One of the most common questions we hear is “Where should I live in retirement?” There’s a lot to consider between family, tax rates, and more. Here’s what you need to know.
Transcript for Episode 6 of the Retirement Readiness Podcast:
Tim Regan (0:09)
Welcome to this episode of the Retirement Readiness podcast. Per usual, my co-host with me today is our Head of Marketing and also my sister, Katie Umland. Hey Katie!
Katie Umland (0:18)
Hi!
Tim Regan (0:19)
Today, you’ll notice that our background’s a little bit different. This is kicking off our tour around town, if you will, where we’ll be recording from different places of businesses and things that we think would be interesting, especially to you, as you consider: “What does it mean to live a fulfilling retirement?”
So today, we’re going to talk about “Where should I live in retirement?” Should I move to a different state? Should I try to save some taxes? Or maybe I should move towards the kids or by the kids? And so, today is all about “Where do I live, and why do I live there?”
The Wine Thief in downtown Frankfort (about 35 miles south of the city of Chicago) is hosting us today. The Wine Thief happens to be one of our favorite restaurants and we thought that they had a unique take on wine and how you can sample it throughout their showroom or their dining room, I should say.
Katie Umland (1:11)
Okay, so we’re behind the scenes at the Wine Thief. And we just wanted to quickly show you. They have some really cool features here. So I don’t know if you’ve ever done a “pay by the pour.” I don’t know if that’s actually what it’s called. That’s what I call it. And so if you can see here, they have different stations along this wall. So there are several different options. But you can choose different sizes. So you don’t have to commit to a whole glass of wine, so you could try a bunch of different kinds. There’s like a one ounce, a three ounce or a five ounce pour. So you could try different things that you like, and then find something and then have a full glass of it. So something cool for the area.
Tim Regan (1:48)
As you saw, Katie gave you behind the scenes look. Katie, what did you think? Have you been here before?
Katie Umland (1:52)
Yes, I’ve been here many times. Depending on the weather, we really like to sit outside. They have really nice patio. I like wine. My husband is more of an old-fashioned drinker. So, we have both. And they make a lot of specialty cocktails, too. I guess not sounding like a commercial. They’re not paying us to say this. We just really enjoy it and enjoy the area!
Tim Regan (2:18)
Yeah. And so part of the reason we chose this place as a place to record this episode, is my wife and I happen to live here in Frankfort. And think that when you look at “Where do I live in retirement?” That question really takes a couple of different perspectives. So we have clients that come in a lot of times and ask us, “Should I consider moving to a different state?”
Here in Illinois, it’s known as a high tax state. And a lot of times people think “Maybe I want to get away from where those property taxes are.” And our suggestion to them as well as to everybody else is choose a place that you want to live where you genuinely want to live there.
Katie Umland (2:58)
Like where you don’t have to snow blow, and you don’t have to worry about ice on the road.
Tim Regan (3:03)
Yeah, which would not be Illinois, right? But what we find is that, a lot of times, people raise their family and they live in certain places, maybe because of work. Sometimes they live there because that’s where their family was. Katie, that’s our story, right?
You know, for those who we haven’t shared our story with, our roots go back to the 1800s in this area. And because of that, my wife and I always laugh. Her family’s similar. And we say, “Oh, just because a couple of Germans decided this is where they wanted to live, why do I have to still live here?”
And so you think about “Whoa,” but then you realize how deep your roots are. And that only becomes even more accentuated as you get into retirement. And so, a lot of times with our clients, we talk about the place in which you choose to live is really the place that you want to live. It is a lifestyle choice. It’s not a financial choice. So Katie, for you and Alex, if you guys were thinking about moving somewhere, why do you pick Illinois? Do you?
Katie Umland (4:00)
Probably not, no. My husband actually would love to move somewhere warmer or somewhere we can be outdoors a little bit more. But I told him, “The only way we can do that is if you have enough money that I can fly home for dinner with my mom.” And that’s why we stay in Illinois.
Tim Regan (4:16)
Yeah. And that’s what we find a lot of times. So, as our clients come in, and they start asking us those questions, we really have to go back to asking:
- Where do you want to spend your time?
- How do you want to spend your time?
- What do you want to be doing?
The warm climate sounds really good, especially now, as we’re hitting fall and getting ready to get into wintertime. However, if the kids aren’t there, maybe that’s not where I want to be. So let’s take it though a little bit different of an approach. Let’s talk about what the financial ramifications to moving are and why you may want to move in retirement. So, a lot of times, clients will ask us about moving, in particular, in our area, to Indiana. In the state of Illinois, we have really high property taxes and in other states, surrounding states, their property taxes are much lower. And so for us, we have a lot of times this Northwest Indiana pull. And when we look at it, though, there are a lot of things that kind of go into that equation.
First of all, in the state of Illinois or something close, I guess. Maybe even take it away from just Illinois. Indiana, I use that as the example. But it’s really no matter what state you’re living in, and what state you’re looking to move to. So the first one is, we talk about property taxes. The state of Indiana has much lower property taxes than Illinois. It’s right over the border. Clients think that they can keep the same kind of circle of friends. And it makes natural sense. However, when we start to do that analysis and we start to peel that onion back a little bit, in the state of Indiana, they charge income tax on things like social security, when you have to take money out of your IRAs, those types of things. The state of Illinois currently does not. In addition to that, the state of Indiana also has personal use taxes. So they charge much more on things like vehicle registration, and that kind of stuff. And so when we do that analysis, it can’t just be about where your property taxes are cheaper. For those types of things, it really has to be what’s the total cost when you look to make that move.
So if we walk through a typical scenario, I’ll have clients who will come in, and they’ll say, “You know what, I’m paying $8,000 a year in property taxes. I could have the same home over in Indiana, and only pay $2,500 a year in property taxes.” Well, that means that we’re looking at $5,500 in savings over the course of the year. You do that for 30 or 40 years, “that’s a lot of money that I can save.” They think it’s a no-brainer. “I could do something else with that money.” However, when we start to do the math, and, let’s say you’re living on $100,000, a year in income, roughly. The state of Indiana is willing to charge you between 5 and 6% in state income tax on that $100,000 that you would not pay in the state of Illinois. All of a sudden, if you say 6% and $100,000, that’s $6,000 in income tax. By time I had to pay $2,500 in property taxes, I’m actually $500 worse off for making that move. And what we find is that whether you’re looking at moving to a Florida or Tennessee, Arizona, the states that are very tax-friendly, many times you potentially could save some dollars, but the amount that you save is not so much that it warrants moving away from your family and your friends. And it’s from doing the things that you want to do.
So, from our perspective, the first step in deciding “where do I want to live?” is deciding things like:
- What do I want to be doing?
- How do I want to spend my time?
- Who do I want to spend my time with?
The second piece then is, if that is going to be somewhere other than the state in which you currently reside, then let’s do the math. Let’s break down and say, specifically, what are the cost savings? But what also am I going to pick up in making that move? So that’s kind of our process or what we have suggested.
So a lot of times, Katie, we have clients to the want to talk a little bit about should they have a second home somewhere? I think that’s something you and Alex have a little bit of experience with.
Katie Umland (8:17)
We have a second house. Our second home is a lake house, down south Illinois, about an hour from our house. That’s proving to be a lot of fun, but a lot of work.
Tim Regan (8:28)
Yeah. So tell us a little bit about what lake living is like?
Katie Umland (8:32)
Sure. So lake living before we had a baby was a lot of boating and eating on the deck and lawn maintenance. Now that we have a baby, it’s heavy on the lawn maintenance and light on the boating. So it’s a lot of Alex going down on Saturday mornings to mow and cut the bushes while I stay home with Dylan. It’s heavy on the maintenance side and light on the fun side at the moment.
Tim Regan (8:59)
So you’re saying it’s great to have a lake house, but it’s better to have somebody else have a lake house?
Katie Umland (9:04)
Yeah! What’s that saying? Like, “Have a friend that has a boat. That’s the best kind of boat.” Something like that.
Tim Regan (9:10)
So when you think about that, though, I’m assuming you guys wouldn’t change anything with that, especially as you think about dealing getting older and the memories of create.
Katie Umland (9:17)
Yes. We still feel like it’s a good investment. Second of all, it’s great. We bought it because we want to have our kids growing up with that lifestyle. It sounds fun to have your friends and family come down on weekends. So, we’re happy we have it. It’s just this in between time.
Tim Regan (9:36)
For sure. Yeah. Well, in a lot of times, that’s what we find with our clients, too. When they when they think about having that second home, you really have to look at it like it is an expense. And there’s going to be investments we have to make whether it’s time money, those types of things, but many times it’s worth it because of the experiences and the memories that they can create both with their children but also with their grandchildren and things that they get as they get older.
A lot of times when we look at that second home, the question then becomes if it’s not in the state I live, where do I want to have residence? Do I want to set up an established residence in my current state? Or where that second home is? And that calculation is something that we can do. We do it on a fairly regular basis when we start looking to say, is it better from an income tax perspective, a property tax perspective, or from a state tax planning perspective? And so that question or that conversation is a little bit different as a second home versus my primary. But you’re saying “Buyer beware,” because there’s a little work that goes with it. If I remember right, where your lake is at, it’s hard even to find people that can come out and do some of that work. So even if you wanted to have somebody do it, it’s hard to find those services.
Katie Umland (10:50)
Yes, it’s a really small town, which is great. We love that aspect of it. But it’s also like, there’s one guy who does landscaping, there’s one guy who can build you a deck, there’s one guy who can, and so it’s just figuring out those nuances.
Tim Regan (11:05)
For sure. So this was a really fun episode here at The Wine Thief. Thanks for listening in. Here at PrairieView, we hope that we can help you to live your legacy with confidence.
Katie Umland (11:15)
We’re going to continue to keep this show on the road. So we’ll be at a couple of different businesses around town on Navarro Farm and Smith Crossing in the next coming episodes, and then we’ll plan to partner with a couple other businesses as well. So be on the lookout for that. And if you found any of this valuable, please like and subscribe to our Facebook and our YouTube. We’ll see you soon.
Tim Regan (11:34)
Cheers!
Explore more financial insights and news on the PrairieView blog, and be sure to check out our other “Retirement Readiness” episodes!
