Retirement and what people wish they had known before moving to Florida

Living in the Midwest (I’m based in Minneapolis) and having worked in financial planning for over two decades, I’ve seen countless “snowbirds” retire down South, with Florida being the most common destination. In fact, my own parents have gone back and forth to Naples for years now.

In general, Midwesterners love to head south in the winter. And for good reason. Who wouldn’t want to avoid our frigid temperatures?

One of the most popular places to winter is Florida and for Midwesterners, the southwestern Gulf Coast is especially prized, particularly the Naples and Fort Myers areas. But before you commit to moving from the heartland to tropical Naples, take a minute to ask yourself this: do you know everything you need to know about retiring in Florida?

Here are some of the most important things to consider:

Retiring in Florida vs. the Midwest: What’s the Difference? 

Each state differs in regards to financial and retirement planning and especially between the Midwestern states and Florida. Minnesota, Illinois and Wisconsin are some of the higher-taxed states in the U.S., with retirees paying a greater portion of their profits and/or retirement fund withdrawals in income tax. While relocating to Florida removes these state taxes, there are many factors to consider before committing to this life change.

Yes, There Really is No State Income Tax in Florida 

Aside from the weather, one of the most significant differences between retiring in Florida versus in Minnesota relates to state income tax.

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Florida does not have any state income tax, meaning if someone is a resident of Florida, they only need to file a federal tax return. For many clients, this reduces their total income tax by 20-30%. This alone can be a powerful factor in retiring as soon as possible.

Yet, residency in Florida is a sticky item. You may have heard that all it takes for residency is to live in Florida for “six months plus one day” per year. Unfortunately, residency rules and regulations are much more complicated than that, both during your lifetime and even when you die.

In fact, this is one of the most misunderstood aspects of Florida retirement planning.

The state of Minnesota, for example, has a handy 26-factor checklist that could impact whether or not the state accepts that you have Florida residency, and therefore whether or not you must pay state tax.

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There are also 25 other factors that can easily override living in Florida and the “six months plus one-day” rule. Each state can be picky in a different way, so be prepared and educate yourself.

Surprises can still happen too. For example, we’ve had a few clients who have executive "Deferred Compensation Plans" through their not-based-in-Florida employers. Unlike 401(k) and IRA accounts, we have found that this type of retirement savings would remain as part of the old state (and be taxed) unless a very specific type of payout was elected. Because this is so tricky, many retirees could wind up making a six-figure miscalculation.

Although there's no state income tax, non-income taxes and expenses are higher in Florida 

Of course, there is no free lunch in life. Other Florida taxes tend to be higher on items like gasoline and real-estate transaction fees. These parts of the Florida tax code make up for not having a state income tax.

Additionally, it is common for the extra real estate transaction expense to be many thousands of dollars.

Even taxes on more inconsequential expenses can come as a shock. One retired couple we worked with recently informed us that a golfing expense was six times higher for them in Florida as compared to Wisconsin – that was a big surprise!

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In addition to income tax, there is value in considering other differences before and after a move down South, including investment portfolio management and taxes on things like municipal bonds, federal government bonds and stock, which can all vary between states.

Sometimes, rearranging your portfolio can make a meaningful difference in retiree income. Where we’ve seen the biggest differences relates to people who retire to Florida for a decade or so, then go back home. The treasure-trove of investment and tax planning possibilities between Florida and Midwestern states can be game-changing.

Transition Time

Despite all of us living as residents of the U.S., many people are surprised there can be a very real culture shock when moving to a different region of the country. The pace of life, the seasons and even the temperament of the people can make a meaningful difference when retiring in a different state.

If you are considering retiring in Florida, many experts suggest renting a property there for a few months to see if the state is truly the place for you. This period will also give you time to figure out the various financial implications of making a more permanent move and working with your financial adviser to create the best plan for you.

In the end, Florida is often a less expensive place to retire and enjoy life in the sunshine but it’s easy to be surprised that the savings and tradeoffs you were counting on aren’t all that you might have imagined.

Mark Berger is principal of Berger Financial Group – a full-service financial firm located in Minnesota. As an IRS enrolled agent for advanced tax planning knowledge, along with being a certified financial planner and an economist, Berger’s credentials and more than two decades of experience have helped him guide many clients in the retirement process both in the Midwest and outside of it.

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