What are the pros and cons of retirement savings in Minnesota?

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Choosing where to retire is a big decision.

For most Minnesotans, the answer is … Minnesota. (Most state pensioners live in the area.) But others are drawn elsewhere by the warmer climates and economic conditions.

A reader wanted to know the financial pros and cons of living in Minnesota for retirement – including taxes and health care costs. They sought answers from Curious Minnesota, a reporting project run by Star Tribune readers.

If reducing taxes is the most important factor in choosing a place to retire, Minnesota has some financial problems for retirees. But there are tradeoffs for cheaper routes to consider.

“You have to look at the whole picture,” said Steven E. Warren, a certified public accountant in Minneapolis. “Some people think, ‘Oh, Florida has no income tax so it’s obviously going to be a good, cheap place to retire.’ For some, there are obviously other life concerns besides taxes that Minnesota usually comes out on top of.

‘99% of the country is sitting still’

Some popular financial websites rank Minnesota among the best states to retire – although not for financial reasons. The country is No. 8 on WalletHub’s list, for example, which balances Minnesota’s high cost of living against its high level of health care and quality of life. The Motley Fool ranks the nation’s No. 3 overall for retirement, but 39th in the nation for taxes.

Financial issues are important, considering that most Americans will not have enough money for a financially secure retirement, according to the National Institute for Housing Security. The agency attributes the problem to the transition from pension to 401(k) plans beginning in the 1980s. 401(k) plans are subject to fluctuations in the stock market, as well as those who save less money or use it for financial emergencies.

Fewer seniors are leaving Minnesota, said State Demographer Susan Brower. About 19,000 Minnesotans over 60 leave each year, while another 11,000 enter.

“I think a lot of times people tend to think of it as just an exit ticket. But it’s not like that at all,” he said. “About 99 percent of the country remains.”

Brower noted that the cost of moving can outweigh the tax savings, and that it’s a “selective group of high-income earners” who choose a home based on taxes.

High taxes

Taxes are Minnesota’s glaring fiscal weakness. Another thing is that only 10 states that the tax money from Social Security for filers above certain income limits, according to Time Magazine.

Minnesota also taxes public and private pension plans (except military pensions and certain public pensions) as well as distributions from individual retirement accounts and 401(k)s.

Unlike 38 other states, Minnesota collects estate taxes on high-value estates (generally over $3 million) after people die. But it does not charge inheritance tax, which the heirs pay.

Minnesota’s state sales tax rate of 6.87% is among the highest in the country, lower than only six other states.

What about daily expenses? Minnesota ranks around the middle for the overall cost of living, which is calculated by the cost of groceries, health care, housing, transportation, utilities and miscellaneous expenses, according to the World Population Review. In terms of health care, specifically, the state has the 17th highest per capita spending in the country, according to federal government data.

Financial integration

With those financial measures, Minnesota doesn’t seem like a good place to live in retirement. But the truth is often much more than what you get for your money.

Chris Farrell, author of “The New Frugality: How to Consume Less, Save More and Live Better” and “Your Money” columnist for the “Star Tribune” said Chris Farrell, “If you look at finances more broadly, Minnesota is going to come out right.” “column.

Some countries may seem cheap at first glance, Farrell said, but “you’re going to pay for it one way or another.”

For example, states with low or no taxes may have high sales, goods or property taxes (taxes included on products such as cigarettes, alcohol and gas). Or they can pay for lower taxes by providing reduced government services.

Golden Valley financial advisor Michael Schumacher echoed that sentiment. “Every country has to generate revenue,” he said. “How do they do it?”

Higher taxes can mean better quality government programs and services. Minnesota is known for good service practices, for example.

Other financial considerations include non-tax expenses such as insurance, which can be expensive in areas with high crime or flooding.

For retirees who want to work part-time, Farrell says it can be easier to find work in an area where they have a social network.

Some retirees want the best of both worlds. Snowbirds who split their time between Minnesota and tax-friendly states — like Florida — may choose to look for a less expensive place to live. Warren, the reporter, said it’s important to keep good records. In the event of an audit, the IRS will look at information such as where your driver’s license was issued, where you registered to vote, and possibly where you attend church.

“They might ask you how you have a credit card,” Warren said. “Various reasons that indicate, ‘Okay, now I spend most of my time and put myself out there as someone from this other country.’

Culture, climate, health care

There’s more to retirement than money, of course.

Besides taxes and expenses, retirees may care about amenities such as Minnesota’s largest theater, skiing and snowboarding trails or proximity to the Mayo Clinic. Living close to family is often the main reason retirees stay where they live.

“What is the cost, to me personally, of leaving grandchildren behind?” Farrell said. “I’ll take it big.”

Staying close to family can be good, too. The elderly can often turn to their relatives for support that they would otherwise have to make ends meet.

Climate is a non-economic factor for retirement that often does not work in Minnesota’s favor. But there are always tough souls who would not want to live in a place, even in old age, that did not have a strong winter.

Ultimately, the sense of comfort and joy you find in your surroundings are probably the most important factors in choosing a place to live.

“I always try to tell everyone that I work with him, don’t be picky about taxes,” Schumacher said. “If you’re going to suffer living in Texas, why would you? Mental health is important, too.”

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