For many people, retirement is not just about leaving the workforce; it’s about starting a new chapter. That new chapter often comes with the question, “Do we really need this much house?” Downsizing can be a wonderful way to simplify, save, or even move closer to family. But the decision is about much more than just picking a smaller home. It’s about making sure your financial life, your taxes, and your estate plan all fit comfortably with your new lifestyle.
Here are seven important financial factors to keep in mind before you make the move:
1. Housing costs are more than the listing price
It’s easy to focus on the purchase price or rent, but housing costs also include location, safety, maintenance, and the overall “feel” of the community. Spending some time in a neighborhood before you commit can give you a better sense of what daily life will really cost.
2. State estate and inheritance taxes
Every state has its own rules. Some have no estate or inheritance taxes at all, while others have both. Moving just across a state line could make a big difference in what your loved ones ultimately receive.
3. State income taxes
Nine states currently don’t impose a state income tax, which can sound appealing. But states without income taxes often make up for it in other ways, like higher property taxes or fees. A balanced perspective is key.
4. Property taxes
Property taxes vary widely and can make a real impact on your monthly budget. Some states also offer senior discounts or exemptions, which are worth investigating before committing to a new home.
5. Retirement account and pension taxes
Not all states treat retirement distributions the same way. Some tax withdrawals from IRAs and 401(k)s, while others don’t. Pensions, including military pensions, are also taxed differently depending on where you live.
6. Social Security taxation
Most states do not tax Social Security benefits, but a few do, often with income-based limits. Knowing this before you relocate can prevent unpleasant surprises.
7. Sales taxes aren’t the whole story
It can be tempting to focus on states with no sales tax, but this is often less significant than property or income taxes. Looking at the big picture of overall taxation is always smarter.
Bringing it all together
Downsizing for retirement isn’t just about real estate. It’s a financial and legal decision too. At Bellomo & Associates, we help families look at the whole picture, from taxes to estate planning to long-term goals, so the decision feels less overwhelming and more empowering.
If you’re thinking about downsizing or relocating, now is the perfect time to review your estate plan and make sure it supports this next chapter of your life. Register for a Workshop
