In the world of near-zero interest rates, it becomes more important than ever not only to make decent returns on your money, but just as importantly to avoid paying these gains out in additional taxes.
Now that baby boomers are reaching retirement age en masse, totaling over 10,000 per day, it is imperative for those in high-tax states to take a long, hard look at where they are currently living and then decide if the benefits of staying in that area (bad news for those in cities like Los Angeles and NYC) is in their best interest. There will always be pushbacks when it comes to relocating, but retired people have the greatest resource at their disposal – time.
Time is what lets you overcome many of the perceived problems with moving. Why do you actually need to live in NYC if you only make use of its amenities a few times per year? It is often more beneficial to live elsewhere and save on the layers of crushing taxes, making occasional trips to “see the theater,” “eat at the fancy restaurants,” and “take in a museum.”
Take out a calendar and review how much time you legitimately spent over the last year taking advantage of your current area’s unique amenities. Much like how a boat owner underestimates the actual cost of owning one, which is why they say the happiest days in a boat owner’s life are “the day they buy their boat and the day they sell their boat,” the reality is much different from the perception.
Donald Sterling, despite what you may say about his racist views, now has the unique opportunity to point out the big elephant in the room – and that is the current tax policy between states. Sterling can possibly save over $150 million in capital gains taxes by reestablishing residency in a state like Texas rather than California. Current long-term capital gains rates in Texas are 25% vs. California’s crushing 33%. This extra 8% could work out to be over $150 million in savings if we are to believe that the sale price will be $2 billion.
Now, situations like Sterling’s are the outliers when it comes to dollars saved, but the percentage is not. Many people and businesses are realizing that sometimes the best decision is to move rather than stay and support bloated states like indentured servants. The exodus of this can be seen in the demographic data from the US Census Bureau.
The media loves a juicy story, but in reality, Sterling’s troubles will most likely not directly affect you and your family. The big-picture takeaway here is that Americans of all ages really need to think long and hard about where they live and how that decision will impact their futures. Over the next decade, as this trend of people moving from high-tax areas to low-tax areas gains steam, we will see cities drowning in runaway pension obligations and bloated budgets and calls to propose and possibly issue “exit taxes.”
Decades of unfunded promises will reshape the demographic landscape of this country more than any other factor in the future. We are not talking about small differences here, but instead the cold, hard reality of living a life of enjoyment with extra cash in hand OR one of always feeling like a hamster on a wheel.
Time to pay attention to the elephant.