In 2015, the Huffington Post gave us “5 Reasons Madison, Wisconsin May Be The World’s Best Place To Retire.” Forbes named us number one on its list of “25 Best Cities For An Active Retirement,” in 2011. AARP puts Madison as the best medium-sized city on its list of “The Most Livable Places at 50+” and CNN Money claims that Mad City is the best choice of their “5 best cities to grow older in.”
And, no, we haven’t taken a job with the Madison Booster Club (if there is one), we just wholeheartedly agree that Wisconsin offers retirees a dream “forever vacation.” Whether you’re just now considering taking down the shingle or you’ve already stepped into retirement, Madison is one of the best places in the country to live.
But, can you afford to retire in Madison?
Sure, the best time to begin planning your retirement is long before you retire, but it’s never too late to make some critical decisions. And, the bottom line will be money, right? If you long to stay in or around Madison, you’ll have plenty to think about in that regard – our unfavorable property tax situation, for instance.
Eight thousand dollars a year. That’s what the Minnesota Post figures Governor Walker paid in property taxes in 2014 for his $360,000 home in Milwaukee County. In most other states, if you told a homebuyer that his or her house payment would be nearly $667 more per month because of the property taxes, they’d faint.
The average property tax bill in Dane County, by the way, is $4,279, according to the Tax Policy Center. Unless you’re among the very few boomers who spent your working life building a retirement nest egg, that amount may be tough for you to swallow as well.
If you didn’t work for the railroad, the U.S. military, the Coast Guard, the commissioned corps of NOAA or the Public Health Service, your pension and annuity will be taxed by the State to the same extent as it is on your federal tax return.
The good news, however, is that you won’t pay taxes on your Social Security income.
Wisconsin also offers retirees certain tax breaks, if you qualify. Make less than $10,000 ($19,000 if filing jointly)? You may qualify for a tax credit. Boomers 65 and older and retired can deduct $5,000 of retirement income (including those IRA distributions!) from your state taxable income. There are some restrictions. Then there is an additional, but smaller personal exemption and deduction. Speak with your accountant or financial planner to learn more about this. You may also wish to read “How your Retirement Benefits are Taxed,” published by the State of Wisconsin, Department of Revenue and the older “Wisconsin Tax Information for Retirees.”
Because taxes will eat a major portion of your annual income, it’s an important consideration when trying to determine whether or not you can afford to retire in Madison.
Ways to swing a Madison retirement
Ok, let’s get the weather issue out of the way upfront. No, Wisconsin’s winter climate probably doesn’t appeal to a lot of retirees who aren’t originally from here, and that’s ok. We’re trying to figure out how those who do hail from our state and want to remain here can do so comfortably.
We also now know that taxes are a bear. So, let’s take a look at how you can stay here and live comfortably. This means lowering your cost of living as much as possible. Whether you decide to postpone retirement for a time, take a part-time job or downsize your home (and house payment and property taxes!), there are ways to live cheaper and still be comfortable.
If you can pay off your mortgage, we say do it. But, we aren’t financial professionals, and yours may think we’re nuts for telling you to do this, so please consult with him or her first. But, here’s why we suggest this:
Wisconsin homeowners pay a median $1,402 in monthly housing costs if they have a mortgage, according to the U.S. Census Bureau. If the home is paid off, they pay only $532 per month (remember, this is the median, meaning half pay less and half pay more).
As mentioned earlier, we have no way of knowing your financial picture and whether a mortgage payoff makes sense for you. Please speak with a professional.
Now, if you can’t afford to pay off the mortgage, consider downsizing into a less expensive home – and consider doing it soon before mortgage rates rise again.
Soon, we'll continue along the same vein, helping you choose the ideal neighborhood in Madison in which to retire. And no, we aren’t talking assisted living here – you’re too young for that!