Florida retirees with identical portfolios retain $7,000 more annually than California residents due to state tax differences.
Retirees with a $1.5 million portfolio generating $80,000 in annual taxable income face a $7,440 state tax hit in California versus zero in Florida. The disparity stems from California’s 9.3% state income tax rate on ordinary income, including REIT and BDC distributions.
A 25-year retirement in California could cost $186,000 in additional state taxes on such income. U.S. Treasury interest, exempt from state taxes, offers a tax-efficient alternative for high-tax states. Medicare premiums may also rise if income crosses IRMAA thresholds.
Portfolio yield calculations often overlook post-tax income, distorting retirement planning. A 3.5% yield requires a $2.3 million portfolio to generate $80,000 pre-tax, assuming no state tax liability.