Looking to Retire Outside of New Jersey? Here’s What You Need to Know.

Living in New Jersey is expensive. One reason why? The state charges residents the highest effective real estate tax rate (paid annually as a percentage of home value) in the country: 2.49%, according to WalletHub. Consequently, homeowners pay an average of $8,965 a year in property taxes.

Long-term prospects don’t look much better, considering the average annual residential property tax bill has increased almost 22% since 2010 (based on statistics published by the NJ Treasury Department).

While property taxes are a significant driver with respect to the overall cost of living, there are other expenses to account for as well: including the state’s income tax rate (ranks among the highest in the nation) and utility, healthcare, grocery, and transportation costs. All things considered, a recent Missouri Economic Research and Information Center study names New Jersey as the 9th most expensive place to live in America.

If retirement is on your horizon, one of the biggest decisions you may soon contemplate is where to live. Perhaps you want to remain in the same house or downsize but stay in New Jersey, close to friends and family. Alternatively, you may want to relocate to a different state and your dream destination. If you fall into the latter category, continue reading for some tips to help you narrow down your potential retirement destination.

Determine your budget

Whether you have $1 million or $100,000 for retirement, your primary objective is to not run out of money. Therefore, it’s extremely important to determine how much you can afford in retirement so you can live within your means. Performing this exercise will also provide you with realistic expectations regarding the retirement lifestyle you can afford.

For many of you—especially if you’re hoping proceeds from your home sale will fund a chunk of your retirement—downsizing or moving out of state are sometimes your best options.

Be aware of the New Jersey “Exit Tax”

Knowing a bit about the New Jersey “Exit Tax”—simply a repayment of the estimated tax you owe on the sale of your property—and its potential implications can protect you from potential cash flow issues.

This estimated tax is paid in advance (either before or at closing), held in escrow, and then settled when you file your state income tax return. While there are several exemptions as with many other taxes, it’s important to understand if the law impacts you (before selling your home).

Align with your spouse

While you may prioritize living close to friends and family, your spouse may want to relocate to warmer environs (on or near a golf course) during retirement. If you’re like most married couples, you’ll likely encounter at least a few differing opinions in this respect—and that’s ok. Sitting down with your partner to engage in insightful conversations about how you both envision your retired life is a great start to help resolve any discrepancies. Staying open and honest about your expectations and finding common ground are both paramount to narrowing down your search with your spouse.

Research and explore various retirement locations

In many ways, researching and actually spending time in prospective locations is a lot like online dating; you continue “swiping” (researching) various “profiles” (destinations) in the hope of eventually finding “the one.” However, as many options will likely boast several key qualities you’re looking for—at least on paper—you won’t know for certain until you meet them (by visiting) and spend time with them (by staying a while) to identify if they’re a “keeper.”

U.S. News & World Report publishes an annual “Best Places to Retire” study based on various factors: including taxes, affordable housing, happiness ratings, and desirability.  This is often a great place to begin if you’re unsure about where to live during retirement.

In performing this research, there are many big-ticket items to consider including:

Taxes
The state where you choose to reside can have significant income tax implications. For example, if you plan on working or withdrawing money from various tax-deferred investments such as a 401(k) or traditional IRA, states can (and many will) charge taxes. Several states will even tax your Social Security benefits—depending on your income—in addition to any potential federal taxes you may end up owing.

As of 2022, seven states have no income taxes at all: including Florida, Texas, and Tennessee—each of which has a spot on the top 25 best places to retire list. Moreover, all seven states (as well as a few others) don’t tax distributions from 401(k) plans, IRAs, or pensions.

Housing costs
According to a recent Consumer Expenditure Survey from the U.S. Bureau of Labor Statistics, housing is by far the largest expense for retirees. In fact, the average retiree household pays an average of $17,454 per year ($1,455 per month) for housing expenses which represents almost 35% of their annual expenditures. If you’re on a budget and want to enjoy retirement to its fullest, minimizing your home expenses is a good start.

Healthcare Costs
Healthcare—which includes health insurance, medical services, supplies, and drugs—ranks fourth on the biggest expenses list for retirees, with households spending an average of $6,749 per year (or $562 per month) in this category. The bulk of this cost is health insurance, so you’ll want to ensure you get the most out of your healthcare expenditures.

WalletHub recently compared all 50 states to determine where Americans receive the best and worst healthcare based on cost, accessibility, and outcome—an article worth checking out.

Amenities
In addition to living in a vibrant economy (should your financial situation change) with a low crime rate, everyone should evaluate a few additional amenities as well: including close proximity to quality hospitals, assisted living facilities, and airports (if you anticipate frequent out-of-town visitors and/or have robust travel plans of your own). You should also seek out locations that offer enough activities to fill up your free time: such as golf, ski, and fitness opportunities.

In sum: choosing where to live during retirement

Deciding where to live during retirement is a big decision. As a result, you should never rush this assessment and instead spend as much time as possible (even years) researching and visiting potential destinations to obtain a clearer picture of what retired life may look like at various locations—keeping in mind that no single spot will fit every retirement dream perfectly.

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Vision Retirement is an independent registered advisor (RIA) firm headquartered in Ridgewood, New Jersey. Launched in 2006 to better help people prepare for retirement and feel more confident in their decision-making, our firm’s mission is to provide clients with clarity and guidance so they can enjoy a comfortable and stress-free retirement. To schedule a no-obligation consultation with one of our financial advisors, please click here.

Disclosures:
This document is a summary only and is not intended to provide specific advice or recommendations for any individual or business.