My wife and I have a plan to reduce our expenses and boost our investment income after the kids go to college. We currently live in California, a state that has a really high cost of living, but we plan to move outside of California after the kids go to college.
We own our home debt-free, which was a financial goal we established while working towards achieving financial independence, but it is a significant part of our net worth and it does not generate any investment income and has continuing maintenance costs. After the kids go to college we intend to enjoy another part of the country and boost our investment portfolio by eventually selling our home and moving out of California, buying or renting a property in another part of the country, and placing the majority of our sale proceeds into assets that generate cash flow.
We have done some initial due diligence and ranked different states on their desirability to us based on certain criteria, including a location’s proximity to California, overall affordability, home values, tax burden, weather, and health rankings. Based on these criteria, we identified the following states that we will be visiting over the next few years:
- Utah
- Idaho
- Colorado
- New Mexico
- Texas
- Arizona
- Nevada
- Oregon
- Washington
Oregon
In August we visited Portland, Oregon and the surrounding areas to determine if it was a place we could see ourselves moving to after the kids go to college. We spent seven days in Oregon, and travelled up and down the coast visiting different areas and towns. Overall, we enjoyed our time in a small town called Seaside, Oregon. My wife and I definitely liked the feel of the community and the small beach town atmosphere. Portland was a little too progressive for us (I like my hamburgers) but we really enjoyed meeting a lot of the local business owners in Portland.
We also visited some areas bordering Oregon and Washington to see if we could take advantage of the zero state income taxes of Washington and the zero sales taxes of Oregon. Living in Washington and buying stuff in Oregon would be a possibility but we’d more likely live in an area of Oregon that is further south.
Overall, we liked parts of Oregon and would consider moving there after the kids go to college.
The next step for me after identifying Oregon as a place we enjoyed is to complete a simple financial comparison between California and Oregon to determine the order of magnitude financial benefit we would get by moving to Oregon.
Simplified Financial Analysis – California v. Oregon
I look at the following areas when determining what kind of financial benefit my wife and I will see from moving to a different location:
- Difference in Home Values: The difference between the value of our home in California and the value of a home we would purchase in the location being compared to determine how much we will be able to invest after paying for a home in the different location. I then assume a 6% annualized rate of return on the additional investment proceeds to determine an annual benefit.
- Difference in Property Taxes: The difference in annual property taxes paid between my California home and the home we would purchase in the different location.
- Difference in State Income Taxes: The difference in state income taxes paid. I assume $150,000 in income ($120,000 from investments and $30,000 from some type of business income).
- Difference in State Sales Taxes: The difference in sales taxes paid. I assume $50,000 in annual purchases that will be taxable at the local sales tax rate.
Difference in Home Values
Homes are expensive in Oregon but I would have approximately $150,000 in sales proceeds to invest if I sold our house in California and purchased a home that we liked in Oregon. At a 6% return, we would make an additional $9,000 per year in investment income.
Difference in Property Taxes
Oregon has property tax rates similar to those in California where we live, with an average effective property tax rate of a little over 1.0%. The property tax rate on my home in California is a little over 1.2%. With a slightly lower property tax rate and a slightly less expensive home, I would save just under $6,000 per year in property taxes paid.
Difference in State Income Taxes
Oregon fully taxes retirement income and has some pretty high state income tax rates. My marginal state income tax rate would be 9.0% in Oregon compared to 9.3% in California. There’s not really any savings regarding state income taxes although Oregon doesn’t tax social security benefits and that is not factored in to this analysis.
Difference in State Sales Taxes
California has high sales tax rates (these rates vary by county but it’s around 7.5% for me) while Oregon has no sales taxes. I’d save about $4,000 in sales taxes every year by moving to Oregon.
Overall, we would see a financial benefit of $18,000-$20,000 per year in these four major areas by moving from California to Oregon. That’s not bad but not as good as some of the other states we have been visiting. I didn’t like Oregon any more than some of the other places we have visited and since the financial benefit is less we’d probably not move to Oregon unless the kids were going to end up there. It is a nice place to visit in the summertime, though.
Leave a Reply