Florida, Pennsylvania, or California? Which Retiree Keeps the Most Money?

Three retirees own the same portfolio. Each holds $1 million in dividend-paying stocks generating roughly $60,000 a year of income. One lives in Florida, one in Pennsylvania, and one in California. By the time the year ends, they will not have the same amount of spending power, even though their brokerage statements look identical. The reason? Taxes.

Details

The hypothetical portfolio consists of stocks like Johnson & Johnson (JNJ), Procter & Gamble (PG), and Verizon (VZ), known for stable dividends. The portfolio is worth $1 million and yields $60,000 annually.

In Florida, there is no state income tax, so the retiree keeps the full $60,000. In Pennsylvania, a flat income tax of 3.07% reduces the income to about $58,158 after tax. In California, income tax rates range from 1% to 13.3% depending on the bracket; assuming a middle bracket, the retiree may lose over $6,000, netting around $54,000 or less.

Context

This comparison highlights the importance of residency location in retirement planning. While portfolios appear identical, disposable income varies significantly due to state tax policies. This affects retirees' decisions on where to live after retirement.

What This Means for Investors

For investors relying on dividend income in retirement, choosing a low-tax state can significantly increase net disposable income. It is crucial to consider local taxes when planning for retirement, especially when comparing living options across states with different tax burdens.