Every year, thousands of retirees relocate to new states seeking better weather, lower costs, or a fresh start. You've likely researched the "best states for retirement" and considered climate, taxes, and proximity to family. But three financial planning considerations can catch even sophisticated retirees by surprise. These are areas where a seemingly smart move can quietly undermine years of careful planning.
Income Taxes: The Devil Is in the Details
It's easy to assume a state with no or lower income tax will save you money, but that's rarely the full picture. The real question is how each state treats your specific sources of retirement income.
States have wildly different approaches to taxing retirement income. Some don't tax Social Security at all; others do. Some exempt pension income entirely or up to certain thresholds; some only exempt their own public pensions. Many states treat traditional pension income very differently from IRA or 401(k) withdrawals, even though they're both retirement income to you.
Consider this: A retired public-school teacher exploring a move to a "tax-friendly" state with lower costs might find that if they're leaving a state that doesn't tax their pension for one that does, that destination could cost them thousands per year. Over a 25-year retirement, we're talking about real money.
The lesson? Run your actual income sources such as pension, Social Security, planned IRA withdrawals, investment income, etc. through the tax code of your target state. The state that's perfect for your neighbor's income mix might be expensive for yours. For states without income tax, examine property taxes, sales tax, and vehicle registration fees.
Property Ownership Laws: The Surprise That Surfaces Later
Here's a question most people never consider: Is your target state a community property state or a common law property state? If you've intentionally structured your finances a certain way during your marriage, this obscure legal distinction can upend everything.
Nine states follow community property rules: Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, and Wisconsin. The rest follow common law property rules. In common law states, assets generally belong to whoever's name is on the account. In community property states, most assets acquired during marriage are equally owned by both spouses, regardless of whose name appears on the account.
Why does this matter? Imagine you've maintained separate accounts intentionally for decades to protect against one spouse's spending habits or debt issues. You move from Ohio (common law) to Arizona (community property). Suddenly, assets you acquire or income you earn may be treated as jointly owned regardless of whose name is on the account. That credit card debt your spouse racks up could become legally yours too, even if your name isn't on the card.
This also affects estate planning. If your will or trust was drafted based on common law property assumptions, moving to a community property state can change how assets pass to heirs, affect tax basis step-up benefits, and alter creditor protections.
Community property isn't inherently bad, and common law isn't inherently good. But if you've built your financial life around a particular structure, this deserves serious attention. Consult with an estate planning attorney familiar with both your current and target states.
Healthcare: Medicare Isn't as Universal as You Might Think
Many retirees assume Medicare works the same everywhere. While technically true for traditional Medicare Parts A and B, your healthcare coverage and costs can vary dramatically by location.
Medicare Advantage plans, which cover nearly half of all Medicare beneficiaries, vary significantly by state and region. Networks, premium costs, out-of-pocket maximums, and prescription drug formularies available in one state might look completely different elsewhere. That cardiologist you see regularly? They might not be in-network in your new state.
Here's the critical timing issue: If you choose a Medicare Advantage plan at 65, switching to traditional Medicare with Medigap later typically requires medical underwriting in most states. If your health has declined, you could be declined for Medigap coverage or face significantly higher premiums. The Medicare decision you make at 65 has long-term implications for future moves.
Medigap policies also vary by state in availability, regulations, and cost. Some states have more consumer protections and guaranteed issue rights than others.
Making an Informed Decision
Climate matters. Being near family matters. You've probably spent considerable time thinking about those lifestyle factors. If you're still exploring, consider renting in your target location for a season first. It's remarkable how different a place feels when you're living there rather than vacationing there.
The right retirement location should support your complete vision: financial, practical, and personal. This isn't about making the "perfect" choice; it's about making an informed one, understanding not just what you're moving toward, but what you might be leaving behind or inadvertently changing.
Start this conversation now, well before you list your house. We'd be happy to help you see the full picture: tax implications, legal considerations, healthcare, and estate planning angles. The best decisions come from examining all the factors, not just the obvious ones.
Your retirement location is too important to base solely on sunshine and tax brackets. Give it the comprehensive analysis it deserves.