Each year various clients will inquire about what states are the most tax friendly during retirement. Unfortunately, there is no easy answer, however, let me give you a basic checklist of considerations. Instead of looking solely at taxes, you should look more broadly at additional factors that impact your cost of living.

Most individuals will look specifically at state income taxes when determining the best solution -states like Florida or Texas come to mind. With that being said, that is a very narrow look at what you should be evaluating. This post is dedicated to laying out some important factors regarding taxes and other considerations before you determine the ideal location to spend your retirement years.

State taxes income – Yes, you should look at this first because it may have the largest monetary impact. The higher your income, the more sensitive you are to this tax. If you are taking IRA distributions, receiving a pension or receiving passive income from a business, all of these would be reduced by state income tax.

There are 7 states at have no state income tax. Based in Minnesota, we have one of the highest state income tax rate at 9.85%. Feel free to go to www.taxfoundation.org/maps to see each state.

Sales tax/local tax – Depending on your activities and how much you plan to spend, you may want to put some consideration in to each states sales tax rate. This can add up over time depending on lifestyle.

Housing – Whether you plan to rent or buy, this needs to give be given serious consideration when determining your retirement destination. If you are moving in to a geography that has more expensive housing you may lose all of the savings gains by less income tax. If you plan to own a home, you should factor in property tax relative to your current rate.

Areas near lakes, rivers or oceans are going to command a higher purchase price and rental rate. Also, seasonality will command higher prices. Retirees tend to flock toward warmer climates near water. Demand may increase your cost of living.

Cost of goods and services – Very simply can you maintain the lifestyle you desire at a more or less cost than you currently? I encourage you do to your research!

Medical Insurance – Recent implementation of the Affordable Care Act as made drastic changes to the landscape of medical insurance. For people retiring before the age of 65, you will have to sign up for medical insurance through a state or federal exchange. Overlooking this could drastically increase your expenditure.

Example: In Minnesota, we are fortunate enough to have one of the lowest costs of rates. The average 64 has a rate of $401/month. Whereas, a popular retirement state, Florida, has a monthly rate of $581.¹

Relocation- Remember that moving is an expensive. Whether you have family to help you or hire a moving company, the cost to relocate or add a second residence is very costly. If would encourage you to reconsider the move if you are doing it solely for taxes as this is another cost that would eat away at the tax savings.

In conclusion, there is no perfect answer to the best state to call retirement home. I encourage you to start with the checklist and then take a hard look at the lifestyle and cost of everyday living you desire. Each of these points is going to have a greater or lesser weighting based your lifestyle.

1. Manhattan Institute of Public Policy, 2014.

Happy New Year everyone! Changing of the calendar year allows most of us to reflect on what we have accomplished or wished we accomplished over the last year. It also provides us the opportunity to think about the year ahead and what opportunities, challenges and changes we all will face.

The real reason for this note, is to provide some perspective on the markets as we head in to 2015. No one truly knows how this year will play out, but here are some comments from me:

Oil prices- We all have now noticed $2/gallon gas at the pump – or less! I saw $1.85/gallon in Apple Valley on 1/12. This should further help our retail economy in the US. GDP, which measures growth of our economy, was up 5% last quarter. Historically, this is a very positive number.   Low gas prices should provide a few more dollars in the pockets of consumers, which in turn most will spend. In my opinion, retailers, restaurant and entertainment will benefit the most.

Low oil prices are not necessarily good though. Many foreign and emerging market countries heavily rely on higher oil prices to support their economy. If these prices continue longer term, it could put pressure on the global economy.

Another factor that most don’t realize is that energy companies tend to carry a lot of debt on their balance sheet to fund exploration, pipelines and growth activities. With $100+/barrel oil six months ago, many energy companies were trying to expand rapidly. They did this by borrowing money and issuing bonds. This could present an issue a year or two from now if oil stays this low.

In summary, good for consumer and good for economy now. If it lasts long-term, there may be some concerns of the financial health of the companies that are carry lots of debt. It is also a concern for those countries heavily dependent on oil. Essentially low oil prices is a double edged sword for the stock market.

Interest Rates – The US 10-year Treasury rate is 1.97% as of 1/7/15. We are not being paid to invest anywhere else. Until this changes, we remain optimistic about US stocks. I would also remain positive about real estate since mortgage rates are remaining near all-time lows. Look for lots of new development in 2015.

Emotions and Behavior – The markets move on fear and greed – that never changes. Each year, media plays a bigger role influencing our investment decisions – not always for the good. Every small move in the market seems like it needs to be justified today. Remember this is the nature of markets, they don’t go straight up or straight down. Most minor moves are usually driven by investor emotions.

Below is a chart from Blackrock showing the emotions of investors over the past 15 years. This is good to keep in mind.

We remain positive about the environment, however, things can change and that is what we are here for. Again, thank you for the opportunity to serve you. We wish you the best in 2015.

Regards,

Matt Gulbransen

Since the fall season is now here, we get to find out if there will be a cost of living (COLA) increase for those individuals collecting Social Security in 2015. We also find out what changes the IRS will be making to 401k, IRA and other employer-sponsored retirement plans.

In an effort to make this very timely and straight-forward, I thought I would write a brief post that outlines the major impacts to all of you.

In 2015, the Social Security Administration will increase the amount its recipients receive by 1.70%. Last year, the increase was 1.50%. Starting in January this will be reflected on the amount that you receive. For those that are not collecting Social Security, this may create a slight adjustment to your estimated amounts as well. I encourage you to look up benefits after the 1^st of January.

Moving on to retirement account contribution changes we see a few changes that will provide some benefit to those who are looking to save more. Although these are not monumental increases, every little bit helps and I encourage all of you to take advantage of these savings options if you are eligible. Below lists the major changes:

401k and Thrift Savings Plan– In 2015, annual employee contributions will increase to $18,000/year from $17,500.   For those of you over the age of 50, you get another break in the form of an increase to the “catch up.” This amount increased from $5,500 to $6,000 allowing for a total contribution of $24,000 for those over the age of 50 who want to maximize contributions.

For self-employed and small business owners who normally make SEP-IRA contributions, this increases to $53,000 from $52,000.

I should also note that the IRS did not increase Traditional IRA or Roth IRA contributions for 2015. Nor did the increase “catch up” provision for these either. However, they did increase the income limit by $2,000 for each of these. If you income was close to these limits previously, you may not be able to make these contributions.

To top this off, it looks as if employers are slowing becoming more willing to do 401k matches as well. During the last recession, only 70% of employers were making matching contributions to 401k participants. Today that number is up near pre-recession levels of 80%.

Saving for retirement does not happen overnight. Those that become the most successful understand the concept of consistently saving and taking advantage of these slight increases over time. I hope you found this article helpful and best of luck closing out 2014!

Sources: irs.gov, www.ssa.gov,  http://www.cnbc.com/id/102119063

Back on March 21, a tax bill was passed changing two significant tax laws that were enforced; a Minnesota Gift tax and Estate tax.  Unlike recent trends of higher Income tax rates and few deductions, these new laws benefit the tax payer.  Before I go in to detail of the changes, let me give a brief background of these tax laws previously.

Minnesota is one of 16 states the currently has an estate tax in place – keep in mind this is above and beyond the Federal Estate tax laws in place.  Prior to 2014, the Minnesota exemption was only $1 million; meaning that if your estate was greater than $1 million upon death you would be exposed to Minnesota estate tax.

When looking at Gift tax laws, Minnesota was one of only 2 that imposes a state gift tax – Connecticut being the other state.  Minnesota passed this bill just last year on May 20, 2013.  At first glance, one may feel that Minnesota has fairly harsh tax laws when looking at these two laws compared to the other states.  Minnesota Legislature and Governor Dayton took a lot of heat with regards to these two laws.

Fast forward to 2014, the Legislature repeals the Gift tax bill retroactively they just voted in favor of the year previous.  This means that no one would have exposure to this tax in 2013 or 2014.  While doing this, they also increased the exemption on Estate tax from $1 million to $2 million.  However, this will be a gradual increase over the next 5 years until 2018.  This new bill will increase the Estate tax exemption by $200,000 each year until it reaches $2 million in 2018.

In conclusion, both of these changes provide a great deal of flexibility for Minnesota residents when doing their estate planning.  As an advisor, we want to make sure clients can minimize their total tax and pass on their hard earned assets to those they desire.  It has been my experience that estate planning is the most overlooked area of financial planning.  Most people end up procrastinating on this because planning for your passing is not desirable to anyone, however, if passing assets on or making the distribution of your estate as simple as possible I highly advise you to take action.

Please reach out if you have any questions.  Hope you found this informative and have a great week,

Matt

Source: Minnesota Department of Revenue