Kiplinger.com tax editor Rocky Mengle joins our hosts Ryan Ermey and Sandy Block to break down the best states for taxes on retirees. Also, the pair discusses how to handle travel mishaps during the busy holiday season. By Sandra Block, Senior Editor and Ryan Ermey, Associate Editor December 17, 2019 Episode Length: 00:29:19 | Links and resources mentioned in this episode SUBSCRIBE: Apple Google Play Spotify Overcast RSS Listen to more Your Money's Worth Podcasts Ryan Ermey: We told you we'd give you a tax map update and we did. Kiplinger.com tax editor Rocky Mengle joins the show to break down our state by state guide to taxes on retirees in our main segment. On today's show, we tell you what to do in case your flight is cancelled, delayed or overbooked, and Sandy quizzes me on what's covered by home, auto and health insurance. That's all ahead on this episode of Your Money's Worth. Stick around. Listen to More Your Money's Worth Podcasts Ryan Ermey: Welcome to Your Money's Worth. I'm Kiplinger's associate editor Ryan Ermey joined as always by senior editor Sandy Block. Sandy, how are you? Sandy Block: Doing well, Ryan. Ryan Ermey: So I think we are both going to be traveling over the holidays, but I don't think either one of us is going to be boarding a plane. Are you? Advertisement Sandy Block: No, I'm not flying on this holiday, but I probably will be the next one. Ryan Ermey: Yeah. And I did the last one. It's really the season where a lot of people have a lot of horror stories about getting delayed, getting canceled, getting bumped off their flight or at least being offered... the thing that always comes to mind is like Kevin's mom and home alone, like trying to give her earrings away and this pocket translator and the whole thing. And it's something that a lot of people run into. So we want to talk a little bit about what your rights are and what you might be able to get if you're dealing with one of these situations in which you encounter a delay, a cancellation or a bump. Sandy Block: That's right. And if you're flying to Canada or Europe, there have been some recent moves to increase the amount that airlines are actually required to pay people who are delayed for more than three hours. Travelers flying to Europe on a European Union airliner or flying out of the EU on any carrier are entitled to compensation of up to 600 euros, about $670 for delays more than three hours, cancellations, etc. Passengers who are involuntarily bumped from a flight to, from or within Canada for reasons within an airline's control, which I think means no whether, right? Which in Canada they could have a lot of weather. Ryan Ermey: Yeah. They call it an act of God. An airline calls weather an act of God. Advertisement Sandy Block: Yeah. Weather. But if it's not weather, if it's mechanical problems or something like that, they're eligible for as much as $1,2,400 Canadian dollars, which is about $1,800 U.S. And starting December 15th, passengers will be entitled to as much as $1,000 Canadian dollars if their flights are canceled or delayed by certain amounts of time. Ryan Ermey: Right. And there has been a long time sort of overarching rule called the Montreal Convention under which, if you have expenses or a loss, essentially, if you have legal damages caused by a flight disruption, you might be able to get some money. But airlines aren't required to pay if, "extraordinary circumstances are to blame," which is, of course, an extremely squishy term. From what I understand, if you want to get your money out of that, you're going to have to hire a lawyer. And the real thing is, the US is like the most developed country in the world that has the least amount of rights for passengers. So you really have to know what your rights are and how to navigate those waters if your flight is canceled, delayed, or if you get bumped. Ryan Ermey: So if you're canceled, most airlines will rebook you on the first flight to your destination whichever seat is available that comes at no additional charge. They may also be willing to sign you over to another airline. That's something worth asking about. Now, of course, if there's like some kind of humongous airport-wide delay that's grounding everything, for instance, like when all the Delta flights went down because of that computer malfunction, you can get your... a cancellation, you can always get your money back if you decide not to fly, although... Sandy Block: Then you just go home. Advertisement Ryan Ermey: Just like going home and not going seeing your family. Sandy Block: Spend Christmas alone. Ryan Ermey: Isn't great. In the case of long delays, the airlines really don't owe you anything. Sandy Block: And there are no federal requirements. Advertisement SEE ALSO: 26 Secrets to Save Money on Travel Ryan Ermey: By law. Sandy Block: Yeah. Ryan Ermey: Right. By law. Now, it's worth looking at your contract of carriage, which is like the small print that comes when you get an airline ticket. Because some airlines will compensate you if you're delayed, for instance, for longer than four hours due to a mechanical failure. Some of them might give you vouchers for food. If that kind of lengthy delay goes between 10:00 p.m. and 6:00 a.m., you may be able to get overnight lodging. But that's going to be a matter of policy. That's not a matter of law. Sandy Block: Right. And the key here is to get in the front of the line and ask nicely. And technology is your friend here. We've recommended the TripIt app. Ryan Ermey: Yeah. And that comes with a subscription fee. But from my sources, and I went and stopped by our colleague Miriam Cross's desk before we recorded this, some sources of hers have kind of sworn by it. They say it's worth it because you might get notified of goings on with your flight before they announce it at the airport. Sandy Block: And the very least, download the airline's own app and sign up for alerts, because you don't want to be that guy standing in the long line of the aggrieved passengers, when you could just stand aside and take care of this on your phone. Ryan Ermey: So yeah, if you asked nicely, you may be able to get a voucher, they might be able to send you over to another airline. It always pays to be polite in these kinds of scenarios. Imagine that you're the one working at the airline desk on Christmas Eve or whatever it is. Now, the one that I think a lot of people have encountered in one form or another is, your fight is overbooked. Sandy Block: Right. And they start asking for volunteers. Ryan Ermey: Now, have you ever actually volunteered? Sandy Block: No, I haven't. But I've been in plenty of situations where I was on a flight where they did. It was never a situation where I had the flexibility to take the money. But standing around people and talking to people who do, this is where your negotiating skills can come into play, because airlines aren't going to start with the best offer. If they don't get enough volunteers, they're going to have to raise the price. So you have to sort of figure out A, what are they offering? Is it cash, which is nice? Or is it airline credit. Ryan Ermey: Like a briefcase full of cash. Sandy Block: Send you some $100. But sometimes they will just give cash, a lot of times they'll give you credit for another flight, which may or may not be valuable depending on how often you fly on that particular airline. And then you have to take into account your own time, how long do you have to wait? And is the alternate far from your home? Is it an airport that's not anywhere near your house where you'd have to pay a lot of money to get home from that airport. Ryan Ermey: Now, so like let's say no one steps up, and they involuntarily bump you, this is where you may or may not have some rights. If you get bumped, but the airline arranges substitute transportation that's scheduled to get to your final destination that includes connections within one hour of your original scheduled arrival time, then they don't owe you anything. But if they arrange a substitute transportation that's scheduled to arrive at your destination between one and two hours after your original time, the airline must pay you an amount equal to 200% of your one-way fare to your final destination that day with a $675 maximum. And folks, I'm quoting the Department of Transportation here and we'll put all this up in the show notes. Sandy Block: Good change. Ryan Ermey: If the substitute transportation is scheduled to get you to your destination more than two hours later, or four hours internationally, or if the airline doesn't make any substitute travel arrangements for you, just like, listen, we kicked off your flight and like... SEE ALSO: 34 Best Travel Websites to Save You Money Sandy Block: You're on your own. Ryan Ermey: Too bad. Sandy Block: Bus pass. Ryan Ermey: That compensation doubles. So 400% of your one-way fare, $1,350 maximum. So as you're thinking about booking airline travel, hopefully you've already done it if you're traveling for the holidays, because we've talked about that sweet spot when your flights are cheapest when we talked to Scott Keyes. And if you haven't done that, go back and listen to that episode. Stay cool. Stay alerted to what's going on. And keep your cool with the people at the desk and hopefully they'll take care of you. Will you get a better deal on your taxes retiring to California or Kansas? Rocky Mengle's answer may surprise you. Don't go anywhere. Ryan Ermey: We are back and we're here with Kiplinger.com tax editor Rocky Mengle. And as promised, we are talking the retiree tax map. So, Rocky, thank you for coming on. Rocky Mengle: You're welcome. Glad to be here. Ryan Ermey: So walk us through the project a little bit. What is the retiree tax map? What criteria are we taking to account when assessing which states are the tax friendliest for retirees? Rocky Mengle: Well, first of all the retiree tax map, it's really just a source of information about state and local taxes that affect retirees. Now, when you go to the map, you can click on any state you want and open up the tax profile for that state, and there you'll find information about the income tax rates for that state, and tax breaks for retirees and statewide property tax rates, and any special property tax breaks they have for seniors, sales tax information, estate tax and inheritance tax information as well. It's also a tool that allows you to compare one state to another, actually up to five states at a time. So you can click which states you want to look at, click compare and you'll see a graph there that, again, shows a you side by side comparison. Rocky Mengle: And of course, we also grade each state on its tax friendliness. We have five categories. Most tax friendly, which of course, is the best; tax friendly; mixed; not tax friendly; and then the worst, least tax friendly. So again, each state gets put in one of those categories. And how we go about determining which category any particular state goes into, we basically take a hypothetical retired couple, and we calculate an estimated overall state and local tax burden for that couple in each state. That includes income taxes, property taxes and sales taxes. Those are the ones that have the most impact on your wallet, typically. And for the retiree tax map, the hypothetical couple, they have a combined income of about $120,000. None of that is from wages, no earned income. Ryan Ermey: Okay. Rocky Mengle: About a third of it is from Social Security benefits, about a third from IRAs, about 20% from pension, and the rest is a mixture of interest, dividends and capital gains. Sandy Block: And I think you gave them a mortgage too, right Rocky? Rocky Mengle: Yeah. They have a $400,000 home, and that factors in with the property tax, and for some of the income tax figures as well. They take the standard deduction and have $10,000 in medical expenses. Sandy Block: Okay. So Rocky, when we had you on before, you talked about the tax map that you all do for everybody. How did the results for that tax map differ from your rankings for retirees? Rocky Mengle: Because the sources of income are different. I just went through for the retiree map what our hypothetical couple had in income, whereas in the regular tax map, it's almost all... SEE ALSO: State-by-State Guide to Taxes on Retirees Ryan Ermey: Jobs... Rocky Mengle: Almost all wages. So because of that, first of all, we see that no income tax states are not always the best states to be in. And that's because other states have a lot of great tax breaks for Social Security benefits and for retirement income, IRAs, 401(k) money and such. So the benefit of being in a no income tax state is lessened. As an example when you compare the most friendly states from the regular tax map, all the top 8 states and 8 of the top 10 states are no income tax states. When you get to the retiree tax map, only three of the top 7 and only 4 the top 10 are no income tax states. Sandy Block: Because as I understand it, a state could have even a fairly high tax rate, but if most of your retirement income isn't taxed, that state could still be pretty friendly to you. Rocky Mengle: That's right. So if you don't like hurricanes and fire ants, you don't have to go to Florida. Sandy Block: Good to know. Rocky Mengle: You can find some other states that have great tax breaks for it. Yeah, particularly Social Security benefits. Most states don't tax Social Security benefits. Ryan Ermey: So we don't want to give away the whole game here because we would like our listeners to go and check out the entire map. But what are some of the friendliest and least friendly states on the map? Where kind of the headlines, exactly, on each side the... Sandy Block: What you do or don't want to know. Rocky Mengle: I'll give you the top five for both the most and the least tax-friendly states. The best states are Wyoming which is number one on the list, followed by Nevada, Delaware, Alabama, and South Carolina. And the least friendly states, the bottom five, let's call them. Nebraska, which is worst, Connecticut, Kansas, Wisconsin and Minnesota. Ryan Ermey: I mean, we talked about having really sort of generous tax breaks for the best states, what do a lot of those least friendly states have in common that makes them come up red on our map? Rocky Mengle: Yeah. All but one of those five that I mentioned tax Social Security benefits at least to one extent or another, maybe not. They're not all taxed but partially so or sometimes depending on your income, or they'll also tax other retirement funds, 401(k) money, IRAs and such. And that's what they all have in common. Some of them had high property taxes as well and you can't discount that. A lot of people focus on just income tax. And that's really not the way to go because property taxes can really take a bite out of your finances. Sandy Block: Right. And a lot of seniors do own their homes, so that's a big expense for them. How do you want people to use this? I mean, I think one reason I think this map is so helpful is if you're working, you don't have that much flexibility about where you live, but retirees kind of can move around. So how important do you think state taxes are in figuring out like where do you live and what your budget is going to be? Rocky Mengle: Yeah. I know Sandy, you've heard me say this before, but there are a lot of factors that go into considering where you want to live in retirement, and I think taxes really certainly should be one of those. And so this retiree tax map is a tool people can use to start getting a handle on what the tax landscape is in any place that they're thinking about moving to. And at the very least, even if you've already decided where you want to move, you don't want to pack up and leave without discovering what your tax is going to be like there. That'd be a horrible surprise. That'd be horrible surprise when you start filling out your tax returns or getting property tax bills or paying your sales tax and you should know that at least before you... Sandy Block: I think too one of the useful things about the tax map is when you drill down, you can find out how it will affect you individually. Because your state might be tax-friendly or unfriendly, depending on the type of income that you have, because some, as you said, tax Social Security, some tax pensions, some don't. They're kind of all over the map in terms of what they tax. Rocky Mengle: That's right. Yeah. So you have to know your finances and what your incomes are look like in retirement and try to match it up with the state tax breaks and see how you're going to end up. SEE ALSO: Retirement Savings Calculator Ryan Ermey: So I know that the two of you are both like tax mavens so you know what's going on when you look at this map. But were there any states as you were putting this together that you thought were surprising either because they ended up being much friendlier than you thought or because they ended up being less friendly than you thought? Rocky Mengle: Yeah, I can give you a few. Certainly Nebraska and Kansas showing up on the least tax-friendly list. People just don't think of states in that part of the country as... Sandy Block: Think they're going to get hammered moving to Nebraska. Yeah. Rocky Mengle: Right. But that's the way it is for retirees and that's why you got to check. A couple other ones, Texas not being on the tax-friendly list. Texas doesn't have an income tax, that's true, but the statewide average property tax is very high in the state. Sandy Block: Got to pay for those roads somehow. Rocky Mengle: Exactly. Exactly. And then of course, everybody asks about California. Sandy Block: Right. Why is it not on your least friendly list? Rocky Mengle: That's right. It's on our tax-friendly list. Sandy Block: Exactly. And the emails are still coming in about that, Rocky. Rocky Mengle: Right. I know. I got a question from a customer who lives in California and has property and taxes and he can't understand why. Sandy Block: So why is California friendly? Rocky Mengle: Everybody focuses on, first of all income tax and particularly on the highest income tax rate, which in California is 13.3%. That is very high. But that's for millionaires or very wealthy people. Most people do not pay that. The income tax rates in California actually are fairly progressive. There are nine different tax brackets starting at 1%. And the average property tax rate statewide also isn't all that high in California. The property value might be very high, so your bill is high, but the rate itself on average is not. Ryan Ermey: Alright. Well, look, we want everyone to go check this out, especially if you are thinking about moving somewhere maybe sunnier and nicer for retirement. Rocky, where can the people go to find it? Rocky Mengle: You can Google, do a Google search for Kiplinger Retiree Tax Map or you can go to the Kiplinger website and click on the retirement tab at the top and scroll down just a little bit and you'll see the map. Ryan Ermey: And we'll have it in the show notes for this episode as well. Rocky, thank you so much for coming on. SEE ALSO: Does Insurance Really Cover That? Rocky Mengle: You're very welcome. Ryan Ermey: Whether it's a volcanic eruption or your friend crashing your car, it pays to know if your insurance will cover it. Sandy has the questions and I have some of the answers in a new edition of pop quiz after the break. Ryan Ermey: We're back, and before we go, we wanted to do another pop quiz segment in which one of us quizzes the other from one of the many useful and informative quizzes on Kiplinger.com. So today, Sandy is going to be quizzing me from the website that I have yet to look at. So Sandy, what are we dealing with? Sandy Block: This quiz is "What Does Your Insurance Cover?" And I have to cop to this. I took this quiz. I have homeowners and car insurance, and I did not do well. These are tricky questions. So this is a very useful quiz because if you have insurance, obviously, you want to know what it's going to pay for. Ryan Ermey: That would be useful. Sandy Block: Alright, you ready? Ryan Ermey: Yeah. Sandy Block: Okay. Here's number one. You lend your car to a friend, does your auto insurance cover him or her? Ryan Ermey: Him or her? It covers, I believe from watching Judge Judy, that it should cover the damage to the car or whatever car that person hits? Sandy Block: Yes. Generally, your auto insurance will cover a friend driving your car as long as he or she has a license, which is kind of good to know in advance, and has your permission to use the vehicle. If your friend steals your vehicle then you're not covered. Okay, now this one comes up a lot. I've heard so many debates about this one. During a storm, a neighbor's tree falls on your house. Whose policy covers the damage? Ryan Ermey: If it's my house, I'm guessing it's my homeowners. Sandy Block: You are correct. The tree falls on your house, you are covered by your own homeowners insurance policy, not your neighbors. So good to know. All right, here's another one also sort of related to storms. Your basement floods. Good thing you bought a separate flood insurance policy ahead of time. What does it cover? A, carpet. B, furnace. C, furniture. D, all of the above? Ryan Ermey: Well look, I was in school long enough to know that if that all of the above is an option, I'm ticking that all of the above. Sandy Block: No. I'm sorry. It does not. The only thing on this list that's covered is your furnace. Flood insurance covers structural elements and essential equipment in a basement which I guess does not include your weight set. But not living improvements made down there. That means it won't pay for furniture or carpets or damaged drywall that has been painted. Ryan Ermey: How's carpet an improvement? Shouldn't it be like they mix... that doesn't make it livable at all. Had concrete down there? SEE ALSO: 10 Small Home Projects That Pay Off Big Sandy Block: That's improvement over a dirt floor, I guess. Okay. Your 18-year-old child goes away to college. Is she still covered by your health insurance? Ryan Ermey: Yes, until she is 26. Sandy Block: Correct. Insurers must let adult children up to age 26 stay on their parents policies as long as the child isn't covered by an insurance plan at his or her own job. Ryan Ermey: I used that one all the way to my 27th birthday. Sandy Block: Okay. Alright, college boy. Here's another one. Are your child's belongings covered under your homeowners insurance while he's living in a college dorm? Ryan Ermey: Are they under my roof or are they in the dorm? Sandy Block: No. This is for the parents. Your belongings, you're the college student, your belongings in your college dorm say your friend, your bag... Ryan Ermey: My bean bag chair. Sandy Block: Yeah. That stuff. Somebody comes in and steals your bean bag chair. Is it covered by your parents homeowners insurance? Yes or no? Ryan Ermey: It can't be. Sandy Block: It is. As long as your child is a full-time student and younger than 24. The belongings are usually covered by the parents policy if he lives in a dorm. However, if you move off campus, you might need to get your own renters insurance policy. But yeah, dorm stuff, okay. Alright. This is a holiday-themed question. After a shopping spree at the mall, this must be an old quiz, who goes to the mall? Ryan Ermey: After a shopping spree on Amazon. Sandy Block: You put the goods in your car. Then you go back in to grab lunch. When you return you find your purchases have been stolen? Are you covered by insurance? Ryan Ermey: Yes. Sandy Block: Correct. SEE ALSO: The Best Rewards Credit Cards for You Ryan Ermey: Alright. Sandy Block: Theft of your personal property is covered under your homeowners or renters policy. But bear in mind that the insurance company will probably want proof of your loss. So if your paper receipts were stolen along with the merchandise, you'll have to come up with some other way to prove what you bought. So takeaway here, put your receipts in your wallet. Don't leave them in the bag. Okay, just three, four rapid fire questions about homeowners insurance. Ryan Ermey: Okay. Sandy Block: Does it cover earthquake damage? Ryan Ermey: Yes. Sandy Block: No. Unless you buy separate earthquake insurance, you're not covered. Ryan Ermey: Horrible. What's the point of this? Sandy Block: What about a nuclear accident or attack nearby? Yes or no? Ryan Ermey: No. Sandy Block: No. Ryan Ermey: No. Sandy Block: Okay. Final one. And this is topical actually. What about if a volcano erupts, are you covered then? Ryan Ermey: Well, if it's not for the earthquake or the nuclear. Sandy Block: Yes, you are. You are covered. A standard homeowners policy will cover you against a volcanic eruption. If there were any homes on that White Island in New Zealand, they're covered, I guess. My guess here is that that's so rare that they put that in there. Although, the problem with earthquakes is if you happen to live in a particular part of the country, they do happen, which is why I think you have to get a separate policy for them. I don't know about the nuclear attack, but I think maybe homeowners insurance companies think they're safe covering volcanic eruptions because here in Washington D.C., not a high risk of that. Ryan Ermey: Yeah. Boy, I guess. I guess, like, if you don't live within the radius of an active volcano, then insurance companies don't have to worry about. Sandy Block: And not very many people do, so anyway. Ryan Ermey: Anyway, and make sense of the earthquake insurance, we recommend the same thing getting flood insurance if you like the kind of Hurricane risky areas. Sandy Block: And the takeaway here is, don't assume your policy covers things that you don't know about. Read your policy, particularly maybe you don't have to worry about volcanic eruption, but downed trees, flooded basements, those things do happen, and it's good to know what your coverage covers and what it doesn't. Ryan Ermey: That's right. Hopefully, all of you listening out there did better than I did. Those were pretty... Sandy Block: Did better than I did. Ryan Ermey: That'll do it for this episode of Your Money's Worth. For show notes and more great Kiplinger content on the topics we discussed on today's show, visit kiplinger.com/links/podcasts. You can stay connected with us on Twitter, Facebook or by emailing us at firstname.lastname@example.org. And if you like the show, please remember to rate, review and subscribe to Your Money's Worth, wherever you get your podcasts. Thanks for listening. SEE ALSO: Time-Tested Tactics to Build Your Wealth Links and resources mentioned in this episode What to Do If Your Flight Is Canceled How to Overcome Travel Delays and Cancellations Retiree Tax Map Does Insurance Really Cover That?