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 home or downsize but stay in New Jersey, close to friends and family; or maybe you want to relocate to a different state and your dream destination. If the latter category applies to you, read on for some tips to help narrow down your potential retirement destination. But first…

If you’re looking to leave New Jersey, you’re not alone

As you probably already know, living in New Jersey is expensive. What you may not know, however, is that about half of New Jersey residents want to leave the state at some point (although just over a quarter say they’re likely to do so) according to a recent Monmouth University poll.

The biggest reason why? Property taxes; NJ charges the highest effective real estate tax rate (paid annually as a percentage of home value) in the country at 2.33%, per WalletHub. Consequently, NJ homeowners pay an average of $9,569 a year in property taxes. Compare that to the average annual property tax bill of $2,386 in Florida (the top destination for retirees), and it’s easy to see how property taxes can adversely impact Garden State residents—especially those on a fixed income.

Long-term prospects don’t look much better, considering the average annual residential property tax bill in NJ has increased over 23% within the last ten years (about 18% over the last five years, for a more recent statistic).

While property taxes are a significant driver with respect to overall cost of living, other expenses exist as well: including the state’s income tax rate (ranking 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 8th most expensive state in America.

Now for some out-of-state retirement tips…

Beware of the New Jersey “Exit Tax”

Knowing a bit about the New Jersey “Exit Tax”—a repayment of the estimated tax you owe on the sale of your property—and associated 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 several exemptions do exist, it’s important to understand if and how the law impacts you before selling your home.

Determine your budget

Whether you have $1 million or $100,000 saved, your primary retirement funding goal is to not run out of money; it’s thus extremely important to determine how much you can afford so you can live within your means after you stop working. Performing this exercise will also set realistic expectations regarding your retirement lifestyle.

For many of you—especially those hoping home sale proceeds will fund a chunk of retirement—downsizing your home or moving out of state are sometimes your best options in this respect.

Align with your spouse

While you may prioritize living close to friends and family, your spouse may want to relocate to warmer environs (e.g., 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 conversation about how you both envision retired life is a great start to help resolve any discrepancies, making sure to stay open and honest about your expectations and find common ground while narrowing down your search.

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 start if you’re unsure about where to live during retirement. In performing this research, you’ll need to consider many big-ticket items including:

Taxes

The state where you choose to live comes pre-loaded with 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 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 2024, seven states have no income taxes at all including Florida, Texas, and Tennessee—each of which often lands on the “top 25 best places to retire” list. Moreover, all of these states (as well as a few others) don’t tax 401(k), IRA, or pension distributions.

Housing costs

According to a recent U.S. Bureau of Labor Statistics Consumer Expenditure survey, housing is by far the largest expense for retirees. In fact, the average retiree household pays an average of $20,362 per year ($1,697 per month) in housing costs (representing over 35% of their annual expenditures). If you’re on a budget and want to enjoy retirement to its fullest, minimizing these specific expenses is a good place to start.

Healthcare

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 $7,540 per year (or $628 per month) in this category with the bulk of this cost is health insurance.

Soon-to-be retirees should have a broad understanding of what Medicare covers (and doesn’t cover) before retiring. Doing so can potentially save hundreds of dollars a year. In addition, WalletHub recently compared all 50 states to pinpoint where Americans receive the best and worst healthcare based on cost, accessibility, and outcome—so this is certainly an article worth checking out.

Amenities

In addition to living in a place with a thriving economy (in case your financial situation changes) and one with a low crime rate, everyone should consider 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 golfing, skiing, and fitness.

A few more things to consider before deciding to reside outside of New Jersey

If you’re still contemplating whether or not to retire outside of New Jersey, know that these state property tax relief programs can help sway your decision…

Senior Freeze. This initiative will reimburse you for any property tax increases that hit once you’re in the program. To qualify, you must have owned and lived in a New Jersey home since December 31, 2019 (or earlier), be at least 65 years old or receive Social Security disability benefit payments, be up to date on your property taxes, and have earned less than $163,050 (for 2024 applicants).

Stay NJ. While this initiative became a law in 2023, there are concerns about whether Stay NJ—the most ambitious tax cut for seniors in decades—will even fully materialize due to funding challenges. Either which way, the program sets out to keep more seniors in the state by cutting property taxes by up to 50% on primary residences for those who are age 65+ and earn less than $500,00 a year starting in 2026. Stay tuned!

In sum: retiring outside of New Jersey

As deciding where to live during retirement is a big decision, 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 there—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.