Friday, August 5, 2016

Planning on Collecting a Pension in Retirement?

I write a monthly blog called "Retire to Washington". As far as real estate goes, many people choose to sell the "family" home and 'downsize' to something less formidable when they retire. People sometimes choose to move away from the community they raised the family in as well.

There are multiple factors involved in such decisions. Sometimes parents follow their children so as to be near grandchildren. Sometimes it is an economic decision searching for a place that offers tax relief or other financial advantages for a retiree. Weather can drive the decisions as well and the high number of retirees in Arizona and Florida certainly are indicative of that.

Here in America's Vancouver and Clark County, Washington, we have many ideal conditions for retirees. The title of this post asks if you are planning to collect a pension in retirement. If you are, then Washington State is one of only 7 states in the USA that does NOT tax income. Our neighbor to the south collects an income tax described by industry experts as one of the most aggressive in the country.

Income tax is the biggest government kill-joy for retired people there is. Most folks find themselves in retirement with little in tax deductions. The kids are gone, you're retired so there is no job related deductions, the house is either paid off or nearly so and the interest deduction is all but gone. Then here comes the heavy hand of government to collect their tax. There's little avoiding the feds on this, but at the state level, Washington lets you keep all of your income.

Many people fail to recognize the significance of this deadly combination of income tax and no deductions. In nearby Portland, OR one merely needs to earn a gross of about $16,000 to find themselves in the most common bracket which is a molesting 9%. To put it in perspective, Oregon collects no sales tax, but plunders the average Oregonian for 9% income tax. If one earns $30,000 in taxable income they will bequeath to the 'Empire of Oregon' some $2700. Here in Washington state we do have a state sales tax of 6.5% and locally it is 8.25%. On the surface it may seem close, but stop and think about it. Do we spend every income taxable dollar on sales taxable goods and services. The answer is: hell no, we do not. A person earning a taxable income of $30,000 will likely buy less than $10,000 a year in  sales taxable goods. That's less than $825 a year in sales tax and only a third of the burden imposed by the gluttons in Salem down in the Beaver State.

What could you do with an extra $1900 each year? Obviously those with two pensions of a larger retirement income will find this tax savings all too juicy to pass up. The real estate angle is simple. If the sweltering heat of the desert isn't your idea of a comfortable retirement, then skip on Arizona and come straight to Washington State to buy that last house!

As always, I must pull by best Doctor Leonard McCoy impersonation: "I'm a Realtor®, not an accountant"! I am not a tax professional and any decisions made regarding taxation and its effects on your personal situation, should be taken under the advisement of a tax professional.    

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