Why Retirees in 13 States Could Have a Harder Time Stretching Their Social Security Checks

For retirees on a fixed income, every dollar counts. And for seniors in 13 states, it’s possible that they won’t get to keep as much of their Social Security money as their peers who live in other locations.

Here’s why that’s the case, as well as some options for what older Americans may want to do about it.

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Retirees in 13 states have an additional tax burden

Here’s the situation: In 13 states, some residents who receive Social Security income will have to pay state tax on that money. Most states don’t do this, which is good news for the seniors who live in those states. But in the following 13 places, some seniors must give a cut of their benefits to their state’s department of revenue:

Colorado
Connecticut
Kansas
Minnesota
Missouri
Montana
Nebraska
New Mexico
North Dakota
Rhode Island
Utah
Vermont
West Virginia

In most of those locations, lower-income retirees are exempt from the state taxes, however, that still means middle-income and high earners could find themselves with less money from Social Security than they might have expected. Since many Americans over-rely on their benefits — which are supposed to replace only about 40% of pre-retirement income — receiving a check that is smaller than anticipated could make it more difficult to stretch the money as far as it’s needed.

What can retirees in these states do?

The first thing to do if you live in one of these states is to find out what the rules are by visiting the website of your state’s department of revenue. Most, like Colorado and Vermont, have dedicated pages designed to help seniors figure out exactly how their retirement income will be taxed.

Once you’ve learned the rules based on your age and income level, you can see whether the money left over after paying Social Security taxes will be enough to cover your costs when combined with your savings and other sources of income. If it turns out you won’t have the money you need, you’ll have to consider how best to solve that problem.

For some people, moving may be the way to go. But before you relocate, be sure to address all of the issues a move could cause, including:

General tax rules applicable to all retirement income sources. It doesn’t do you much good, for example, to move to a state that won’t tax Social Security but that will impose higher taxes on your other retirement income.
Housing expenses and other costs of living. You don’t want to move someplace a lot more expensive just because it has lower taxes on this one type of retirement funding.
Quality-of-life issues. Moving away from family or friends can be a daunting prospect, and you don’t want to move to an area without social support, appropriate healthcare services, or the amenities you’re interested in.

If you decide that relocating isn’t the best way to deal with the taxation of your Social Security benefits, you’ll need to make other plans. This could include adjusting your budget and making other cuts to afford the state taxes you’ll owe.

Check out your state’s rules first and do some math. Then you can make the right choices to protect your finances despite this added expense.

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