“Do not confuse motion and progress. A rocking horse keeps moving but does not make any progress.” – Alfred A. Montapert
About 20 years ago, I relocated from Washington, D.C. to Boca Raton, Florida because of a career opportunity I couldn’t resist. It was a reluctant move on my part. I didn’t like the lifestyle Florida offered — the lack of “culture,” the preponderance of nouveau riche, the unvaried climate. But, in retrospect, I’m glad I did it.
I’ve come to love waking up to sunny weather, living on the beach, and enjoying many outdoor sports and activities.
And there is another benefit I’ve received from Florida: the gift of not having to pay state income taxes. I figure that living here has saved me somewhere in the neighborhood of $2.1 million.
Now may be the time for you, too, to consider moving to one of the nine states in this country that do not have a state income tax.
Let’s say you earn $75,000 a year and live in a state with a typical 5%-income-tax rate. That’s $3,750 a year you’re paying in state taxes. If, instead, you invest that money at a compounded annual interest rate of 5% over 40 years, you’ll end up with a nice little retirement nest egg.
A nest egg of $475,649, to be exact.
If instead of living in a 5% state, you live in New York, which takes almost 7% of your income, that number rises to $665,909. Move out of Montana (11%), and you’ll have an astonishing $1,046,428 extra when you’re ready to retire — simply by spending your income-earning years living somewhere else.
In a recent article in his e-mail advisory “Reality Check”, Gary North describes the way many people spend their careers slaving away in high-tax states — afraid to leave for fear of losing their high-salaried jobs. It’s an ironic situation, because often those high salaries are needed just to compensate for the progressively high taxes they’re paying in the first place. A classic case of spinning your wheels to stay in place.
Adding insult to injury, many also fritter away valuable time spinning their wheels in another way — this time, literally — on lengthy commutes. So they work themselves to death trying to keep up in the daily rat race. This is no way to die — and certainly no way to live.
The solution? Choose a low- or no-tax state and relocate there as soon as possible.
North recommends several strategies for deciding where to live:
- Eliminate from consideration any location that will require extensive commuting. Time is precious, and you can never get more of it.
- Move out of the high-tax state as early in your career as possible to give the tax savings maximum time to compound.
- For added savings, earn a living in a low-income-tax state and make big-ticket purchases in a low-sales-tax state. A related tactic is to live near the border of two states, one of which has a low income tax and the other a low sales tax.
(Ed. Note: Alaska, Delaware, Montana, New Hampshire, and Oregon have no sales tax at all.)
- Look for communities with low real-estate costs. This is where local property taxes — possibly a significant factor in your decision — come into play.
- Scout out locations that provide easy access to the activities you consider important in your life.
To North’s suggestions, I would add one more tip: Before you buy into your dream location, rent there for a year. A tiki hut in the Florida Keys or a cabin in the Maine woods, for example, may feel like paradise during a week’s vacation from the city, but when you actually live there, you could be bored out of your mind. On the other hand, a move to the city from the sticks may be exciting at first, but the smog, noise, and crime could end up driving you batty.
Could this really work for you? Are there jobs in these low-tax states? What about the ties you have to your hometown? These are valid questions, but the following facts could help ease some of your doubts:
- Many large companies have escaped high-tax states themselves. For example, Gateway Computer (5,500 jobs) is in Sioux City, South Dakota; Fidelity Investments (3,000 jobs) is in Merrimack, New Hampshire; and Saturn Auto (8,400 jobs) is in Spring Hill, Tennessee.
- Technology and the Internet have made many jobs portable. Telecommuting is no longer considered unusual. Your physical location is no longer an important factor for many positions.
- Competition among quality budget airlines like JetBlue and Southwest now makes flying to smaller towns on the outskirts of major cities inexpensive(and a pleasure), allowing you to visit friends and family in your hometown fairly often.
- Millions of baby boomers are approaching retirement age. They are going to be on fixed incomes and looking to buy up property in these bargainstates. You need to get there before the good stuff is gone (or becomes too expensive). As Gary North says, “One way or another, you arebuying a future lifestyle. The longer you procrastinate, the more expensive it will be when it comes time to buy.”
So, the opportunities are there. It’s up to you to take advantage of them. And there’s no better time than now.