Canadian retirees often look to spend their golden years south of the border. Among the benefits are lower taxes, more reasonable costs of living and, of course, better weather the farther you go.
But not all of the United States offer the same tax advantages, prices and perks for retirees who relocate permanently there, a slew of recent surveys show. Rankings and analyses of the 50 states by services such as Bankrate, Kiplinger and WalletHub offer food for thought.
Canadians should look for a state that has "no state income tax and no estate tax, that doesn’t tax your registered investments and that has a decent cost of living and housing prices, as well as low property and sales taxes,” says Marc Gedeon, a Canadian certified public accountant based in Toronto, Los Angeles and Las Vegas whose company, Gedeon Law & CPA, specializes in cross-border tax issues.
Mr. Gedeon is only in his 40s, but he has experienced the differences between states first hand, having moved recently to Nevada after 20 years in California.
“It has put more money in my pocket, and it’s given me a better quality of life,” he says. For example, Nevada has no state income tax, low property taxes and reduced costs for everything from car insurance to gas prices. Las Vegas is also a direct flight from many places in Canada, which is an advantage for Canadians who want to go back home from time to time, or expect to have visits from family and friends.
“The bottom line is lifestyle,” says Terry Ritchie, director of cross-border wealth services for Cardinal Point Capital Management Inc., a firm with offices in Canada and the U.S. that specializes in wealth management for people in both countries.
Mr. Ritchie, who is based in Calgary and owns a home in Arizona, says Canadians with means are often shocked at the relatively low cost of real estate in many states.
Some jurisdictions offer special tax benefits. Under the Canada-U.S. tax treaty, for instance, Canadians who retire in the U.S. must pay a 15-per-cent withholding tax on their pensions or registered retirement income fund (RRIF) payments, but Arizona uniquely allows them to use this amount as a credit against state income tax owed.
Also, while Canada Pension Plan and Old Age Security payments are taxed in some states, just as U.S. Social Security benefits are, wealthy individuals do not face a clawback on their OAS in the U.S., even if their income level is sky high. (And, by the way, Service Canada will convert the funds to U.S. currency and send them to you there, Mr. Ritchie says.)
Each state-by-state retirement ranking can vary significantly based on what it includes and how that is weighted in the analysis, from personal security to medical care, which is a major cost factor for seniors. (Mr. Gedeon notes that Canadian retirees often opt for “Cadillac” health insurance plans that mean they can get top-notch care no matter the location.)
Here is a sampling of rankings (out of 50 states) of some sunny places as well as a few pros and cons for retirees.
Tennessee
Kiplinger ranking: No. 5 (Bankrate, No. 21; WalletHub, No. 35)
Cost of living: 12 per cent below the U.S. average, according to Kiplinger
Tax rating for retirees: Tax-friendly, according to Kiplinger
Painted guitars hang to dry after being lacquered at the Gibson Guitar Corp. factory in Nashville, Tenn.Jeff Adkins/bloomberg
Tennessee is a good choice for budget-conscious retirees. It offers below-average living costs in almost every category, including health care. It also doesn’t levy state income taxes, so retirement income can stretch further. The Nashville area offers plenty to do, and while it’s growing by the day it is a “relaxed place,” Mr. Gedeon says. It also has a central location and decent weather.
Florida
Kiplinger ranking: No. 8 (Bankrate, No. 5; WalletHub, No. 1)
Cost of living: 1 per cent above U.S. average
Tax rating for retirees: Most tax-friendly (among top 10 most tax-friendly states)
View from the King Cole Condominium in North Miami, Fla.
The Sunshine State has the highest share of residents age 65 and older in the country, and it includes a large contingent of like-minded Canadians, Mr. Ritchie says. The biggest attraction for retirees is its tax regime. Florida has no state income tax, estate tax or inheritance tax, and it doesn’t tax seniors’ benefits. It’s a good place for those who like the ocean, although many people choose to live in gated communities, with growing concerns over security, Mr. Ritchie says. Mr. Gedeon notes that while Florida has no personal income tax, it has relatively high property taxes.
South Carolina
Kiplinger ranking: No. 12 (Bankrate, No. 41; WalletHub, No. 27)
Cost of living: 7 per cent below the U.S. average
Tax rating for retirees: Tax-friendly
Caesars Head State Park in South Carolina.
The Palmetto State is affordable for seniors, with below-average living costs and taxes that go easy on fixed incomes. South Carolina doesn’t tax seniors’ benefits or levy an inheritance or estate tax, and property taxes tend to be low. Many Canadians are attracted to Hilton Head, Mr. Ritchie says, with its resort-like feel. Mr. Gedeon notes that South Carolina’s low cost of living and tax rates mean that expatriate Canadians who are still employed opt to live there even when they primarily work nearby in neighbouring states.
Texas
Kiplinger ranking: No. 24 (Bankrate, No. 17; WalletHub, No. 22)
Cost of living: 10 per cent below the U.S. average
Tax rating for retirees: Tax-friendly
Cyclists in Austin, Tex.JULIA ROBINSON/X02951
Living expenses in Texas are low, and incomes go untaxed by the state. Canadians especially look to the Lone Star State’s southern border for affordable beach properties along the Gulf of Mexico, Mr. Ritchie says. “Houses that are US$1-million there would be $5- or $6-million in Toronto or Vancouver,” he says. Mr. Gedeon cautions that property taxes are sky high; indeed, one of his clients has a home worth about US$3-million on which he pays $80,000 a year in tax. “What you save in income tax you pay in property tax,” he explains.
Nevada
Kiplinger ranking: No. 25 (Bankrate, No. 42; WalletHub, No. 16)
Cost of living: 4 per cent above U.S. average
Tax rating for retirees: Most tax-friendly
Traffic in Boulder City, Nev.Wade Vandervort/The Associated Press
Retiring to Nevada means no state income tax, and Mr. Gedeon says the state’s property taxes are lower than those anywhere he has lived. Indeed, the lower taxes and prices are bringing many retirees to move to the state from California. New seniors-only developments are popping up, with single-storey homes, dog parks and activities for older residents. Las Vegas is an exciting place to bring visitors, Mr. Ritchie says, with access across the state to entertainment, highly rated restaurants and golf.
Arizona
Kiplinger ranking: No. 27 (Bankrate, No. 29; WalletHub, No. 10)
Cost of living: 3 per cent above the U.S. average
Tax rating for retirees: Mixed
The Grand Canyon, in northern Arizona.RICHARD PERRY/The New York Times News Service
The Grand Canyon State’s sunshine, dry heat and desert landscape make it a popular retirement destination. Mr. Ritchie, who lives in Arizona part-time, notes that while there’s no ocean there, those looking for water can easily drive or fly to San Diego and other beach cities for the weekend. The personal income tax is pretty low, at just 4.5 per cent, he says, while Arizona offers a state income-tax credit for the withholding tax that retired Canadians pay by default north of the border.
Hawaii
Kiplinger ranking: No. 2 (Bankrate, No. 11; WalletHub, No. 42)
Cost of living: 87 per cent above the U.S. average
Tax rating for retirees: Tax-friendly
Waimea Canyon, Hawaii.
Hawaii has the highest costs of living in the country, although the average household income for people age 65 and older is also the highest, at 33.8 per cent above the national level. The state gets a high ranking largely because of its weather and the fact that medical costs are affordable, given its efficient health care system and relatively healthy population. For Canadians, Hawaii is idyllic but vastly expensive, notes Mr. Gedeon. “You pay $13 [U.S.] for a mai tai; that tells you everything you need to know.”
California
Kiplinger ranking: No. 45 (Bankrate, No. 45; WalletHub, No. 15)
Cost of living: 52 per cent above the U.S. average
Tax rating for retirees: Mixed
Huntington Beach Pier in California.hlem/Getty Images/iStockphoto
The Golden State is “hip and happening” for golden-agers, Mr. Ritchie says, although that comes at a price. California has the second-highest living costs in the country, behind Hawaii. It can also be a hassle to get around, with congestion and a lack of public transportation, which is especially an issue for seniors, Mr. Gedeon points out. Except for Social Security benefits, retirement income is fully taxed, and California imposes the highest state income tax rates in the nation. All income from Canada is taxed, including earnings from funds still sitting in registered retirement savings plans (RRSPs) and RRIFs, which aren’t recognized there as tax-deferred investments, as they are in Canada and all other U.S. states, Mr. Gedeon warns. “It’s like an extra toll you have to pay.”