Make 10% More Per Annum Forever – Move to Nevada.
With California heading towards the abyss, and taxes rocketing to the moon, I’ve toyed with the idea of leaving the state. Here’s an article in the San Francisco Chronicle highlighting homeless 24 year olds and rising unemployment even in a rich suburb such as Marin County.
From this other article, we learn that from the first stimulus package alone, the gov’t has borrowed $10,000 from each individual so far, and it is doubtful that the majority of people have felt a return on their $10,000 loan yet. At any rate, it’s clear that taxes are going up in California and perhaps NYC, and we residents in troubled states should think long and hard about whether to stay or go.
Did you know that seven states have no state income tax: Alaska, Florida, Nevada, South Dakota, Texas, Washington and Wyoming? Two others, New Hampshire and Tennessee, tax only dividend and interest income. Alaskan residents even get an annual oil credit for goodness sakes.
If you’re earning $100,000 a year, you’ll automatically save $10,000 bucks just by setting up shop in another state. Multiply this by 20 years, and bake in a 4% annual return, you’ll come out with $310,000 more in the bank! Even 10 years provides you with about $125,000. Hey, who wouldn’t want an extra $125,000 laying around. I could finally buy that Porsche 911 Turbo I’ve always wanted! Must resist temptation.
Obviously relocating is easier said than done. Hence, another strategy should be to simply set up residency in one of the 7 states after one retires. This is one of the key benefits of retiring early. Amass the nut, and save 10%/annum on your interest income every year for the rest of your life. Setting up residency is easy. Just buy a place, or rent some cheap studio… maybe even a habitable closet and call it home. The more money you make, the more you should consider moving.
Seattle, Incline Village in Lake Tahoe would be my top two choices. I’ll just get in trouble in Vegas!
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Regards,
Sam, Financial Samurai – “Slicing Through Money’s Mysteries”
My firm has an employee bonus deferral program. Even though taxes are low now, and will likely go higher under Obama. I still plan to defer a large majority of my bonus and let it grow tax free. When it's come time to retire, I will move into my rental up in Whidbey Island, Washington and enjoy not having to pay 9.6% CA income tax!
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The trade-off is that you usually get gouged by sales tax in those states, obviously not as much a factor if you minimize spending.
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CJ – Thnx for your comment. I was looking on the web, and it says that the Nevada sales tax 6.5-7.25%, still lower than California at 9.8%. I'm sure they will tax their citizens on something else, but still, Nevada's tax regime looks like heaven compared to California's!
http://tax.state.nv.us/New_Sales_Tax_Rate.htm
Rgds,
Sam-urai
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I am with you on this one. I am definitely heading to one of these states for my retirement and if possible I will try to locate a job in Texas or Florida so I can bring home more of the bacon!
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admin Reply:
October 15th, 2009 at 6:05 pm
It’s a no brainer Jane! I’m looking at Incline Village in Lake Tahoe, Nevada myself!
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Texas gouges you in property tax to make up some of the difference. Our house in TX is half the value of my parents’ CA home, but we pay about 3 times the property tax. But with our income and cost of living, we still come out ahead in TX.
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admin Reply:
November 29th, 2009 at 10:56 am
Jason – The California property tax rate is 1.116%. Is Texas’ 3%+? I find that hard to swallow, but maybe b/c houses in Texas are also 30% the cost of houses in San Francisco and LA! $500,000 600 square foot studios anybody?
I would love to be able to set up residency in Texas, but never have to live there. I’m sure some people do this, but it’s probably not 100% legit due to a duration of stay minimum requirement of 6 months+ I believe.
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‘Wow! You have no idea how much “friendlier” your taxes are … I live in Canada and we don’t even get to deduct the interest on our mortgages!!!!
When you “retire” early, can you not look at taking up residency somewhere else? Countries such as Belize and Panama are havens of commerce and from what I understand the first requires only a one month a year to qualify for residency status and there is no income tax for monies earned outside of Belize. Nice place to go to in January (if you live in the northern states or Canada).
.-= Valentina´s last blog ..No. 2 Sucks! =-.
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admin Reply:
November 29th, 2009 at 5:50 pm
Valentina – Will look at Belize and Panama! Maybe we’ll just be nomads on a cruise ship? Heard we can buy a condo on a luxury liner, and never pay taxes!
I had no idea Canada doesn’t allow us to deduct interest on your mortgages. Even more amazing that your real estate markets are on fire again!
Best,
Sam
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@Valentina
Oh give it time here mortgage tax deduction has been discussed to be removed
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@admin
I’m seriously looking at TX as a future location to live. Unfortunately we’ll always be Yankees since you aren’t a native. I’ve seen taxes for TX and the property values. Can’t even compare to NY and CA. I have a 250k condo rental in NY that costs 4k/yr in taxes (1.6%). Don’t even ask about my personal residence.
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admin Reply:
November 29th, 2009 at 5:43 pm
Larry – Ouch 1.6% is a lot! The problem with Texas, is that you have to live in Texas (no offense to the proud “don’t mess with Texas” crowd!) I can’t stand the heat, so I need a city with more temperate weather. Sam-urai
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… yeah but I get seasick although I hear that it is the ultimate assisted living residence, cheaper than being in one I hear.
We can deduct mortgage interest only from non-personal residences, i.e., our investment properties that we rent out. Re personal residences, I guess the trade off is that when you sell and realize a whopping (or not) capital gains, as long as it is your principle residence you are not taxed on the capital gains. I think it would be nicer to have the tax deduction up front and then have something that if you buy within a certain time frame, you are not taxed on the capital gains.
.-= Valentina´s last blog ..No. 2 Sucks! =-.
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I would like to suggest a vacation rental in Lake Tahoe prior to making a purchase. This way you can get a good idea of the area. Perhaps stay a week and drive around the entire North and South shores of Lake Tahoe prior to making your decision.
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i will tell ya that as a texas resident, there are other bells and whistles i didn’t have to deal with previously. i have a higher sales tax, toll road, higher vehicle taxes, x and y. still however i end up saving about 1% given i was paying 4%+ in state and 2%+ in city taxes previously…
how to get the effective tax rate low no matter where you live? start a side gig!!
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I live near Seattle and the problem here is Sales tax. We pay close to 10% in sales tax, while it does fluctuate between 8%-10% in most cities, its definitely a nice place to live. They are also putting in tolls, so far on one of the two major bridges going into Seattle. You either pay $5 to cross the bridge or drive about 25 minutes out of your way to get across the water and into the city.
If Seattle is a place you plan on retiring, its a great place! And it doesn’t rain as much as they say ;) We only tell people that, to keep them away.. its population control.. our little secret
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Financial Samurai Reply:
September 13th, 2011 at 1:18 pm
I’ll pay 15% sales tax for the benefit of paying 0% income tax! I’d never buy anything in Washington! :)
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Ben @ BankAim Reply:
September 13th, 2011 at 2:08 pm
Thats why we have Oregon next door ;)
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