I live in Illinois, and many of my clients have expressed interests in moving to another state in retirement. They worry about the high property taxes and the possibility that their state income tax will increase. Before you decide to make that move, there are some things to consider.
Illinois does not tax retirement income, and many other states do. For example, if you move to Colorado, your social security and distributions from your retirement plans are taxed at the state level after consider an exemption for a portion of the income. This can make a huge difference if all of your retirement income will come from social security and retirement plans as opposed to taxable accounts. The tax rate there is 4.63% and if you had $100,000 in taxable income from these sources, you could be paying $4,630 in state income taxes that you would not pay in Illinois. As your retirement income increases, this becomes a bigger concern.
It is best to look at how your overall cost of living will change. So, even if your property taxes are lower, make sure to consider how your income taxes will change in the state you are considering moving to. Also, real estate prices may be much different in the state you would like to reside. Please consult your financial advisor to make sure that you understand how your cash flow may change as a result of the move.