Recently, we have had three families of relatives move from New Jersey to Florida, with more planning to do so. While I think living in Florida is wonderful for a host of reasons, Kiplinger’s has rated the States from a tax standpoint for retirees. Here is what they found:
For those choosing to stay in New Jersey:
Our ranking: Mixed tax picture
State income tax: 1.4% (on up to $20,000 of taxable income) — 8.97% (on taxable income over $500,000).
Average state sales tax: 6.97%
Estate tax/inheritance tax: No/Yes
Go to New Jersey’s full state tax profile
The Garden State has been taking big steps to reduce its tax burden on retirees. It does not tax Social Security benefits or military pensions. And a law passed in 2016 means seniors may also qualify to exclude part of their retirement income from state income taxes. By 2020, a couple filing jointly, with an income of $100,000, could exclude all of that. To top that off, the estate tax is being phased out. What’s keeping New Jersey from being a retirement idyll? Stubbornly high property taxes—the highest in the country, in fact.
For the contingent that has decided to join us in Florida:
Our ranking: Most tax-friendly
State income tax: None
Average state and local sales taxes: 6.80%
Estate tax/inheritance tax: No/No
Go to Florida’s full state tax profile
One of Kiplinger’s top ten most tax-friendly states for retirees, the Sunshine State is very popular with retirees, not just because of its abundant sunshine but also because of the absence of a state income tax. Permanent residents are entitled to a homestead exemption of up to $50,000, regardless of age, and seniors may qualify for an additional exemption.
We welcome the transplants from New Jersey and all of the other unfriendly tax States.
I read an article in USAToday recently that stated many Americans are saving for retirement by cutting back on spending. The article stated that Baby boomers are willing to cut back their vacations, Gen X-ers will downsize their homes, and the millennials won’t eat out or go to the clubs as often. I have written articles about cooking at home vs. eating out, not putting yourself in a position where you are mortgage poor, or taking a vacation that you cannot pay cash for, but that is only part of the retirement saving story.
Not enough Americans are saving pre-tax to their potential. Many employees only save to the company match. An employee under the age of 50 can contribute up to $19,000 pre-tax, with employees over the age of 50 being able to add an additional $6000. You will either pay Federal income tax, or pay into your retirement fund. My pick is to save to my retirement.
Many of the people polled for the article state that they will just work longer. If you love what you are doing, then working longer is no big deal. Take advantage of the opportunity you have in front of you, save more pre-tax, then look at areas of spending where you might be able to spend a little smarter.
Last week, I had two clients ask for advice on buying a car. Both are retirees, one sees themselves driving 3 more years, the other, maybe 10 more years. My advice to them starts the same – figure out the make, model, and options you want, then look for a lease return car to buy. We have been buying lease return cars for years – let me tell you why.
When people lease cars, they have to keep up the maintenance and appearance of the car, as well as keeping the mileage low. If the car is not maintained, and the mileage goes over the contracted amount, the lessor ends up paying a huge price to get out of the lease. Buying a lease return can get you a practically new car without the new car price. All of the depreciation that occurs when driving a new car off the lot is no longer an issue, and many of them still have factory warranties. The price you would pay for a lease return is thousands less than buying new. I also love going to the “no haggle” type dealerships because it tends to level the field a bit.
Do your homework, know what you want, and what you are willing to pay. You may want a specific car, but don’t let a dealer think you need something different.
I have written before about talking to my Mom and In-laws about their finances. It is never an easy conversation, and often a hard one to bring up. My Father passed away at the age of 50 – this was a sudden death that rocked our world emotionally and financially. A number of years later when we were all together for my Daughter’s Bat Mitzvah, I brought up the subject of my Mother’s passing, asking my siblings what they wanted from her home. This may have seemed crass, but we were all together for a happy occasion, my Mother was not ill, so the discussion was easier. Here are a few more tips regarding talking to your parents about their finances.
Don’t make the conversation about money.
If they have not retired, ask them what their retirement might look like. Ask what types of plans they have, where they want to live, how they plan on spending their time, etc. This will lead to how they plan on financing everything.
Ask them for advice.
This may be a bit sneaky, but it is an easy conversation opener. Share ideas about what you are thinking for your own retirement savings, then ask what they are doing so you can learn by example.
Use a current event.
If a family member or good family friend has passed or entered into a long term care facility, this can be a great conversation starter. By discussing the choices, or lack thereof, that they have can be an opener to ask questions of your parents.
It takes a bit of thought to get the conversation going, but once you open the door, the conversation should flow.
One of my oldest shopping tips is to start in the back of the store, that is where all of the sale items are, and who doesn’t love a sale. It is also important to pay attention to the time of year, there are always seasonal sales. Here are the best items to buy now:
Mattresses and Linens
Labor Day sales kick off the action early in September. This is one of two times a year when mattress retailers offer deep discounts on piled-up inventory (the other prime time is around Memorial Day). Shoppers may also find some better-than-normal deals on bedding and bath supplies such as towels over Labor Day weekend and throughout the month.
September promises low prices on flights for the winter holidays. The best deals on plane tickets usually surface about eight weeks before the departure date. For Thanksgiving, that would mean the last week or two of September.
This is the last chance to enjoy low prices on summer produce such as corn, peaches, plums, nectarines, peppers, mangoes, green beans, lettuce, and tomatoes. September will also see the first fall produce hit grocery stores. Look for cheap prices on apples, berries, beets, cantaloupes, cauliflower, eggplants, grapes, honeydew melon, pears, squash, mushrooms, sweet potatoes, figs, and dark-green leafy vegetables such as spinach.
So be smart and shop wisely.
Over the weekend, we were discussing Social Security, doesn’t everyone? I was telling my Husband that I do not plan on drawing my Social Security benefit until age 70, then he can have a larger Spousal benefit. In the world of Social Security benefits, the Husband is generally the primary wage earner, with the Wife pulling Social Security benefits off his record. Given this statistic, why would you pull benefits early and make things worse for your future widow?
Researchers performed an experiment that revealed that husbands did not change their choice of claiming age even after they were educated about the basics of how their claiming age could impact their spouse’s survivor’s benefits.
For example, the study found husbands tend to claim benefits earlier when they have one of the following:
A defined-benefit pension
Retiree health insurance
A health condition that limits their ability to work
While spousal benefits are limited to half a spouse’s benefit, survivor’s benefits can be up to 100 percent of the deceased’s benefit amount.
Thus, the longer a husband delays claiming his own benefits, at least up until age 70, the larger his future widow’s monthly survivors benefit would be.
My daughter got married last year and we paid for everything. We had a year to plan and if we could not pay cash for something, it was cut from the list. We are in the middle of the “year of weddings.” A number of our daughter’s friends, as well as our friend’s kids, are getting married. We have been to two weddings already this summer, with two more to go. The most recent wedding we went to was paid for by the bride and groom. It was a very nice DIY wedding with all of the important aspects part of the evening. Some engaged couples want it all, but do not have the means to pay for it. I just read about Upstart, a so-called fintech lender.
The average wedding loan Upstart approves is $11,000 for either a three, five or seven-year term. The annual percentage rate, which is the rate charged for borrowing and represents the yearly cost of the loan, can fluctuate between 5 percent all the way up to nearly 36 percent, depending on the applicant.
That is just crazy! If you think it is ok to borrow money and make payments over many years to pay for your wedding, I hate to know what your ideas are for such things as buying a house, having kids, or retirement. In my opinion, this is not a sound money attitude to have toward life. Taking a loan for college, a car, or a home is one thing. If you are willing to accept that it is ok to take a loan for a wedding or vacation, you may never have cash reserves, and may never be able to retire.
I recently met with a couple who are close to 40 with young kids. Both have been working since their teens at one job or another to get to the professions they are working in now. One spouse would like to retire now, but it is actually more practical to look at early retirement in 10 years for their circumstances. The question becomes, what would you give up to be able to retire early? A recent survey was conducted and I am shocked at some of the answers. Here are a few things people are willing to give up:
Over a third said they’d go two years without buying anything new (except essentials like groceries).
Another third were willing to turn up the heat on work, taking a second or even third job if it meant they could retire early.
12% of respondents said wouldn’t have children.
11% said they’d give up their pets. (Hey, pets aren’t that expensive!)
Only 6% said they’d give up their car.
Going without buying something new, or taking on a second job to bank extra retirement dollars I understand – not having kids or pets!?! Those choices I cannot understand just for the sake of early retirement.
The advice I give is to take a hard look at your expenses to see what might be cut or reduced and save money from your first pay check. I also advise my clients to adjust their retirement savings up and their income increases.
We all make sacrifices at times, but think long and hard about what you might be willing to give up.
In 2012 I wrote about the “Latte Factor” and the following is a bit of what I wrote:
If you cut back the premium drinks you buy each week from one a day to 3 a week, you can save $10/week or $520/year. While this small change may not seem like much it does add up.
We are living in a world where not enough money is being saved by all of us. Many people could not even handle a $500 emergency without using a credit card. In the face of coffee shaming, young people usually point to things like student loans and housing prices as the true source of the generation’s instability, not their $100-a-month cold-brew habits.
You have got to put yourself first. Treat your savings account like a monthly bill and make regular deposits. You can even make it a game to pull yourself away from being coffee shamed. Each time you choose not to spend that $3-$5 on a premium coffee, stash that money in an envelope. At the end of the month, you should see a nice stack of bills that you can then deposit for your future.
I have been meeting recently with a number of new client under the age of 35. This makes me so happy. These clients are looking at their life choices as the start off, or have been at a nice job for a few years, and do not want to waste the time they have to secure their retirement. So why are my clients that are in their last 50’s, and mid 60’s, not living by the same ideas? Let me share a few of the things that my older clients need to take a hard look at:
Not having enough money saved – I thought I had beaten this to death.
There’s an old saying: “If you make a lot, save a lot. If you make a little, save a little.” Whether you put your money in a savings account or a money market account account that earns higher rate, it’s important to save.
Underfunding your retirement savings
Not saving enough for retirement is the most common financial regret, especially among older Americans. Many unprepared retirees stress about their finances, run out of money or even depend on their children and loved ones for financial support.
Living on credit
Credit card debt is something you can’t afford at any age. If you fall behind in your payments because of an unexpected emergency or job loss, you can end up with a bad credit score. Poor credit can cost you in the future: you could end up paying a higher loan rate the next time you need to buy a car or home.
Come on – act your age and stop doing these things. You will have choice in your retirement and be much happier you made these changes.