Many people are moving to U.S. states with little- or no income tax. In the first quarter of this year, for example, more than 10,000 New Yorkers moved to Florida.
For everyone who actually relocates, it’s safe to assume many others are considering it and discussing their options with a financial adviser.
“About 40% of my clients are exploring a move to a cheaper location,” said Nicholas Bunio, a certified financial planner in Berwyn, Pa. “It’s not just to save on taxes. They might be looking into places like Florida or Texas to save on their overall cost of living.”
When clients broach the idea of moving to save money, advisers often broaden the conversation. Rather than limit the discussion to cutting tax bills, they also probe to uncover one’s goals, values and vision for retirement.
People who move to a different state to save money may regret their decision if they miss the lifestyle, scenic beauty and friends they leave behind. Conversely, they may love starting afresh and savor the regional differences — from food to politics to weather — of their new home.
“I’ll ask why they want to move,” Bunio said. If they are lured by lower taxes, he crunches the numbers to help them determine how their nest egg will hold up under different scenarios.
Some clients assume they need to move to make their savings last through retirement. They might tell Bunio, “I can’t afford to retire here in New York.”
“They may be a worrywart,” he said. “Or they may be underprepared for retirement and need to cut spending.”
Even if saving money is a priority, moving to a low-tax state isn’t necessarily a panacea. For example, while Florida’s favorable tax environment can lure transplants, there are many variables to weigh. “Homeowners insurance is so expensive in Florida,” Bunio said. “And depending on where you buy real estate, some out-of-state buyers can get dinged with a high property tax bill.”
He encourages clients to research the specific location they’re considering. Once they identify a target area, he will help them use online tools to check real estate prices by ZIP code. “Some people only look at state averages,” he said. “But Miami and Orlando will be more expensive than Tallahassee.”
Advisers are finding that as clients see the headlines of people flocking to low-tax states, they want to join. The allure of low- or no state income tax can be hard to resist.
For advisers, the goal is enabling clients to make a prudent choice based on a complete set of data. If they elect to move, a trial run may make sense.
“Give yourself a cushion and try it out for six to 12 months,” said Rachel Elson, a San Francisco-based certified financial planner. “Just preserving flexibility is key for our clients.”
Like Bunio, Elson runs projections to help clients understand how much money they’d actually save by moving. She considers variations in income tax and the overall cost of living. For those who are still working, “there’s also the issue of whether your employer will expect you to take a pay cut if you move,” she said.
Elson also educates clients on how to navigate state tax rules. And she provides a checklist for them to establish their new residency.
“If you’re moving to avoid taxes, you want to make sure you’ve made a permanent shift,” she said. “That means getting a new driver’s license, registering to vote and maybe getting a one-year lease. You want to show the new state that you commit to living there, especially if you’re moving from a state that’s particularly aggressive about tax collection.”
When clients move, they may need to find a local accountant and estate planning attorney who understand the nuances of that state. But they can certainly retain their adviser.
Generally, financial planners need to register with state regulators to serve clients in that state. But the “de minimis” exemption allows advisers to bypass registration if they have up to five clients in that state. So advisers can preserve business relationships wherever a client happens to be.
More: Florida is still tops, as retirees flock to warm weather and tax-free locales
Plus: Where’s the best place to retire? How politics is playing a role in this big life decision.
