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Financial Planning > Tax Planning

When Boomers Roam, Advisors Need To Be Guides

By Jim Connolly

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Baby boomers are ready to roam and for many their roaming will take them out of the state they currently live in, according to a recently released survey.

When they do make the move, financial advisors will need to be ready to help them, say financial planners contacted by National Underwriter.

While the survey, released in November 2005 by MassINC, Boston, refers specifically to boomers in the Bay State, many other states with large boomer populations could witness the same mass wanderlust.

The survey indicated that 52% of boomers will move over the next 20 years and 35% will move outside of Massachusetts. Of that 35%, the breakout was as follows: 15% plan to move to Florida or the South; 7%, to another location in New England; 5%, to another location in the U.S.; 2%, outside of the U.S.; and, 6% replied that they were not sure.

Many other states also have large boomer populations.

The 50+ population comprised 30% or more of the population in 17 states; between 25-29% of the population in 29 states and the District of Columbia; and, between 20-24% of the population in four states. The data is based on U.S. Census Bureau estimates and compiled by the U.S. Administration on Aging. The 50+ population makes up 28.5% of the U.S. population, according to these statistics.

Financial advisors with clients who are considering a move may want to walk them through a number of points, says Bonnie Hughes, a certified financial planner based in Chattanooga, Tenn.

One of the first things a planner needs to do is to help the client balance the fantasy of a retirement home with the reality of the new location. “If you have a four over four colonial and are going to a condo, that can be a major change for a client,” she notes. So, as a first step, she says she would recommend renting for a time in order to get a better sense if the new location is really all the client wants.

For boomers who have not moved often, Hughes says the change can be stressful and boomers should be aware of the potential stress. “When you have not moved, it is a major adjustment, particularly if it is 50 miles or more away from where you were,” she says. Retirees may have a lot less flexibility both in terms of stress and finances, Hughes adds.

Financially, Hughes says that a decision to move to another state should be made based on current tax laws and not on knowledge based on an article cut out of a newspaper several years ago.

For instance, she says that in Florida while there is no income tax, there is a wealth tax, and in her home state of Tennessee there is also no income tax, but there is a tax on savings. “It goes beyond whether there is income tax or not.”

States also are tightening up residency requirements. So, she says, if you are living in New York and want to establish residency in Florida, then just having a Florida driver’s license will not be sufficient proof of residency. In addition, she says, you may also have to vote or to pay property taxes.

The state of domicile is also important for estate tax reasons, she says. It is important to understand the probate processes in both states especially if you have property in each state, Hughes adds.

One non-financial consideration that can make the transition easier is to realize that the home has to offer ease of living not only at the time of purchase but also at older ages, according to Hughes. New construction such as easy light switches, lower counters and wider doors can make the home more livable in later years, she explains. While lakeside property may seem lovely, in later years walking those 50 steps to the dock may not be enjoyable, she adds. And, if a lot of landscaping needs to be done, it might be less appealing as boomers age, Hughes says.

Additionally, surroundings can change, she notes. For instance, if a home is built on a lake that a power plant uses, the water level can be significantly lower in winter when the plant requires more water. It can be a big shock in January when a boomer who has bought such a property is wondering where the water has gone, she continues.

Julie Welch, a certified financial planner and certified public accountant in Kansas City, Mo., also notes that while lack of income tax can lure a boomer to a state, taxes such as one in Florida on intangibles like stock holdings need to be factored into the financial equation.

The other taxes may not equal what a boomer would have paid if there was an income tax, but a planner needs to go over this with a client, she says.

If a boomer is moving and will continue to work, it may be possible to deduct some of the moving costs if he or she meets time and distance tests, Welch says. If the new place of employment is 50 miles beyond the old place of employment, a boomer may qualify for a moving deduction, she says. The time test requires working in the new location 39 weeks of the 12 months following the move and for the self-employed, 39 weeks in 12 months and 78 weeks in the first 24 months after the move.

Welch also says that if a house is sold, then up to $500,000 in gain is excluded from a requirement to reinvest it in order to avoid a tax penalty. To qualify, she continues, a boomer would have to have lived in and owned the house for two of the last five years.

Charitable contributions of household items prior to and after a move should also be considered, Welch says. In some cases, after the move, an individual may decide that furniture doesn’t fit in with the new home and a deduction can offer a way to give to charity and receive a benefit, as well, she notes. Welch recommends keeping a list of donations and even keeping pictures of what is given.

Caption

For boomers who have not moved a lot, renting in a new location may be a good first step to see if the new location is all they want.

A decision to move to another state should be made based on current tax laws and not on knowledge based on an article cut out of a newspaper several years ago

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