Many Americans dream of relocating in retirement to stretch their nest eggs, and they often do it by moving to low-tax states.
Choosing a state with no income tax, like Florida, or lower tax rates promises relief for retirees tapping 401(k)s. But such moves are rarely just about savings. For some, total spending remains almost the same, or even rises, but funds shift toward upgraded amenities or travel.
About 60% of retirees who move after retiring went to a more affordable area, and pocketed capital gains from their houses, according to a 2023 Vanguard study. It found these retirees can also typically unlock around $100,000 in home equity by doing so.
But lower-cost areas aren’t always what they seem. While state income-tax burdens might shrink, property taxes can jump, or vice versa. Many states exempt Social Security from state income tax, but only a few offer similar treatment for retirement-account withdrawals. Other costs, such as homeowners’ association dues or home insurance, may rise.
Seven retirees opened up to us about their finances , the tax breaks they gained, the costs that surprised them and how their new ZIP Codes changed their lives.
On his 63rd birthday, Earl Vittitoe and his Wife, Pat Vittitoe, left their home in Illinois and drove west to Arizona to start a new chapter in retirement.
They have never had second thoughts, said Earl, now 70.
On the financial front, the Oro Valley, Ariz., resident keeps track of how much the move has saved them on property taxes.
The Vittitoes were paying more than $13,000 a year on their home in Washington, Ill., outside Peoria. In Arizona, the couple pay about $3,600. For the past seven years, Earl has invested the approximately $10,000 difference in stocks, a balance that now exceeds $100,000.
“That decision is getting more valuable by the day,” he said.
The Vittitoes feel they have traded up to a better lifestyle.
“I was so happy the day I gave my snowblower to my friend in Illinois,” said Earl, who took a buyout at age 59 ½ from a large manufacturing company, where he designed computer systems to track everything from parts to the software needed to manufacture products.
The couple considered moving to Hawaii, where Earl attended High school. But when Earl’s aunt relocated in 2015 to Oro Valley, he and Pat fell in love with a nearby 55-plus community with pools and a golf course.
The lower cost of living was also attractive, said Earl. The couple have saved on state income taxes, since Arizona’s 2.5% rate is half of Illinois’s nearly 5% rate. However, Illinois exempts retirement-account withdrawals and pension income, so when Earl begins taking required withdrawals from his IRA at 73, they will pay a little more in Arizona.
The Vittitoes have in excess of $3 million, including about $2 million in IRAs and about $1 million in a taxable brokerage account.
