- Retiree David Fisher, 69, has lived in New York state since age 27.
- He has found that while living there was expensive while he was working, New York is much more affordable in retirement.
- This is primarily for three reasons: New York State doesn’t tax Social Security or retirement account distributions, the state has a program to reduce property taxes after age 65, and there’s a low cost of living in the Rochester, New York, area where he lives.
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To many retirees, living in the right place is essential to making their retirement income last. While New York often has a reputation for being pricey, retiree David Fisher says there are other perks in his state that make up for it. “People think that New York is a terrible place to retire,” says Fisher. “They could not be more wrong.”
David Frisch, a financial planner and CPA at Frisch Financial in Melville, New York, says that it’s not always so friendly, especially during a person’s working years. “From the tax point of view, obviously New York still has a higher cost of living than most other states,” he tells Business Insider.
But, after age 65 and in retirement, there are quite a few programs in place to help make life affordable for New York retirees. According to Fisher, tax benefits for both retirement income and real estate tax after age 65 help make taxes more budget-friendly, and lower costs of living well outside New York City and its suburbs make retired life in New York easy.
In New York, there are no taxes on Social Security income or retirement account distributions
There are 37 states that don’t tax Social Security income, and New York is one of them. While there are still federal taxes on Social Security for some, New York doesn’t tax Social Security income at the state level, and will only tax some of the income from a retirement account.
Frisch explains how these tax savings work for New York retirees. “If someone has an IRA distribution, a distribution from a 401(k), or an employer-sponsored pension, then the first $US20,000 of distributions come out New York state tax-free,” Frisch says. “You’ve got to be over the age of 59 and a half to get this $US20,000 exemption, but it is available for both spouses.”
And Frisch says there are extra benefits for people who spent their careers in public service, working as a teacher, or at a public university like Fisher, who has a 403b through TIAA. “If you have a New York pension, meaning you are a teacher, a policeman, firefighter; or a government employee, a federal government employee, or a state government employee with a pension, those pensions in their entirety are exempt,” Frisch says. “Teachers have a TIAA-sponsored plan, and in many instances, those might be exempt as well,” he adds.
When it comes to taxes in retirement, Fisher says that New York’s income tax laws for retirees have been kind to him.”I, in essence, pay zero income taxes,” says Fisher.
New York offers lower property taxes for retirees
“Our property taxes in New York are high,” admits Fisher. “But, once you hit 65, there’s something called the Enhanced Star program, which means about $US70,000 comes off of the assessed value of my home and I pay so much per thousand on the rest.”
Frisch says there’s a reason this program exists, and high taxes contributed to its creation. “What was happening was people were leaving New York to go to more real-estate friendly states,” Frisch says. “There is a Star program, which is for anybody under a certain adjusted gross income. Then, there’s an Enhanced Star, which is for people over age 65.”
In 2019, residents of any age who own their primary residence and have an income of $US500,000 or less can qualify for the STAR credit ($US250,000 or less for the STAR exemption). To qualify for Enhanced Star, residents who own their primary residence must be age 65 or over, with a household income of $US86,300 or less for 2019 and an income of $US88,050 or less for 2020. More information on both programs is available on New York State’s website.
For Fisher, who’s now 69, a few thousand have come off his property taxes on his $US200,000 home each year since turning 65. “That program brought my property taxes down from $US5,500 a year to about $US3,500 a year,” he says.
In the right part of the state, living is cheap
“I live south of Rochester on one of the Finger Lakes in New York,” says Fisher. “All of my bills for everything – food, gas, property, tax, insurances, monthly bills – come to about $US1,800 a month.” With low costs of living and homes that the average family could afford, Fisher says that upstate New York is a very affordable alternative to more expensive parts of the state.
Frisch says that New York City’s high costs of living can be avoided by opting for areas like the one where Fisher lives in. “If they’re looking at other parts of New York than New York City, or upstate New York, then the real estate values are much, much cheaper, and real estate taxes are much, much cheaper.” And thanks to the income tax breaks for retirees in New York, Frisch says, “It could almost be like living in Florida where there’s just no income tax.”
Fisher says that he’s found life in retirement to be surprisingly affordable. “It’s maybe not so affordable if you’re not retired – your taxes are higher, you pay a state tax on your income, those things are higher,” he says. But, in retirement, that’s not a problem anymore. “New York is a fabulous place to retire,” he says.
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