At first glance, spending your golden years in a city with low housing costs, no state income tax, and warm weather looks like a retiree’s dream. However, before you sell your home and pack up your belongings, it’s worth digging a little deeper.
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Many “cheap” retirement destinations come with hidden fees — ranging from pricey home insurance to high amenity fees not advertised in glossy brochures.
Here are six hidden costs in cheap cities that you may have overlooked.
High Energy Bills
The city of McAllen, Texas, ranks among the cheapest cities in the U.S. However, energy costs are 19% higher in McAllen than the national average, according to Kiplinger. With high temperatures and the need to run air conditioning for much of the year, your energy bill can take a big chunk out of your budget if you’re on a fixed income.
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Sky High Home Insurance Premiums
Many cheap cities boasting low home prices and taxes are burdened by exorbitant home insurance and flood insurance rates due to climate change and natural disasters such as hurricanes, tropical storms, tornadoes, wind damage and flooding caused by heavy rainfall.
Oklahoma tops the list with average annual premiums of $6,133 per year — 119% higher than the national average of $2,801, according to OKC News 9. So if you’re considering relocating to Oklahoma City, you may want to think twice.
Following Oklahoma, these 10 cities in Texas, Florida and Louisiana hit residents with some of the highest annual home insurance premiums.
- Houston: $4,661
- Fort Worth, TX: $4,313
- Arlington, TX: $4,329
- New Orleans: $4,300
- Irving, TX: $4,061
- Lubbock, TX: $4,005
- Dallas: $3,888
- Port St. Lucie, FL: $3,667
- Frisco, TX: $3,614
- Cape Coral, FL: $3,161
Grocery Tax
Another money pit to watch for is the grocery tax. Even if a state doesn’t tax groceries, you may still have to shell out local or county taxes on the food you buy. For example, while Oklahoma recently removed its 4.5% tax on groceries, Oklahoma City residents have to pay a combined sales tax of 8.63% that applies to groceries.
Community Development District Fees
Many Florida homeowners are required to pay annual Community Development District (CDD) non-ad valorem assessment fees to their city district, which are added to their property tax bills.
These charges cover bond payments and operation and maintenance (O&M) costs for community infrastructure. The amount varies based on the type and size of your property in the city where you live. Homeowners are responsible for these fees until the bonded debt is repaid.
Structural Integrity Reserve Study (SIRS) Assessment Fees
Florida’s new condo-safety laws have increased monthly dues for condo owners in the form of special assessment fees under Senate Bill 4-D. Mandated by the Florida Division of Condominiums, Timeshares and Mobile Homes, these fees fund Structural Integrity Reserve Studies (SIRS), which require structural inspections and fully funded reserves.
Taxes on Retirement Income
Whether you’ll pay taxes on your Social Security benefits, pension or 401(k) distributions in the city you live in is determined by your state. While you’ll be home free in Texas and Florida, Louisiana retirees are partially taxed, according to Kiplinger.
If you’re 65 or older in Louisiana, you can exclude up to $6,000 of retirement income each year, but most other income is still subject to state tax rates that range from 1.85% to 4.25%.
Social Security benefits and government pensions are exempt from taxation, but private pensions, 401(k) withdrawals, and IRA distributions are subject to taxation.
Some states qualify for exclusions. For instance, Kentucky provides a $31,110 deduction for military, private and state retirement plans, said Kiplinger. Always check with your state to learn how it taxes your retirement income and accounts.
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This article originally appeared on GOBankingRates.com: Want To Retire in a Cheap City? 6 Hidden Costs You May Not Have Thought About
