Revisiting Ranchester

Another look at tax arbitrage.

One of my favorite posts from the original Random Roger days was titled The Five Best Places To Retire which I posted in August of 2009. One of the ideas was to make fun of the many MSM articles on this subject. From the post;

Every type of personal finance publication goes to this well several times year so why not a blog? This post was motivated by an article on Yahoo Finance about which states are tax friendly. According to the article seven states have no income tax and five states have no sales tax. It occurred to me that maybe the best idea is to live in a state with no income tax but be close enough to a state with no sales tax to go buy all your stuff.

A reader dubbed the idea of living in a state with no income tax but being close enough to shop where there is no sales tax (wouldn't work for car purchases) as tax arbitrage. I listed the top spot to retire as being Ranchester, WY. Number 2 on my list was Spearfish, SD. I've been to Spearfish, we took a trip to SD a few years ago to visit Deadwood, Mt. Rushmore, Badlands National Park and Custer State Park. We also stumbled into a few places including Sturgis (the day before the motorcycle rally was due to start and saw all sorts of neat bikes), Wall and Spearfish. Spearfish seemed like an older town, Black Hills State University is there and the drive on the Spearfish highway is beautiful;

What reminded me about all of this was an article from Yahoo Finance proclaiming South Dakota as being the best state to retire thanks to no state income tax, low sales tax and reasonable property tax. There was another link to the ten tax friendliest states. Wyoming was number one, South Dakota number three and number two was Alaska. All three have stunningly beautiful scenery in some places but also have some serious weather challenges in terms of being very cold in the winter. We were in South Dakota in late July/early August and up in the hills like Deadwood and Custer City it wasn't that hot, neither was Rapid City but it was a little warmer, however Wall and out toward Badlands National Park it was scorching hot.

We could make Spearfish work but maybe we'd want to load up our Fuso FG 14 (pictured above and another view below this paragraph) and head somewhere warmer for the winter (we don't own one, the pictures are from the Overland Expo from last weekend in Flagstaff). I've long been fascinated with moving to Alaska in a retirement context to have no state income tax or sales tax. The residents also get an annual payout from the Permanent Fund which is a pool of capital created from pipeline royalties from oil moving through the state. There was one year that it paid out $2000 to everyone so a couple got $4000. As possibly covering one month's expenses that becomes a potentially big deal for being one less month per year to draw from savings. Unfortunately it is lower than $2000 every year. It 2017 it was only $1100. Also, just about everything in Alaska is very expensive.

The bigger and more serious point is that these things, various taxes, can matter in your retirement planning. In addition to income tax and sales tax, don't forget about property tax. I live in Arizona which seems to have very low property tax and income tax. The sales tax is high. Most of the Phoenix area seems to have become very expensive but nothing like Southern California. Outside of Phoenix, like most of the state, price are more reasonable but still somewhat elevated but the entire state would be very affordable in terms of buying a house for someone financially downsizing from one of the very expensive places in the country.

In addition to taxes and cost of living issues, there are other factors to consider. My wife and I recently visit a friend who is thinking of downsizing out of Prescott. He and his wife have a list working and the things they look at is how far they are from places like Costco and Home Depot. If you click through to my blog post from 2009 liked above, I included that info on the places I researched. Needless to say I got a kick out of that but where do you go to get what you need? Are those places close by in the place you are considering? If not, is ordering online practical? While we do order stuff online of course, it is not that convenient. Delivery trucks don't come all the way up to our house. Drivers usually call and tell us where they left our delivery, it is clumsy. The point is delivery may not work out in 100% of all situations which may come as news to someone living in a bigger city.

In articles about retiring abroad, they often say to go live there for a year without fully committing. Chances are you would't need a full year in Spearfish or Homer, Alaska but maybe a month in the winter and a month in the summer would make sense.

For us, Plan A is to stay in place but there could come a point where plowing our road in the winter and coping with a high wildfire danger in the summer will stop making sense. If we need to leave for those reasons, hopefully we get a long runway to figure some things out. If you already know you will be moving because you want to or have to, give yourselves a long runway and look beyond the basic cost issues to what your everyday routine would be.

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