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Is Retirement in a Lower-Tax State Actually More Affordable for Alcoa Employees?

Alcoa employees weighing a move to a no-income-tax state should consider the full financial picture beyond tax headlines, as higher housing, insurance, and property expenses can quickly offset perceived savings. – Tyson Mavar, a representative of The Retirement Group, a division of Wealth Enhancement.

For Alcoa employees considering retirement relocation, the key takeaway is that lower income taxes don't always translate into lower living costs—comprehensive financial planning is vital to avoid unexpected burdens. – Wesley Boudreaux, a representative of The Retirement Group, a division of Wealth Enhancement.

In this article we will discuss:

The financial considerations of relocating to a no-income-tax state during retirement.
How property taxes, housing costs, and insurance can offset tax savings.
The importance of strategic tax and estate planning before making a move.

The Financial Considerations of Relocating to a No-Income-Tax State

Retiring in a state without income tax is often viewed as financially advantageous. However, for Alcoa employees planning their next chapter, it's essential to consider the overall cost of living. While the absence of state income tax is appealing, other expenses such as housing, insurance, and maintenance can significantly impact your budget.

In 2024, a couple in their mid-sixties moved from Indianapolis to St. Petersburg, Florida, to be closer to their adult children. Florida's lack of state income tax was a major draw. However, after relocating, they encountered high insurance premiums, elevated home prices, and unexpected repair costs following Hurricane Helene. Brad Clark, founder of Solomon Financial in Carmel, Indiana, noted that the husband had to return to work, altering their retirement plans considerably.

They were in a pretty good position up here, and now it's just not a pretty picture, said Clark. This example serves as a reminder that working longer may become necessary if key relocation costs are not thoroughly evaluated.

Beyond Just Income Taxes

The significance of income taxes in retirement largely depends on the size and type of income streams. Alcoa retirees with substantial investment income might find benefits in no-income-tax states, but middle-income households often discover that income taxes play a smaller role than anticipated. Jared Walczak from the Tax Foundation emphasizes that sales and property taxes often take center stage in these states.

For instance, Tennessee has no income tax but has a combined state and local sales tax rate of 9.55%, the second-highest in the nation.

Property taxes are another critical factor. Texas, a popular retirement destination, has an average property tax rate of 1.60%, more than double Florida's 0.80%. This can be an unexpected expense for retirees transitioning into a fixed income.

Financial planner Caitlin Frederick of Ullman Wealth Partners in Florida advises that new homeowners may face higher tax bills than expected. Long-term residents benefit from property tax caps, but these reset when homes are sold, and the reassessment may not occur until the second tax cycle. Relying solely on online listings for tax estimates can be misleading; consulting with agents and planners can provide clarity on potential increases.

Hidden Costs of Housing and Insurance

Housing affordability is just one aspect of the retirement equation. According to Bankrate, shelter costs can easily offset any income tax savings.

This is especially true in states prone to severe weather. Florida has experienced rising insurance costs due to hurricanes and climate-related threats. For example, a Michigan couple who relocated to Sarasota found themselves paying $35,000 annually in homeowners insurance, HOA dues, and property taxes.

Nationally, Bankrate reports the average annual premium for a $300,000 policy is $2,267. In Florida, it's more than double at $5,527, second only to Nebraska. These increased costs can greatly impact retirement budgets, particularly for Alcoa employees accustomed to more stable expenses.

Planning for Taxes and Estates

Many of these challenges can be addressed through careful financial planning before relocating. Strategies such as converting traditional retirement accounts into Roth IRAs can help manage taxable income and control state tax exposure in retirement. For Alcoa employees, timing and proactive tax planning can be instrumental in maintaining income levels.

Each state taxes retirement income differently. Some, like Illinois, exempt income from 401(k)s, IRAs, and pensions. Others, such as Colorado and New Mexico, impose taxes on Social Security for higher earners. Understanding how your benefits are treated at the state level is crucial before choosing a destination.

Tools from the Tax Foundation and Bankrate can assist in comparing taxes, housing, health care, and other costs across states. These calculators provide Alcoa employees with side-by-side insights into how far their income may extend in different regions.

Estate and inheritance taxes are additional considerations. Tony Owens from AlphaCore notes that while federal inheritance tax applies only to estates above approximately $14 million, many states have much lower thresholds. In Oregon, for example, any estate above $1 million can be taxed. Alcoa retirees intending to leave assets to family should account for these potential state-level obligations.

Owens also points out that even California's 13.3% top income tax rate doesn't always make other states a financial advantage. Alcoa retirees might not experience significant relief unless they are in the highest tax bracket. Understanding how each state handles marginal tax rates is essential to making an informed decision.

Bottom Line for Alcoa Employees

Assuming that moving to a state with no income tax will result in savings can be misleading. While taxes may be lower, costs such as housing, insurance, and property taxes often increase simultaneously—and may even surpass the savings.

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Sources:

1. Carlson, Debbie. “Retirees Who Move to Lower-Tax States May Not Save as Much as They Think.” The Wall Street Journal , 9 Apr. 2025, www.wsj.com .

2. Costa, Moriah. “6 Important Costs to Consider When Planning for Retirement.” Synchrony Bank , 20 Feb. 2024, www.synchrony.com .

3. “Financial Fact vs Fiction: This Roth Conversion Myth Could Cost You.” Kiplinger , 6 Apr. 2025, www.kiplinger.com .

4. “Skyrocketing Housing Costs Pose Major Threat to Retirees.” TheStreet , Jan. 2025, www.thestreet.com .

5. Parkshore Wealth Management. “Tax Considerations When Downsizing or Relocating in Retirement.” Parkshore Wealth , Sept. 2024, www.parkshorewealth.com

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Eligibility Requirements: Employees are automatically eligible for the Pension Plan for Certain Hourly Employees of Alcoa USA Corp if they were hired or rehired before April 1, 2022, have reached age 21, and completed one year of vesting service. Employees hired or rehired on or after April 1, 2022, are not eligible for this pension plan(Alcoa USA Corp_Pension …).

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Vesting Service Calculation: Vesting service determines when an employee becomes eligible for pension benefits. Employees become vested after completing five years of vesting service, which includes both periods of pension service and non-pension service such as absences not counted towards pension service. This is crucial for retirement planning, as it ensures employees are entitled to pension benefits even if they leave the company after becoming vested(Alcoa USA Corp_Pension …).

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Survivor Benefits: The pension plan provides automatic surviving spouse coverage unless waived by the employee and spouse. Surviving spouse pensions are payable if the employee dies while actively employed and vested in the plan, after retirement, or while receiving a deferred vested pension. The spouse must submit a written application to claim benefits(Alcoa USA Corp_Pension …)(Alcoa USA Corp_Pension …).

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Pension Benefit Guaranty Corporation (PBGC): The PBGC provides a safety net for pension benefits in the case of plan termination or financial distress. If the pension plan is underfunded, the PBGC ensures employees still receive pension benefits, although certain limitations may apply(Alcoa USA Corp_Pension …).

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