Here’s what it’s like to retire to a low-tax state

Choosing a state with no income tax, like Florida, or lower tax rates promises relief for retirees tapping 401(k)s. But such moves are rarely just about savings. For some, total spending remains almost the same, or even rises, but funds shift toward upgraded amenities or travel.

About 60% of retirees who move after retiring went to a more affordable area, and pocketed capital gains from their houses, according to a 2023 Vanguard study. It found these retirees can also typically unlock around $100,000 in home equity by doing so.

But lower-cost areas aren’t always what they seem. While state income-tax burdens might shrink, property taxes can jump, or vice versa. Many states exempt Social Security from state income tax, but only a few offer similar treatment for retirement-account withdrawals. Other costs, such as homeowners’ association dues or home insurance, may rise.

Seven retirees opened up to us about their finances, the tax breaks they gained, the costs that surprised them and how their new ZIP Codes changed their lives.

They have never had second thoughts, said Earl, now 70.

On the financial front, the Oro Valley, Ariz., resident keeps track of how much the move has saved them on property taxes.

The Vittitoes were paying more than $13,000 a year on their home in Washington, Ill., outside Peoria. In Arizona, the couple pay about $3,600. For the past seven years, Earl has invested the approximately $10,000 difference in stocks, a balance that now exceeds $100,000.

“That decision is getting more valuable by the day,” he said.

The Vittitoes feel they have traded up to a better lifestyle.

“I was so happy the day I gave my snowblower to my friend in Illinois,” said Earl, who took a buyout at age 59 ½ from a large manufacturing company, where he designed computer systems to track everything from parts to the software needed to manufacture products.

The couple considered moving to Hawaii, where Earl attended high school. But when Earl’s aunt relocated in 2015 to Oro Valley, he and Pat fell in love with a nearby 55-plus community with pools and a golf course.

The Vittitoes have in excess of $3 million, including about $2 million in IRAs and about $1 million in a taxable brokerage account.

They have $80,000 in cash and invest the rest in stocks. A Roth IRA holds $170,000 of highfliers including Nvidia and SpaceX.

Their traditional IRA and taxable account hold dividend-paying stocks that throw off $189,000 in income Earl largely reinvests.

The Vittitoes receive about $60,000 a year in Social Security. Earl’s pension pays an additional $40,000.

They expect to spend about $118,000 this year. Gas costs a little more in Arizona. But groceries are cheaper. They have no debt and spend about $30,000 a year on travel.

As the HOA president, Earl typically spends a few hours a day in meetings and on email. He lifts weights and sometimes hits the bike paths at 5 a.m. before it gets hot. He is also writing an investment guide for his adult children.

“I thought, ‘My God, this is heaven,’” said Beck, now 72.

The next day, he called a real-estate agent he found online. He eventually settled on a neighborhood in Lakewood Ranch, Fla. Featuring two resort-style pools with cabanas, and pickleball courts, the neighborhood seemed ideal. With Florida’s real-estate market booming, Beck knew he had to move fast if a property became available.

When a three-bedroom, roughly 2,000-square-foot home was listed, he made an offer sight unseen. He secured the recently built home for roughly $630,000 in 2021. He quickly sold his old home for a profit and promised to stay in touch with friends.

Beck, who is divorced, was pleasantly surprised by several lower living expenses in Florida. State income taxes no longer apply to his investment earnings, allowing him to keep more of his capital gains.

His car insurance dropped by about $100 a year, even with a newer vehicle. His home insurance decreased by roughly $300 a year, and his annual water bill fell by about $500. His electric bill rose by only $52 a month, despite running his air conditioning and heating his pool and spa.

Other expenses were less welcome. His property taxes jumped by more than $2,200 a year, despite the smaller footprint of his new home. In Colorado, his homeowners’ association dues were about $120 a month in 2020. In Florida, they are more than $700 a month, though Beck notes that this covers more amenities.

Overall, he spends roughly the same amount each year as he did before he moved—about $80,000—but says his quality of life has improved vastly.

Beck knew practically no one in Florida, but after a career in software sales, he felt confident he could strike up a conversation with anyone. He surprised himself by taking up pickleball, which he now plays four or five times a week.

Thanks to his community’s social schedule, Beck is out several nights a week listening to live music, relaxing with friends or going on dates. He takes about two international trips a year.

He has a net worth of about $1.8 million, including about $1.1 million in retirement savings. Roughly 70% of it is in stocks. Beck’s portfolio has performed so well since the pandemic that he plans to travel and spend more in the years to come.

“This move to Florida changed my life for the better,” he said.

Phil, 73, worked as a professional photographer and Karen, 65, raised their two sons.

They lived in Tysons, Va., in the Washington, D.C., suburbs. But on weekends, they often drove 50 miles to Annapolis, Md., where they kept a sailboat.

“Boating has always been my way of relaxing,” said Phil.

After he started winding down his business in 2012, the couple considered moving to Annapolis, but property there was expensive.

In 2020, they moved to Wilmington, N.C., a historic port city with good medical facilities.

With more affordable property values, Wilmington allowed them to build the waterfront home they wanted without having to stretch too far financially.

The Barbalaces used the $1.6 million proceeds from selling their home and a photography studio in Tysons to buy a half-acre on the Intracoastal Waterway for about $1.1 million. They spent $1.3 million building a 5,000-square-foot home with a dock for their jet-skis, kayaks, sailboat and Boston Whaler.

They now spend $10,300 a year on property taxes, less than the $16,000 they would now be spending in Virginia, for a home on the water worth twice as much. They are also saving on state income taxes, since North Carolina charges a flat 3.99%, versus 5.75% on taxable income above $17,000 in Virginia.

Karen said her biggest challenge was leaving her friends. She chose a neighborhood with a communal pool to make it easier to meet people.

While working, Phil often saved the maximum annual limit in a SEP IRA. Today, the couple’s IRA balance is just under $3 million. More than three-quarters is invested in two Vanguard stock funds, with the rest in money-market funds.

“I am a risk-taker,” said Phil.

The Barbalaces spend about $300,000 a year from their IRA, plus their $65,000 in Social Security. They spend more than they did before, in part because they travel more often.

They allocate about $80,000 for taxes and $40,000 for travel. They pay $65,000 a year on a 2.9% mortgage. If the stock market rises this year, they will likely prepay part of their $700,000 mortgage balance.

They spend about $4,000 annually for homeowners’ insurance, $3,000 more than in Virginia.

Karen has Parkinson’s disease. When she feels up to it, they go boating or ride bicycles to nearby beaches. They see their young granddaughter often and are planning cruises to Panama and in Scandinavia.

In Virginia, they used to hear the dull roar of cars on the beltway in the distance. “Now, what we hear is the ocean waves,” said Phil.

They had both lived there most of their lives and still had plenty of family in the area. Leaving her eight siblings was especially difficult for Gina, but she figured that if they were going to move, they should do it while they were still young and healthy.

“It was our time to have a new adventure,” said Gina, 60.

She made several homesick calls to her sisters during that first year, but as she started making new friends and getting involved in more activities like tennis, she adjusted.

Ed, now 61, was especially eager to move to a state with no personal income tax. He works about 20 hours a week as an electrical engineer, primarily for health insurance for the couple.

In 2019, the couple moved to a 55-plus community in Reno, Nev. Gina, a registered nurse, largely stopped working. They were traveling more and had more disposable income.

Their annual spending dropped to about $75,000 from around $100,000, largely due to lower taxes. In addition to saving on state income tax, they pay about $2,200 in property taxes, about half of what they used to pay. They are also spending less on groceries—about $150 a week, down from $200.

They aren’t fans of Nevada’s higher gas prices, but still take long driving vacations. In July, they moved to Henderson, Nev., near Las Vegas, to make it easier to get to a grandchild, in case they need to provide emergency babysitting.

They believe their roughly $3.5 million in retirement savings will stretch further in Nevada. A trust Ed inherited from his father also receives more favorable tax treatment.

Finding doctors in Reno was difficult, but they expect better access in Henderson. Many physicians weren’t taking new patients, and those who were had wait lists.

Another benefit of moving to Nevada is the high concentration of transplants. Because many of their neighbors moved from other states, they have found people eager to make new friends.

When Ed fully retires in about three years, he looks forward to having more time for tennis and might take on a leadership role in the community. He can’t picture himself living in Minnesota again.

“We have no plans to move back,” he said.

Write to Veronica Dagher at Veronica.Dagher@wsj.com and Anne Tergesen at anne.tergesen@wsj.com