Some Retirees Are Choosing Delaware Over Florida: Retirement Math Adds Up

for choosing a retirement destination, many factors come into play, including cost of living, access to healthcare, and recreational activities. However, for some retirees, the decision ultimately comes down to taxes. In this article, we'll explore how Delaware's tax advantage makes it an attractive option for retirees over Florida.

The Tax Burden of Retirement

Retirement planning involves more than just saving for the future; it also requires considering the tax implications of your choices. As you transition into retirement, your income sources and tax obligations change. You may be receiving Social Security benefits, pensions, or distributions from retirement accounts, each of which is subject to taxation. In addition, you may be selling assets or earning income from investments, which can trigger capital gains taxes.

Delaware's Tax Advantage

Delaware has long been known for its business-friendly environment, but it's also a haven for retirees. The state has a reputation for having some of the lowest taxes in the country, which can be a significant advantage for retirees. Delaware has no state sales tax, no state income tax, and no tax on retirement accounts. This means that retirees in Delaware can keep more of their hard-earned money, free from the burden of state taxes.

Florida's Tax Environment

Florida, on the other hand, has a more complex tax environment. While Florida has no state income tax, it does have a sales tax of 6% and a tax on retirement accounts, known as the 'disposition of assets' tax. This tax is levied on the sale of assets, including retirement accounts, and can be a significant burden for retirees. In addition, Florida has a 'surtax' on certain types of income, including investment income and capital gains.

The Math Adds Up

So, how does the math add up for retirees choosing between Delaware and Florida? Let's consider a hypothetical example. Assume a retiree has a pension of $50,000 per year and receives $20,000 in Social Security benefits. They also have a retirement account worth $500,000, which they plan to draw down over the next 20 years.

Step 1: Calculate the Tax Burden in Delaware

In Delaware, the retiree would pay no state income tax on their pension or Social Security benefits. They would also pay no tax on their retirement account distributions. However, they would still be subject to federal taxes on their income.

Step 2: Calculate the Tax Burden in Florida