles, New York and Chicago, is far higher than it is in rural areas and in less populated states, ranging from Nevada and Arizona to Alabama and Mississippi. Those who move into a city or state where the cost of living is lower can reduce their expenses and increase their buying power. To someone living on a fixed income, that’s pivotal--often meaning the difference between scraping by and living in comparative luxury.
The top targets of McDonald’s pitch are middle-aged Americans living in high-tax states, such as California, New York and Illinois. (Recruiters say they go for somewhat younger folks because they know that few people move after the age of 65, whereas early retirees are considered mobile and willing.) But they’re also actively going after aging baby boomers in low-tax states, such as Texas.
“In Texas, we have to stress our lower cost of living, low crime rate and quality of life,” she says. “In California and New York, we talk more about taxes.”
It’s worth mentioning that the states’ quest for retirees was given a boost last year when President Clinton signed a law barring states from taxing the pension income of their former residents. Until then, individuals who retired out of state frequently found that they still had to pay income taxes to the state they had left. California was particularly aggressive about going after departed retirees and made a point of taxing nonresidents at the state’s highest possible rate.
Just how could moving affect retirees’ pocketbook? Naturally that depends on where they go and where they are from. To lure people into Mississippi, McDonald uses slide-rule comparisons.
The cost-of-living index in Mississippi is 96.7 versus 117.1 in California, 112.7 in Illinois and 223.8 in New York. In simple terms, what that means is a dollar’s worth of products and services costs less than a dollar in Mississippi versus nearly $2.25 in New York. The bottom line: Those who move can buy more with less money.
But that’s not all. Where the state tax burden--which includes property, sales and income taxes--on a New York resident earning $50,000 and living in an average home amounts to $7,279, it’s $3,810 in Mississippi, McDonald says. The average tax burden for an Illinois resident would be $6,110; it’s $5,757 in California.
It’s worth mentioning that while most prospective retirees pay great attention to property and income taxes because they’re paid in lump sums, most states derive the bulk of their income from sales taxes, which can amount to as much as 8% or 9% of every purchase, says Sally Adams, attorney and analyst with CCH Inc., a Riverwoods, Ill.-based publisher of tax information.
That’s something for prospective retirees to keep in mind, particularly if they move to a border town. For instance, a person might decide to retire in Washington state, where there’s no income tax, but do all his or her shopping in Oregon to avoid sales tax, Adams says.
In addition, there are some fairly unique tax systems that have been derived to generate income from residents of other so-called low-tax states. Florida, for example, has long been considered a retiree haven, partly because the state doesn’t impose any income tax. But many retirees find out too late that Florida is among a handful of states that impose an “intangibles tax” on nonretirement investment portfolios, Adams says. Because the intangibles tax is assessed as a percentage of one’s nonretirement assets, someone with a modest income but a significant amount of investments would end up paying substantially more in intangibles taxes than he or she would have paid in income taxes, Adams notes.
In other words, before you move, be sure to investigate the communities where you would like to live, Adams says. Find out about everything from the climate to the cost of housing, food and entertainment. Also investigate rates for sales tax, property tax and any other taxes that might affect you.
“It used to be that Florida’s battle cry was, ‘No income taxes! Y’all come!’ ” Mason says. “Now, we are actually getting a significant number of people who are J-curving out of Florida, looking for another alternative.”
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Kathy M. Kristof will be available to answer questions and sign copies of her new book, “Kathy Kristof’s Complete Book of Dollars and Sense,” today at the Los Angeles Times Festival of Books at 11 a.m. The Festival of Books is being held at UCLA’s Dickson Plaza. Admission is free.
