By Dr. Rikki Racela, WCI ColumnistThey say a picture is worth 1,000 words, so let the following picture of my state taxes owed explain why I hate New Jersey:
Yes, you read that right! No photoshopping, no deep faking. This picture shows that my wife and I owed close to $100,000 in New Jersey state tax. That’s a cool $1 million every 10 years going to the Garden State (yes, despite New Jersey having the stereotype of being overrun by pollution, overpopulation, urbanization, and The Sopranos, it is actually nicknamed the Garden State).
That is $100,000 per year not going toward retirements, not going to attaining our financial goals. That’s money we don’t get to blow on an all-inclusive vacation. Wait, check that . . . that’s 5-6 all-inclusive vacations for our family of four—instead of being on a beach sipping margaritas 5-6 weeks out of the year, the great state of New Jersey gets that money.
This wouldn’t be so bad if every state of the union had these same high taxes. But they don’t. If my wife and I were in Florida (or Texas, Tennessee, New Hampshire, South Dakota, Nevada, Washington, Alaska, or Wyoming), there would be no state income taxes.
All else being equal, we would have kept $100,000 more in our pocket to attain our financial goals; to FIRE and take less call (or stop paid work entirely); or, heck, just to blow on two Tesla Model Xs per year. To make matters even worse, New Jersey also has the highest property taxes, according to TurboTax.
Check out the property taxes I pay on my house (bought for $1.2625 million in 2015):
Since I’m a financially literate WCI columnist, you might be asking yourself, “Why the heck does this so-called expert in physician finance stay in one of the worst states in terms of paying taxes and building wealth?” Great question! In the following paragraphs, I will try and justify why I (and thousands of other doctors not living in no income tax states) make the financially stupid move of not living and having a medical career in Texas, Tennessee, Florida, New Hampshire, South Dakota, Wyoming, Washington, Nevada, and Alaska.
But first, let’s take a look at the financial damage. Instead of going from the good, the bad, and the ugly—like the 1966 Clint Eastwood spaghetti western—we will go in reverse order.
The Ugly
My wife and I have not always made the crapload of income we do now. In fact, 2023 was incredibly busy for me in terms of consultations and hospital coverage, and my wife continued her old anesthesiology position, including taking full call with overnights and weekends (including the horrendous OB call that is the bane of anesthesiologists).
But let’s say for argument's sake that 2023 was typical for us where the $100,000 paid to New Jersey is the usual. Given our combined income was a little over a million dollars, that means about 10% of our blood, sweat, and tears working goes to the coffers of the Garden State. That’s half a day of freedom per five-day workweek that we don’t see. Add our call schedules to that 10%, and this really gets painful. I work one weekend a month covering my local hospital and rounding on patients, so that’s about one weekend a month where, instead of hanging with my kids, I’m working for the state. My wife’s previous position consisted of 30 weekday overnight calls and 20 weekend calls per year, so that’s about three overnights during the week and two weekends which are spent enriching the Garden State instead of tucking the kids into bed. Yes, time is money, and New Jersey takes a good portion of it.
Now, let’s look at how much money New Jersey is taking in terms of opportunity cost if that money had been invested for retirement. Let’s assume my wife and I would be working for the next 20 years until retirement and that if we weren’t in New Jersey, that $100,000 of tax would have been invested in our 100% equity allocation. Let's also assume a real rate of return of 7%. Using the future value function =FV(7%,20,100000,0,0), you get a value of $4,099,549.23!
Turns out our FI number is actually $4 million. So, we could have retired by simply investing what we pay in New Jersey state income tax. Obviously, we could have retired much quicker if we were living in a no income tax state. Currently, we are investing about $180,000 per year for retirement with a goal of $4 million in today’s dollars. Using the period financial calculation function =NPER(7%,-180000,0,4000000,0), we get about 14 years. If we just invested the New Jersey state income tax, then =NPER(7%,-280000,0,4000000,0) is about 10 years. That’s four more years of our lives that we must work until we retire because we live in the Garden State.
As long as we live in this state, my wife and I are delaying retirement for years that might equate to almost the entire elementary school years of our children, more than the middle school years, and about equivalent to their high school careers. That’s a lot of child time that we owe to New Jersey. And every tenth of our hard work is on behalf of New Jersey. This is the ugly part of being in this financially forsaken state.
More information here:
Saving for Your Future Stranger
What to Do If You’re Not on the Same Financial Page as Your Spouse
The Bad
It might not be as bad as the above, but the cost of property taxes is still financially painful (supposedly local property taxes also go toward supporting the school system and the local firefighters and police. The state believes it has the best schools, firefighters, police, public transportation, and road infrastructure in the nation because of its high state and local taxes). I mentioned above that we're paying $24,000 in property tax on my $1.2625 million house. As a comparison, here is a similarly priced property in Austin, Texas, which has been one of the hottest housing markets in the past several years:
Dude, seriously?!? That's about $8,000 less in property tax (in one of the hottest cities to live—according to US News and World Report, Austin ranks No. 9 in the Best Places to Live in the US in 2024-2025). It's expected that if a state has high income tax, it might have lower property taxes to compensate, and if a state has no income tax, it will make up that tax by charging much higher property tax. That's not the case with New Jersey, which has both high income state and property taxes.
If I were to invest that money for retirement =FV(7%,20,8000,0,0), it would equal about $325,000. By the way, there's no place in New Jersey that made the top 100 places to live. Stupid New Jersey!
More information here:
How My State Rewards My Kids for Working
Can You Work in One State and Live in Another?
The Good
After the above dissertation, you might be asking (and I ask myself every April 15), “Why does Rikki and his family stay in the Garden State?” The answer lies in the old adage you’ve likely heard over and over again: it’s because personal finance is personal.
Currently, my wife and I love our jobs here in the Garden State. As a busy neurologist, my hospital still allows me the autonomy to take important vacations with my family and provides a work environment that is manageable without an overburdening patient load. I get to almost set my own schedule, and the hospital I cover is just the right amount of busy. The colleagues I work with are top-notch and are always willing to cover for me. My wife also has just moved into a position where she now takes no call, no holidays, and no weekends. We have a beautiful house in a great neighborhood, and our kids have assimilated nicely into the school system with wonderful friends. Financially speaking, staying in NJ will follow the “one house, one spouse” rule where the costs of selling and buying another house are money down the drain.
As for the past, I am Filipino, a second-generation immigrant where my parents, highly educated with degrees in chemistry and chemical engineering, were unable to secure a job in their home country. Where do immigrants go looking for a better life for themselves and their families? The obvious answer is America, but the specific states are not so obvious.
According to the Census Bureau, the states with the most immigrants are California (26.5%), New Jersey (23.2%), New York (22.6%), and Florida (21.1%). New Jersey is an extremely friendly state for immigrants, which attracted a huge Filipino community that concentrated specifically in Jersey City. Around the time my parents came to this country, the Immigration Act of 1965 was passed, abolishing quotas for immigration where JFK was quoted as opening the country to “. . . those who can contribute most to this country—to its growth, to its strength, to its spirit.”
New Jersey happens to have an immense amount of hospitals within the state, and it's also right next to the cities of New York and Philadelphia. There is a huge pharma company presence headquartered here as well, and that meant jobs for tons of highly educated, English-speaking Filipinos, including my parents. Plus, my cousins and Filipino friends all have congregated in New Jersey. Leaving this state would mean leaving my parents, other extended family, and the Filipino community I grew up with and that holds a substantial place in my heart.
I met the love of my life here as well. She grew up by the Jersey Shore (yes, like the TV show) and also has substantial friends, including her best friend, who still reside in this state. We make frequent trips back to the Jersey Shore on nice weekends over the summer where she grew up. She went to college in New York City, so being close by to enjoy museums or Broadway shows with our kids holds some nostalgia for her.
A substantial portion of our state taxes goes to funding excellent public schools. This will benefit my two children immensely. Despite attending a random New Jersey public high school, I took a plethora of AP courses (including AP Chem, Calc BC, US History, English, Lit, Spanish, and Statistics). There were still a ton more offered that I didn’t take. And this random no-name, run-of-the-mill high school education made me competitive enough to be accepted to Princeton and prepared me for the academic rigors of college and medical school.
I can’t say that my career path would have gone down the crapper if I had attended a no income tax state public school. Some of you reading this column are awesome healthcare professionals who attended public school in these states (including the owner of WCI). But New Jersey and other income tax states spend so much more money on K-12 education. According to the Census Bureau, New Jersey spent $18 billion on educating 1.4 million K-12 students in 2022, while Florida spent $22 billion on educating 3.2 million students. Florida spent only a bit more than New Jersey to educate more than twice the amount of students. It’s hard to believe that this type of brute force spending didn’t benefit me somewhere in my New Jersey public school education.
But maybe the most important aspect of why I’m (maybe) OK with New Jersey state income taxes is that our family has benefited directly from health and wellness services that those taxes fund. My brother, who has a decade over me in age, has cerebral palsy. He was my inspiration to go into medicine and to choose neurology. As I grew up, I watched him benefit from services provided by the New Jersey Division of Developmental Disabilities, services that are funded by state tax money. From the braces and canes he used regularly to the special school he attended to the Job Shop program that eventually placed him as a page at our local town library (a position he still holds today), all these benefits didn’t cost my family a dime. They were all funded by New Jersey.
On my wife’s side, my mother-in-law, unfortunately being mentally ill, couldn't care for herself after her brother and primary caregiver passed away while my wife was in college. Having nowhere to go and unable to work due to illness, she resided in an assisted living facility funded by both Medicare and Medicaid, the latter of which takes significant funding from state taxes. I can’t say for sure how the experience of our family members would have been in a no income tax state, but I can for sure say that funding for these programs would not match New Jersey with its high state income taxes.
I must not hate New Jersey that much if I have a picture of this guy in my den.
Is This Like Home Country Bias?
Yes! More specifically, I am likely falling for the familiarity bias described by Amos Tversky and Daniel Kahneman. This would explain why investors prefer to have most of their asset allocation in domestic equities and bonds. Our brains hate to work harder to see if a new situation or object might be dangerous, so we prefer situations or objects that are more familiar. This had an evolutionary advantage where our ancestors would avoid potentially fatal scenarios by sticking to the familiar situations that they knew they had survived before. The processing of familiar things runs through the amygdala—a System 1 structure requiring minimal brain power and cognitive processing—while unfamiliar things run through the frontal and parietal cortical structures of the brain, areas associated with higher energy demanding System 2 processing.
Yes, staying in New Jersey helps me avoid the brain pain associated with moving, but unfortunately, my family and I pay the price. But I think it runs deeper than just decreasing the cognitive load by remaining in familiar surroundings. It’s the beautiful house and the wonderful town that my family has become integrated in, it’s the nostalgia of being in the state my wife and I grew up in, it’s the family and friends that still live within the state that I get to visit and remain in their lives and build memories.
And yes, it costs money, about $100,000 per year. But for my family and I, it’s worth it, and we are still hitting our financial goals. This is why I love New Jersey.
What do you think? Am I financially stupid for not practicing geoarbitrage? Is it worth it to live in a high income tax state? Does the familiarity of home justify delaying financial freedom? Do you have any other reasons to justify not being in a no income tax state?
Thanks for the transparency. I am sure many people will respond that you are fortunate to get to pay such high taxes so my libertarian soul wants to point out that New Jersey is not only one of the highest tax states but also ranks near the bottom for fiscal stability and that is a general pattern among the states.
The Tax Foundation compares states on various tax burden measures and for “State-Local Tax Burdens per Capita & as a Percentage of Income” New Jersey ranks #45 out of 50 (higher means higher burden).
https://taxfoundation.org/wp-content/uploads/2025/03/TaxFoundation_FactsFigures2025.pdf
Lots of rankings of states’ fiscal stability, but as one example USNews ranks New Jersey as #48 out of 50.
https://www.usnews.com/news/best-states/rankings/fiscal-stability
The tendency is for states that have the highest tax burdens (Illinois, Connecticut and California join NJ in that club) to also have the lowest fiscal stability. Almost as though the more citizens pay a state government in taxes the less responsible the state is in managing finances.
Yeah, mo money mo problems! it does kind of make a sense in a way. The reason these states raise taxes is because of the financial instability suffered in their state.
And yes, just like my accountant says I do feel fortunate to have a high income.
These states were more financially stable when their tax rates were lower.
agreed
Dude, with income of over a million it is hard to read this and feel sorry for you.
WCI is usually one of the few places on the internet where “first world problems” can be safely discussed. Please don’t try to change that. He doesn’t need you to feel sorry for him. The post is about high earners and their financial decisions and dilemmas. We’ve had other posts about estate tax problems (start at $14 million this year) and RMD problems (also mostly a multimillionaire problem) and private real estate funds (often with $50-250K investment minimums).
Most people on this planet can say exactly what you just said about the average or even the 5th percentile physician income.
Respectfully, you might have missed the point. I found this article to be transparent and not looking for pity (and I have criticized prior articles by this author). Also, do you think he just tripped and fell into that income randomly? That income requires a hell of a lot of work and sacrifice, as he detailed. I congratulate anyone who is willing to hustle like that.
thanks man and it’s not just my hustle- I’m married to a full time anesthesiologist 🙂
Yeah, definitely don’t have to feel sorry for me and the wife, but definitely to live the same level of life lifestyle in New Jersey versus Florida we do have to work harder given the state tax man
We also have Disney down here 😉
And the beaches aren’t so bad either…
Great article Rikki. Very comprehensive and reasonable, I have little doubt you are making the right choice for you… or at least you have a clear eyed understanding of what is what.
I noted you use 7% real return vs Dr. Dahl’s preference for 5%. With your income and a little good luck you’ll be fine either way. You are a well reasoned guy, so dare I ask how you decided to comfortably plug in your rate?
My take on it is this: You’ve got to pay to play.
You could be a doctor in any number of other states in the US or for that matter, other places in the world, many of which would offer better weather and lifestyle than NJ. I’m not sure how your income would change if you moved to another state. Would it be lower in, say, Wyoming or Nevada where your state property and income taxes would be much less?
Regardless of that, it sounds like you’ve decided that the cost of staying in NJ is worth it for the social, cultural and lifestyle benefits it affords you. When you make enough money, these are decisions that you get to make. Not everyone has that luxury and must either move to a less expensive locale or significantly downsize their discretionary spending and/or their home and fixed expenses.
I know of what I speak, living here in California in the SF Bay Area. We live in a million-dollar shoebox of a house compared to the one we left in the Midwest 20 years ago. On the other hand, we live close to the ocean, redwood forests, and mountains that afford us a lifestyle that includes year-round outdoor activity that we both very much enjoy.
Now that we’re retired we no longer have any work-related reasons to stay anywhere, yet we continue to live here. As our house “CFO” I’ve told my spouse many times that it’s fiscally irresponsible for us to continue living here when we could move 3 hours away and reduce our property and state income taxes by 70%. Yet here we stay. Why? Because we can afford it, and we’ve concluded it’s worth it to us. So we pay to play.
Thanks so much for the kind comments! Our asset allocation is 50% total US, 25% total international and 25% small cap value. I just figured the overall return of the S&P 500 is 10% and -3% for inflation gave me the 7% real rate of return. Technically our huge small cap value tilt 7% real might be conservative, but I think just assuming the total market return just in case Paul Merriman and Fama/French are wrong and/or I don’t see the small cap value premium during our lifetime.
Thank you for an excellent article, Rikki.
Previously you had mentioned your asset allocation was 65% US, 25% intl’ and 10% SCV (in the 1 portfolio better than yours article). Just wondering was there any particular reason you greatly increased SCV proportion?
dude fantastic question! yes I increased my SCV tilt but technically it is still around 10% given I am using VBR as my SCV index that I am investing in and it is not very small or valuey as Jim mentioned in his article on small cap value: https://www.whitecoatinvestor.com/small-cap-value-etf/
Here is the chart Jim mentions showing that VBR 65% small and 45% value:
https://www.whitecoatinvestor.com/wp-content/uploads/2022/06/Screenshot-2023-08-17-at-4.37.44-PM.png
So despite having my 10% of my portfolio invested in VBR, 10% of my portfolio was not technically invested in purely small value companies. Hence I decided to increase my investment in VBR to 25% of my portfolio. I rounded up to 25% b/c makes the math easy 50/25/25, and also we don’t need to be exact with this stuff as macro asset allocation principle dictates that 94% of returns is explained by the asset stocks vs. bonds. factor tiltes only explain the oher 6%. As Ric Ferri says, factor tilts are only icing- I much more care about the cake 🙂
Really appreciate this article highlighting the pros and cons of living in a high cost of living area. Schools are a major difference between high tax and low tax states with New Jersey and other high tax states enjoying better public schools on average. However, you can often find some strong public school districts even in low tax states. The bigger difference as you mention is the stronger social services offered for those with disabilities and others with special needs.
I’d be curious to see correlation between all that:
Tax cost
Education quality
Social service availability
etc. I wouldn’t be surprised if the correlation isn’t all that high. I’m sure there are states that charge a lot and yet don’t do much with what they get. For docs, particularly frugal docs, they’re probably better off in a low income tax but high property tax state, all else being equal. Whereas a lower earner but higher spender may be better in the opposite situation.
New Jersey deserves a special place in my view since like CA it hates HSAs and has high income taxes AND high property taxes and relatively high cost of living. Add in a lack of skiing and climbing and it would certainly come up in the bottom five if I were to make a list of states where I would be likely to live. Utah isn’t a low income tax state and its COL is climbing rapidly, but at least property taxes are cheap (perhaps 1/6th of what Rikki is describing) and the skiing is top notch!
Yup, gotta lovethis state! There is one ski resort called Mountain Creek in NJ which could really be characterized as ice-skating downhill rather than actual skiing. Also note it’s the same theme park that was once known as Action Park, which is known for multiple injuries and deaths. Actually has a documentary on it, “Class Action Park,” that I highly recommend.
This is actually very hard to determine if what you mean is how good are the local public schools with guaranteed admission. The top rankings of public schools are dominated by selective enrollment locations (for pretty obvious reasons), whereas I think most parents want to know what schools their kid is guaranteed to go to if they live locally and pay the property tax. If anyone has access to any data set showing quality of the schools by state/zip code I would love to see it/read an article on it.
yeah Steven I would love to see that data as well! I can only speak for Princeton and the admissions committee was very open in how they select students. I worked as a tour guide on campus and that was run through the admissions department and the assistant admission dean at that time circa 2000 said Princeton looks at each schools curriculum and the hardest classes offered would be equivalent. For example, PS 199 in NYC in the ghetto’s enriched non-AP math class that is the highest level class in that school woud be equivalent to the AP Calc BC class at Exeter. The reason is Princeton has a reputation for only accepting rich white exclusive private school students and they really prioritized getting away from that stereotype.
As it turns out, I only got into Princeton and Rutgers, and rejected from Harvard, MIT, Duke, wait-listed at Cornell. My belief is these schools I didn’t get into preferred maybe well more highly ranked respected public and private high schools than run of the mill high school in NJ. It is also my belief that being from NJ probably screwed me as even though my education quality is likely higher than a no-name high school in the mid-west, every public school kid in NJ also has the same high quality education and likely much more applicants from NJ applying to these competetive colleges, and colleges are not going to take everybody from NJ.
There have been studies of the services and effectiveness of governance in high tax compared to low tax states and they have not shown that high tax states have better performance. In fact in many areas they have worse performance than low tax states. See for instance:
https://thefga.org/research/high-income-tax-states-fail-to-provide-improved-government-services/
ha! yeah, I absolutely believe it because there are so many factors that go into performance that can skew results. Yes, taxes are higher in NJ so you would think you would get better test scores and better roads, but then again you get more immigration like my parents into these states where families might have a language and socioeconomic barrier dragging down test scores, and high population destroying roads and other infrastructure.
It is very possble that the “Oh, NJ has better public school to justify high taxes,” is just a lie to make ourselves feel better about living in this tax-forsaken state, but hey, as long as my wife and I are meeting financial goals and are happy, we will live in that lie 🙂
You seem happy with your current situation until you do the math. Don’t do the math. Besides the chances of being unhappy in a new job are high. Many doctors suffer from thinking grass is greener until they actually move and then even if the job is the same not everybody in the family is just as pleased. Don’t create the enemy of a good situation.
Rex absolutely agree. The only reason we would ever leave is if me or my wife were burnt out at our jobs and wanted financial independence. Moving to someplace like Texas or Florida would definitely help in achieving financial independence. Luckily, we are not really burnt out per se, but my wife has as of now left her high income call and holiday position to now a no call, no holidays position. we didn’t need to move to a no income tax state, but as the leader of this website mentions, she just cut down to full-time.
Great, honest article. I think the choices you’ve made are smart and totally understandable. It means you get to live integrated into a community of friends and family that you’ve known for so long. That is a lot of great social capital and something that we don’t consider enough as we tend to focus on money. The intangibles you get living in NJ are priceless!
Thanks JB but too bad I didn’t grow up in Florida, Texas, Tennessee, South Dakota, Wyoming, Washington, Nevada, New Hampshire.
Sorry, Jim, Alaska a little bit too cold for me wanting to grow up there. i’m Filipino and genetically not really built to stand that sort of weather.
You might be surprised just how many people of Asian descent live in AK. 64% white, 4% black, 16% Native, 7% Asian, 2% PIer. New Jersey is only 11% Asian.
Alaskans aren’t any more warm blooded than anyone else, they just know how to dress properly when it’s cold.
I hate to sound insensitive/ignorant of the real population numbers in AK, but given the low population you have a few Asian families move into the state and yes, the Asian population can increase by double digits!
Seriously though I’m not surprised given AK is a low population state that a few Asians moving in may increase the population to close to NJ in percentage terms. My parents moved from the Philippines for work and opportunity, and every state likely has the same PERCENTAGE of opportunities for work for immigrants, but the absolute numbers is what made my parents settle in NJ.
Rikki, you might be surprised to learn how large a population of those of Polynesian descent lives in Alaska (>3% of the population of Anchorage). You’d think the climate would be a bigger deterrent for those used to tropical locales, but it’s apparently not. So, you never know – maybe you’d like it!
Ha! my kids love watching Moana and from what I learned about Polynesian culture from that movie, they go where the ocean tides take them- including if the tides lead to cold Anchorage 🙂
My take on it is this: You’ve got to pay to play.
You could be a doctor in any number of other states in the US or for that matter, other places in the world, many of which would offer better weather and lifestyle than NJ. I’m not sure how your income would change if you moved to another state. Would it be lower in, say, Wyoming or Nevada where your state property and income taxes would be much less?
Regardless of that, it sounds like you’ve decided that the cost of staying in NJ is worth it for the social, cultural and lifestyle benefits it affords you. When you make enough money, these are decisions that you get to make. Not everyone has that luxury and must either move to a less expensive locale or significantly downsize their discretionary spending and/or their home and fixed expenses.
I know of what I speak, living here in California in the SF Bay Area. We live in a million-dollar shoebox of a house compared to the one we left in the Midwest 20 years ago. On the other hand, we live close to the ocean, redwood forests, and mountains that afford us a lifestyle that includes year-round outdoor activity that we both very much enjoy.
Now that we’re retired we no longer have any work-related reasons to stay anywhere, yet we continue to live here. As our house “CFO” I’ve told my spouse many times that it’s fiscally irresponsible for us to continue living here when we could move 3 hours away and reduce our property and state income taxes by 70%. Yet here we stay. Why? Because we can afford it, and we’ve concluded it’s worth it to us. So we pay to play.
Hey Tom, they say comparison is the thiefof joy except in this case when I’m comparing New Jersey to San Francisco, California! I am so sorry that you had to pay those high taxes in order to maintain a level of lifestyle far below than what you could’ve achieved elsewhere. That’s a lot of Teslas you could’ve bought now or BMWs and Mercedes back in the day.
But as you say, it’s worth it for us to pay to play. We are happy with where we are and we don’t need anymore to be happy.
Rikki – You seem to be equating ‘more’ with ‘better.’ That may be true for some, especially those just starting out on their FI journey. We’re on the other side of that hill and are comfortably FI. It’s been said that those who are satisfied with what they have are rich. That would be us.
So there’s no need to feel sorry for me – we love where we live, otherwise we would live somewhere else. I’ve never thought about the greater amount of taxes and general COL expenses in terms of how many Teslas we could afford somwhere else (actually, if I thought that way it would be Porsches for me); and our lifestyle is far better here than anywhere else we’ve lived – otherwise we wouldn’t live here.
awesome man and yes! I share your mutual feeling that I really don’t need more to be happy. I know what really would make me happy is if the NY Giants would win a few more games! As the NFL draft approaches I am starting to realize how much of my happiness is not dependent on my spend, but rather my local sports team potential Super Bowl prospects.
Speaking of which what happened last year in SF? actually, it didn’t help that CMC got hurt . . .
Great article Rikki, somewhat of an opposite end of the spectrum, live in Iowa, 6000 sq foot house with a 6 car garage, movie theatre, 3.5 acres, office, gym, etc. bought for 660K in 2021, we spent a lot of cash renovating but have a 15 year mortgage at 2.75% interest. 12K property tax. iowa state income tax decreased to 3.8% flat from a legacy 8.6% 3 years ago. Will get $25K state income tax refund this year, on an also dual physician 7 figure annual income. NJ is my home state so it’s got a soft spot for me, and I am glad you are successful and hustling. But I always tell residents, a little geographical flexibility goes a long way, especially if your starting out with 300-400K in student loans. Bankers and lawyers tend to make the most money in large cities / metro areas. Not likely true for doctors.
Freaking awesome man nice move getting out of this tax forsaken state! But yeah luckily you’re happy there both socially as well as financially. as me and my family luckily we are happy here as well but yup my house is definitely smaller than yours.
And just imagine Rikki, you could be the only Pilipino in Iowa, living alone in your 6000ft mansion! No thanks.
no way man I wouldn’t be the only Pilipino- I would move my parents and bro into the in-law suite of said 6000 sq ft mansion. Likely the in-law suite would be bigger than their house in NJ!
At one time New Jersey was a zero-income tax state. Immediately prior to 1960, there were 19 states where earned income was not taxes and 31 where it was. Between 1960 and the present, 11 of those 19 states adopted an income tax, and one lone state – Alaska got rid of its income tax. The 11 sates that deserted the no-income tax team are Maine, Rhode Island, Connecticut, New Jersey, Pennsylvania, West Virginia, Ohio, Indiana, Illinois, Michigan, and Nebraska. At the time the income tax was adopted, each of these states believed the economic damage done by the income tax would be minimal and that the increase in public services would be considerable. They were dead wrong. Population decreased, state revenues went down, and public services did not improve.
It is interesting now that more states are talking about lowering or eliminating taxes. Even Florida is talking about eliminating property taxes.
I have some good news for those who live in high tax states and can-do proper planning and relocate in retirement. There is a rule, source tax rule, that I personally took advance of.
In general, under the federal source taxation rule, deferred compensation and retirement plan contributions earned by an employee or former employee while a resident of a state, but paid when the individual is no longer a resident of that state, is not subject to that state’s income taxes if the compensation is paid over the individual’s life or in installments for at least 10 years.
Now this doesn’t work for everyone, but if people have deferred compensation arrangements, cash balance or defined benefit plans they should look at this.
In my case I deferred compensation in California (13.3%) and take distributions in Arizona (4.5%). I also took an appreciated asset and set up a CRT and have scheduled distributions coming out at 4.5% rather than 13.3%.
Knowing the tax code and the provisions that work in your favor could be helpful. It’s not how much you accumulate it’s how much you get to keep.
Well, please, sir well late! I gotta keep this in mind when the kids grow up. Me and the wife wanna get out of New Jersey and We did have a plan to maybe buy a place by the beach when we retire, however, at the same time we do want to be close to the grandkids. It’s hard to come up with a financial plan when part of plan is “ retire, near grandkids,.” I keep telling my kids now the merits of Florida, Texas, Tennessee, South Dakota, Wyoming, Nevada, Washington, and New Hampshire.
Florida has great asset protection too. And the homestead law for your house in a lawsuit.
If you are making a million dollars a year you shouldn’t have to work 20 years before retirement.
Average physician income is closer to 1/3 of your household income, and most can retire in 25 years – 30 years. Due to higher marginal tax rates it isn’t directly comparable but if you are making 3x the income your path should be significantly shorter if you wanted it to be.
You are also rich enough so you can live where you want. Family connections and good public schools seem to make your location worthwhile. Those benefits continue even if you aren’t earning income so you could work less.
Absolutely but it doesn’t depend on what you make, but what you spend. Given our high level of spending is the main factor where yes I’m gonna have to work longer. That’s OK I’m pretty happy with my job right now and I’m going to do my damnest to not burn out.
Although yes I had calculated what me and wifie were going to spend in today’s dollars in retirement and it seems we wouldn’t need to save 20% of gross income towards retirement. But behaviorally the more we spend now the more we will spend in retirement likely despite me not seeing it as most of our expenses now are based on kids and house. Once the kids are out of the house and college paid for and the house is paid for, we should easily be able to retire in 20 years math wise, but behavior would suggest otherwise and likely have to stick to the save 20% of gross income rule to be able to retire in 30 years. maybe that’s my next blog post!
Yes, very easy to spend money even thought I suspect you don’t live a movie version of a rich lifestyle — I doubt your are flying in private jets or have a personal chef.
It’s amazing how money can evaporate with a family. I took mine on spring break recently and easy to spend $200 plus per meal when you are buying food for basically four adults. Record was $450 for an upscale restaurant. My experience is once boys are 10 and older they are eating adult size, or more, portions.
yeah I don’t live the movie star life but I did just come back from Spring Break with the fam. around $10,000 evaporated in one week on a Disney Cruise but hey, experiences make you happier than material things, right! 🙂
also hit up Animal Kingdom before left to come back to NJ
I appreciate the transparency, though my initial take on looking at the first photo was the amazingly high income. WOW-congrats! Sucks to pay all of those taxes but you can afford to.
My main issue was the writer said this:
“It might not be as bad as the above, but the cost of property taxes is still financially painful (supposedly local property taxes also go toward supporting the school system and the local firefighters and police. The state believes it has the best schools, firefighters, police, public transportation, and road infrastructure in the nation because of its high state and local taxes).”
What’s with the word “supposedly” when it seems the OP agrees that the state DOES have great public schools, as said later in the article (A substantial portion of our state taxes goes to funding excellent public schools. This will benefit my two children immensely. Despite attending a random New Jersey public high school, I took a plethora of AP courses (including AP Chem, Calc BC, US History, English, Lit, Spanish, and Statistics). There were still a ton more offered that I didn’t take. And this random no-name, run-of-the-mill high school education made me competitive enough to be accepted to Princeton and prepared me for the academic rigors of college and medical school.) and basically said it again in the comments section.
So what’s the deal? Do you agree you are getting value for money on your property taxes? I would say so. Also I’m not sure how much teachers are paid in NJ but I do know public school teachers in FL are some of the lowest paid in the nation. And while FL has a lower COL than NJ, it’s certainly not in the bottom 5 lowest COL states while teacher (lack of) pay is.
NJ may not have “the best” public schools in the country, but I bet, as measured in a state-by-state comparison, it’s in the top 10.
The “supposedly” refers to the long history of monetary corruption that plagues the state of New Jersey. you know the stereotype of the Sopranos and Boardwalk Empire? The stereotype comes from somewhere. If you remember the Christian Bale,Jennifer Lawrence movie, American Hustle was actually based on a true story.
According to an article from eastside online the first line says, “ A study by Harvard University listed New Jersey as among the top five most corrupt states in 2015. Now, in 2024, the situation hasn’t improved: New Jersey’s pervasive history of corruption continues to plague politicians.”
Yep, so despite my knowledge that most of my taxpayers money is going to better schools and infrastructure, there is some lingering doubt that some of my money is being diverted for more nefarious reasons.
You generally seem to approach life with a positive attitude. If you pay high property taxes and truly believe it has led to both better schools but also corruption, is it all worth it in the end? I might be biased in my own interpretation but reading through your lines, you believe it is still worth it. The trade off is pay less in property tax, get less corruption and get worse schools. What if we just focus on the positive? Capitalism provides for a very efficient market but there’s still corruption in capitalistic markets. I don’t think that means we should therefore say capitalism doesn’t work
exactly! Capitalism works, and humans in the end there will always be bad players. I think in NJ because of the high amount of taxes that high money is so tempting for our government officials to go to the darkside. And also our justice system does work as well. Many of those corrupt officials in NJ get caught. Just recently former NJ senator Bob “Gold Bar” Menendez got sentenced to 11 years prison for bribery. Yes, the bribes did actually take the form of bars of gold ;(
Yep, come to Texas with no income tax, plenty of property and sales tax. Ranked near the bottom of all states in education, citizens with health insurance. Ranked near the top in gun ownership and gun violence, ranked 36th out of all states in livability. CNBC ‘s “America’s Top States for Business “ report ranks Texas last for quality of life citing issues like healthcare access and specific policy decisions. That’s a lot of trade off for no income tax
But then there’s Austin and other similar cities! it’s not like the entire state of Texas, right? what happens is the infrastructure, public school and policing is more heavily dependent on local property tax, right? so Austin has the highest property taxes in the state and would look more like towns here in NJ, and property taxes here in NJ are still higher 🙁
but yes, definitely overall I agree NJ and other high income tax states the money does go somewhere that improves the state, whether education, roads, crime, etc.
Our quality of life has definitely improved going to a slightly less favorable taxed state (now have a state income tax, somewhat higher property tax). We have the “benefit” of no sales tax, but don’t exactly see those rewards since we don’t buy too much stuff. Long ago I resolved that we’re going to pay one way or another–though I suppose NJ is on the “outlier” side of the spectrum.
We have family in TX and the property taxes (and insurance rates) sound absurd. I thought it was a little funny when one moved to another county and was excited about their new 1.5% rate!
yeah there is something to be said about no income tax states make it up with county, local and property tax. and yes, you having no sales might not really be beneficial since might buy stuff on Amazon, and in the state near NJ of Delaware they just pass the sales tax onto the seller of goods! Delaware is smart- buyers from nearby NJ, PA, Maryland come to Delaware to buy stuff with no sales tax and they still get to collect revenue by screwing the businesses! But the businesses just eat that cost as, they get more business with that no sales tax.
Your transparency and honesty is admirable. Pay no attention to the haters.
At your income (and that of so many physicians, especially dual physician couples), New Jersey indeed has high taxes. But, New Jersey also has one of the more progressive income tax structures in the US. The benefits you mention regarding good public schools (as opposed to $25-30k/year private school tuition that so many choose to pay to avoid sub par public schools) and access to social services (nearly priceless depending on the situation) are accessible to those at lower income levels. A New Jersey family earning $75,000 will pay an effective income tax rate more like 2.6%. There are states with so-called “progressive” income taxes where the brackets max out at a family income less than $10,000!
Hey MS thanks! yeah NJ is definitely a great state if you are low income and in those super low tax brackets yet you benefit from a lot of high end social services, but yes even though NJ has high taxes the brackets are not that punitive. I only get to 9 percent tax bracket at $500,000 of income, and the bracket before that is huge spread of 150K to $500k at 6.4%. i would have paid more in Oregon which you typically don’t think of a high taxes because the brackets are so narrow.
An interesting article, with interesting comments, and a surprisingly lack of political extremism in the comments.
Having lived outside of the US, worked in many places outside of the US, and had friends and colleagues from many countries, I also think international comparisons are interesting and informative. For me that’s left me with a far better regard for the possibilities of taxpayer funded nationalized services. And arguably higher care for others. The US system is really great for high income people who don’t believe in government and don’t care for others – just go to TX, buy your way out of general society problems, and don’t pay for those problems to be resolved.
Careful, your politics are showing. 🙂
Lots of conservatives think government CAN’T effectively solve those societal problems and/or prefer to see charities solving them and/or think the downsides of solving them with government resources outweigh the upsides. If the best way to solve issues was obvious, they’d already be solved. Politics is for topics where there is legitimate disagreement on the best way forward. I’ve found it’s generally best not to assume your political opponents are just selfish or don’t care about other people.
Yes, good framing. I was poking the political aspect on this intentionally and do think there’s legitimate disagreement on how to solve things. Personal experience is that there is large enthusiasm for these low tax, low service states from people who are more interested in how the equation plays out for them individually than for others. Being individually charitable won’t educate the masses and give them healthcare.
dude, RJ, profunidity! I love that last line. And what makes America great is yes, you can choose to live in Texas, Florida, Tennessee, New Hampshire, South Dakote, Wyoming, Nevada, Washington, Alaska to keep more of your income if you don’t want to contribute to help out your neighbors as much, or live in NJ or other states like me.
I don’t often give to charity, but living in NJ and paying a crapload in taxes and being happy living here I might be more charitable than I initially thought 🙂
Really enjoyed reading this, Dr. Racela — such a well-balanced, honest, and deeply personal take on a topic that’s often just numbers and charts. Your breakdown made the trade-offs feel real and relatable. Curious to hear: if your financial situation ever shifted significantly, would moving to a no-tax state become a stronger consideration?
AA thanks for reading and YES!!! if financial situation changed significantly, we would move to a no-income tax state. Actually, this is written in our financial plan. My wife (who is responsible for the majority of the $1million plus income mentioned above) is getting more burned out being a full time anesthesiologist and mother. It is painful for her to be putting in epidurals in the middle of the night at 3am and then trying to make the elementary school play at 9am for our kids and she PURPOSELY put herself on call the night before so post-call she can make said play. Not fun trying to stay awake in the elementary school auditorium just to make that over $1mil income.
We seriously considered moving to Florida. We ended deciding to stay in NJ and she is now taking a no call, no holiday, position. So that $1mil+ of income you see above has gone down since I wrote this article, but we did seriously consider moving.
Thanks for your good article, Rikki! I really appreciate you transparently sharing your financial situation, in the spirit of helping fellow WCIers on our financial literacy learning journey.
Congrats to you and Meredith on your financial success! Dude, my first thought when I saw $97,901 in state taxes, is you could totally pay for your ugly solar panels! Plus have money left over for a family trip to Mountain Creek, AND a sweet Superman shoulder tattoo.
We live in MN, and hate the ugly and bad taxes, but love that our parents also live in MN. Your article title reminds me, recently my daughter watched The Good, The Bad, and The Ugly movie with my dad. Good quality grandpa time right there! Seriously though, my dad fast-forwarded the really ”boring” parts, and my daughter was asking when she gets to see grandpa & watch another movie with him again. I would not have guessed she would like a Clint Eastwood spaghetti western. I feel there’s something special that can happen when extended family members share time together, and discover something they both enjoy doing together.
My brother in law lives in Austin, TX, and my brother lives in TN, and all of their kids go to private schools. My kids go to public schools, coincidently, the same elementary school PhysicianOnFire’s kids did, when he and his family lived in the area. So I definitely think about how paying for private schools in states like TX or TN could easily end up costing us more money than MN’s ugly & bad taxes, if we ever chose to move. Even though I love MN, my extremely persuasive brother is constantly telling our whole family how amazing TN is. Since our financial plan also includes, “retire, near grandkids”, as time goes on, we’ll see where our kids (& our parents) end up living, and time will tell how long our love for MN lasts, my friend!
Angela OMG your daughter is much more amazing than my daughter! I asked my daughter to watch The Good, The Bad, and The Ugly with me and she declined 🙁 Alas, I listen to my daughter go on about dance as that is her passion but I’ll keep trying on the Clint Eastwood movies. I did get her to watch Back to the Future 3 with the Clint Eastwood references therein and that was fun.
Sounds like you’re in a similar boat as me and meredith. Hey, as long as we are happy, we don’t need to save the money on taxes 🙂 And even with paying the NJ state tax we do go to Mountain Creek to ski every year, and my kids always get to go on the ski lift that passes the bras thrown on a large tree branch on the north side of the mountain. I doubt Jim Dahle’s ski trips have ever seen that!
Ha good old Jersey. I lived there for many years and moved west 13 yrs ago. Let Me tell you, when they say the grass is not always greener…in the case of Jersey, it is! We are not in a no income
Tax state, but it’s on the low end. Infrastructure is great, public schools top notch, great environment for raising kids, fiscally responsible state. People often say disparaging things about lower COL areas. The things people tell themselves to justify their behavior or intellectual superiority. Not saying this about you at all, just saying that there is a reason why people move to places away from the coasts.
Dude you’re killing me! Man I hate this state.
Seriously though I am happy here and I’m glad you are happy there. It is just to painful to move away from the job I love here and the familial and social connections I have made here done unintentionally when I was financially illiterate. But hindsight is 20/20. I made a life here based on limited financial knowledge, and my wife and I have to pay the consequences of more work and time away from our kids to meet our financial goals. But that is less painful than moving, losing our social connections, and meeting our financial goals sooner. We might not be making our financal goals easier staying in this tax stupid state, but we are making our happiness goals.
I think the point here is we can’t let finances dictate our entire life. You’re content living there. You have family and friends that enrich your life. You’re much less likely to burn out in that scenario than living somewhere that you’re miserable just because you save 10k pet year in taxes.
I hope all readers take that away and realize finances are just a part. I lived in New Hampshire I had no income tax but I moved to South Carolina because I couldn’t buy warm winters with the tax differences.
Absolutely! happiness is invaluable, and I can’t be sure that if I move to a no-income tax state that I would be happier despite meeting financial goals more easily.
btw, that happiness here in NJ is $100k in taxes, not $10k per year . . .
Rikki- great post. Thank you for sharing. We moved from San Diego to Washington state and we definitely don’t have that Filipino community here. Its basically just us and one other family haha.
dude np you start the Filipino community! Just tell all the pinoys in Cali how much less you lose in taxes and they will come flocking!
You have my sympathy. I live in NYC and the taxes are bad across the river as well. I suggest maxing out your retirement contributions, including a 457 plan if your employer offers it and the organization is financially sound. Additionally, for the safe part of your portfolio, consider EE bonds and I bonds available from Treasury Direct. Although these bonds have a low interest rate, the earnings are federal tax deferred until you redeem them. They earn interest for up to 30 years, which compounds over time, and are free of state and local taxes (like all US Treasury bonds). This could be a good move for your old age and if you choose to remain in the Garden State. The SALT deduction looks likely to improve so that should help.
Hey matt thanks for the advice. Our asset allocation is 100% equities but yeah starting 5 years before retirement I’ll think of the EE and I bonds. i actually did ibonds when the yield sky-rocketed but cashed them into to buy a pool (might be my next post). also my wife’s old hospital had a non-governmental 457 which we didn’t contribute given so many hospital close around us. She was working at Holy name hospital in Teaneck NJ and it’s bond rating was BBB, and we were worried what happens to the non-gov’t 457 if Hackensack takes over or if Holy Name tanks like St. Vincent’s. If you remember St. Vincent’s, that hospital was busy until the day it died! one of the most famous hospital in the city, bankrupt. I’m not sure if they offered a non-gov’t 457, but if they did hopefully docs who contributed got their money back, but if they did it would have been a lump sum and make you pay tax in the highest tax brackets. also Beth Israel in the lower east side just declared bankruptcy 🙁 also in Philly, MCP and Hannehman have gone bankrupt.
Jim Dahle says he’s never seen a non-govt 457 where a doc lost money, but I think it’s because most docs are financially illiterate that they didn’t contribute, or know they contriuted and lost money, in a non-govt 457. So my wife and I did not feel comfortable contributing to her non-govt 457.
I commend you for taking in all of the pros/cons and coming to the overall conclusion that taxes don’t have to be the biggest factor for where you live. I spent most of my working career in California, which gets a lot of justifiable hate for their high cost of living, but wouldn’t have changed it either based on a similar wholistic view. I could have done my job anywhere, but the pros of living in San Diego outweighed the money we gave the state for the privilege of that address. It didn’t stop my wife and I from hitting our FI number before 40, and making our dream of living in Europe happen 18 months ago, and don’t think the taxes will be a hindrance for your success either. Best of luck to you!
Brian thanks so much man! Yup I’m pretty happy here in NJ, though it would be nice if there was much sun and 72 degree weather here like San Diego! Congrat on becoming FI and living in Europe! Wonderful!
Thanks for the article!
Do you find that NJ also pays higher salaries though and I wonder if it’s enough to offset the loss to taxes. My colleague does locums in both NJ and FL, using FL as her home state, and rates for her are substantially higher in NJ. Maybe she has it figured out best 😂
actually salaries are not higher for doctors here as NJ is saturated with doctors, so law of supply and demand says you can just pay doctors lower.
Have you quantified how much you are saving in private school tuition, offsetting some of thr higher taxes?
Yeah, if we had moved to a no income state we would have likely stuck to public schools, but we were thinking Florida and did look up the average private high school is $12,000 per kid. doesn’t come close to the amount we pay here in NJ in state income and property tax.