Writing this on a warm spring day in Wisconsin, it is easy to forget the frigid winter and icy roads that plague our state half of the year. Northerners planning their retirement often look wistfully at the warm southern climes. They may want the sun, palm trees, and beautiful beaches of a state like Florida, or the beauty and hospitality of the rolling hills of Appalachia in Tennessee . And, if they dwell there for six months plus one day, they can claim residency and take advantage of the absence of state income taxes. Very tempting!
But while attractive, the lack of a state income tax is not the only factor to consider related to where you will retire. And though you can avoid the headache of filing, and the expense of paying state income tax, you may face other elevated costs.
Some states without income tax have a much higher sales tax. According to TaxFoundation.org, while Tennessee does not have a state income tax, it has one of the highest average combined state and local tax rates at 9.65%. This is due to the high sales tax. And while many state income taxes are progressive, meaning the rate increases with income and higher income earners pay more, sales taxes are flat. This means that retirees with lower incomes may shoulder more of the tax burden in a high sales tax state than in a state with an income tax.
Additionally, the cost of living in that ultimate destination may work against the benefit of no state income tax. According to Salary.com, the cost of living in Orlando is 5.6% higher than the cost of living in Milwaukee, WI. That is just about the same as the average state and local income tax in Wisconsin (5.7%). So, while you don’t have to pay state income tax, you need $63,360 in Orlando to buy $60,000 of bread, milk, and cookies in Milwaukee.
Finally, there is a reason that states have income taxes – to fund their state services. The absence of a state income tax may go hand in hand with less services provided by the state. Are you giving up services along with the state income tax?
So, does this mean you should stay where you are and not seek tax relief? No. There may be no better place to retire than the northeast corner of Tennessee. Just do some research first.
Compare the cost of living where you live now to your target state. Look up your destination at TaxFoundation.com and Salary.com to compare tax burdens and cost of living. Take a trip or two to your planned destination and shop for the same items you shop for at home. Compare the cost of gas and a dinner at a chain restaurant that has locations in both areas. Speak to the locals and get their perspective on the services provided by the state. Find a retirement facility you would be willing to live in and compare its cost to one near home.
A “destination” retirement may be a great idea, just do a little homework first.
2025 Sales Tax Rates | Sales Taxes by State
Cost of Living Comparison between Milwaukee, WI and Orlando, FL | Salary.com
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