For many years, Alabama has consistently been ranked by leading financial and retirement publications as one of the top ten states for retirement living. The state has earned this honor for very good reasons. With its mild climate, low taxes and extensive health care facilities, Alabama offers retirees a comfortable place to live among genuinely friendly people. One of the best aspects of Alabama is that it has a little of everything. There are mountains in the northern portion of the state and sandy beaches along the southern shores. There are strong cultural events, fine dining and ample outdoor recreation opportunities. All things considered, choosing to retire in Alabama makes a lot of sense on many levels.
Planning for a comfortable retirement in Alabama requires the same preparations that should be included in any good retirement program. Although the state has a lower cost of living than many other areas of the country, having a solid financial plan in place can make retirement in Alabama as enjoyable as possible. By doing a little homework, establishing secure savings accounts and calculating retirement needs anyone can be assured of a quality life during the retirement years.
Retirement Plan Basics
Retirement is one of the most important events anyone will ever experience. From both a personal and financial perspective, the retirement years bring changes that require dedicated planning and shifts in habits to assure that life can still be lived to its fullest even after leaving work behind. In order to be assured of enough income during retirement, it is important for anyone to establish a solid financial plan that includes an attainable savings plan and a long-term commitment. While it is best to establish a retirement plan as early in life as possible, the important thing is that it should be a part of anyone’s life regardless of how close they are to retirement. The most important rule in retirement planning is just to begin implement the following components as soon as possible.
Savings
The only way to create long-term wealth is through saving money on a regular basis. Building a savings nest egg can assure a comfortable retirement in Alabama, or anywhere else, even when unexpected expenses arise. While there are many different types of savings accounts available, there are several ways to save for retirement that offer tax deferments and other benefits that can provide a greater return on an investment when compared to a standard savings account.
When available, creating a 401(k) account can be a key retirement savings vehicle. A 401(k) plan is a voluntary investment account offered by companies to their employees. It allows for individuals to contribute up to a certain percentage of their pre-tax employment income each year to the account. In some cases, an employer will also match the amount contributed by an employee. Whatever amount is contributed does not have to be declared as income on tax returns for the year it is earned. In addition, all investment gains realized from the funds invested into a 401(k) plan are not taxable as long as they remain in the account. The benefits of the overall tax-deferments this plan provides can mean substantial savings in long-term tax obligations that can go a long way in building a retirement nest egg.
Another savings vehicle that can be used for an Alabama retirement is an Individual Retirement Account (IRA). An IRA is a retirement savings account that allows individuals to make annual contributions, up to specific amounts based upon income levels, from employment incomes. Like a 401(k) plan, all contributions are not taxable as income and any gains realized on the contributions are tax-deferred until the funds are withdrawn. While there are many different types of IRA accounts available, they all offer tremendous savings in long-term tax payments that can easily become an additional contribution towards retirement savings.
Other Retirement Savings Options
Company Pension Plan: Many companies offer defined-benefit pension plans that can be a money-purchase pension plan or a profit-sharing plan. In most cases, a formula will be used to calculate how much a person will receive each month when they retire, based upon their level of contributions to the pension fund. Knowing exactly how much someone will receive each month during retirement can make the development of a livable budget in the retirement years much easier.
Annuities: Another good vehicle for retirement income is annuities that can be purchased through insurance companies. There are many different types of annuities offered that will provide a defined payment each month for either a lifetime, or a fixed period of time, once someone reaches retirement age.
Regardless of the savings vehicle chosen, the key to a successful retirement savings plan is discipline. In order to guarantee a comfortable life after work, contributions to retirement savings accounts must be made on a regular basis and not be used for any other purpose.
Estimating Retirement Needs
Part of any good retirement plan includes calculating and estimating future incomes and expenses. Part of a savings strategy is to make sure that a savings plan will adequately meet the needs for covering all expenses for a retirement in Alabama. While some expenses may go down, other expenses like health care may go up. The important thing is to create a clear understanding of what will be realistically needed to meet expenses and what expenses can be eliminated to provide a secure future.
The reality is that there is no one simple formula for calculating the retirement needs for everyone. What a person will need in retirement is based on many widely varied factors including a desired standard of living, target retirement age and overall expenses. However, there are several key decisions and calculations that everyone should undertake for determining what will be needed to fund a retirement in Alabama. These include:
- Determining the age one wishes to retire.
- Deciding the income needed for the retirement years. This can be calculated by researching the cost of housing, the overall cost of living, tax rates and other financial factors in an area someone wishes to retire. It is always wise to estimate on the high end for these calculations.
- Add up the current value of all investments and savings.
- Determine a realistic rate of return on investments. For these figures, estimate to the low end to be on the safe side. After adjusting for inflation, a realistic rate of return should be between 6 to 10 percent.
- Add up all expected income during retirement including social security, pension plans, annuities, savings and all other sources.
Once the above numbers have been determined, they will provide a clear picture of what will be needed in retirement and how much will need to be invested to reach desired goals by retirement age. There are numerous, free retirement planning calculators available on the internet that can make this planning task much easier.
Why Retire in Alabama?
Although many other states receive a majority of the news about desired locations for retirement, the State of Alabama has quietly added thousands of retirees to its population every year because of the state’s wide diversity and focus on supporting people during their golden years. Here are just some of the reasons Alabama continues to be a popular choice for retirees.
Geography and Climate
Whether someone prefers to live in gently rolling mountains, small rural communities, along the Gulf shoreline or in a big city, Alabama offers all of these settings in a state known for its natural beauty. The state is defined by three distinct regions, all of which hold their own special charms. There is the mountainous region to the north, the rural farm communities of the central portion and the southern region known for its Gulf shores. Retirees living in Alabama consistently mention the abundance of natural areas, outdoor recreation activities like fishing and the gentle climate that can be found throughout the state. While most areas of the state experiences a nice change of all four seasons, the average low temperatures in the winter are only around 50 with highs in the summer averaging 90 degrees.
Low Housing and Land Costs
Alabama offers some of the lowest housing and land costs in the nation. While housing prices in the state are higher along the Gulf Shore area, they are still lower than the average costs of water-front properties in most parts of the country. These low prices not only apply to single-unit properties, but also to condos and the many planned retirement communities found throughout Alabama.
Low Property Taxes
At 6.5 mills (.0065), Alabama’s property tax is the lowest in the nation. Homeowners are also entitled to a homestead exemption on a principle residence on any property up to 160 acres. Homestead owners who are 65 or older are exempt from all state ad velorem taxes. In addition, there are other property tax exemptions offered to people with adjusted gross incomes of under $12,000 who have retired due to a disability or blindness.
Low State Income Taxes
Alabama offers low state income taxes that range from 2% to 5% on adjusted gross income depending upon income levels. The best aspect of the state’s income tax is that it offers exemptions for a wide variety of retirement incomes. Some of these exemptions include federal social security benefits, military retirement pay, defined benefit plans, Veteran Administration benefits, U.S. Government Retirement Funds benefits and disability retirement benefits.
Low Sales Taxes
The state sales tax in Alabama is 4% on goods that may be increased by additional county and city taxes. There is no sales tax on services and prescription drugs are exempt. There are also certain goods subject to reduces sales taxes.
Low Crime Rates
The rates for both violent and non-violent crimes in Alabama are consistently lower than national averages. One of the aspects that retirees in the state often praise is how safe they feel living there.
Friendly People
It is hard to read about Alabama without coming across content comments about how friendly and helpful people are all across the state. One of the phrases commonly use to describe people in Alabama is that they exhibit true “Old Southern charm”.
Most Popular Retirement Locations in Alabama
There are a large number of retirement communities that can be found across the entire state. Some of the most popular retirement locations include:
Gulf Shores
This area includes all of the communities in Alabama bordering the Gulf of Mexico. While it is primarily known as a tourist destination area, the Gulf Shores also supports a large number of retirees. It features great beaches, ample fresh seafood, quaint shops, natural wildlife areas and some of the best fishing in the state. The City of Fairhope is especially favored by retirees and was named one of the 25 best places in the country to retire by On Money Magazine.
Eufaula
Located along the southeastern Alabama-Georgia border, this community offers a relaxing atmosphere overlooking a beautiful 45,000 acre lake. It is noted for its historic downtown, quiet lifestyle and easy access to nearby, larger cities.
Huntsville
Known for its affordable lifestyle in a quiet yet urban setting, the Huntsville area has experienced a large growth in planned retirement communities. It is located in the northern part of the state with convenient access to both Nashville and Birmingham. The city offers a unique blend of beautiful natural areas, active cultural events, fine dining, upscale shopping and top-notch gulf courses.
Auburn/Opelika
Located within just a ninety mile drive of Atlanta, this area has become popular with retired military personnel due to its close access to Ft. Benning. It has been rated as one of the nation’s top six retirement spots and is known for a major university and excellent medical care. Due to several nearby lakes, it is also a favorite of fishing and boating enthusiasts.
Hoover
For those wishing to retire in the Birmingham, AL area, the community of Hoover offers retirees an affluent suburb setting while still being close to three major medical facilities and extensive cultural events. The city boasts numerous parks, a large public library and a public safety center.
Smaller Towns
Over the past decade, many smaller town throughout Alabama have realized the economic impact that retirees can have on their communities and now are dedicated to building their retirement populations. Two of the more notable of these small towns are Greenville, located in the mid-state area, and Muscle Shoals which is found on the banks of the Tennessee River in the northwest portion of the state.
Retirement Planners in Alabama
Achieving retirement goals often requires the advice of a qualified retirement planner. For more information on the advantages of retiring in Alabama and the best ways to reach retirement goals, the following Alabama retirement planners can be of assistance.
Mr. Thomas W. Hill, Agent/Owner
Freedom Financial Group
2473 Valleydale Road
Birmingham, AL 35244
www.freedomfinancialgroup.biz
Mrs. Donna Berger, Managing Partner
Crabtree, Rowe & Berger, PC
3626 Memorial Pkwy SW
Huntsville, AL 35801
www.crbcpa.net
Ms. Shari Burnum, President
100 Essex Ct. Ste. C
Madison, AL 35758
www.invresource.com
Ralph D. McCall, Jr.
Financial Solutions Group
5588 Apple Park Way
Suite 105
Birmingham, AL 35235
www.financialsolutionsgroupllc.net