Wow! Jumping in a bit late here - but man there is some interesting advice being given. Firstly, I have been an expat since 1984 and a manager of expats since around 1993. I am not a tax consultant, residency specialist or lawyer but I have dealt with residency and tax issues for 20 years.
Osirisail posted a nice summary of the "rules" - Note my federal tax return runs about 130 pages and E&Y is paid about $4k to prepare my local (Singapore) federal and state (Ohio & now California) returns.
State residency - Doodles nailed this. States which tax residents (Ca. example) claim you forever until you reestablish residency in another state. We used to have guys simply "change" their state residency from "wherever" to Florida
thinking they were exempt from state tax. Many got away with it. Many fought and lost
and I don't know of any who fought and won.
Establishing a new state residency/domicile requires specific actions. Complete them all. For a few years I would get jury summmons from Ca. - turns out that it was tied to my Ca. D/L.. California basically said as long as I had a Ca license
they owned me. It often requires establishing a new place to live, changing licenses and even moving bank accounts etc. and then even possibly maintaining the new status for 6 months or some specified period.
State taxes - I just got a wonderful $8k surprise from Ca. for 2011 taxes - Apparently my estranged but not yet divorced wife moved to Ca. Ca. is a communal property state so some portion of my earnings became "jointly taxable as joint income - Whaaaat??? I haven't lived or worked in Ca since 1984! I am assured after the divorce is final Ca. will no longer have their hooks in me.
Fed taxes - Without being rude Boatguy30 you should consider not giving tax advice to people. Yes you can go overseas and ignore the feds and maybe even get away with it. But if you get on their radar
and have not been filing or heaven forbid paying what you owe you will be slapped. Although I have had recent experience with the kindler, gentler IRS and I can say they are better than the "evil" days and they are helpful. For many reasons my 2010 filing was delayed almost 2 years - I knew I was pushing my luck but when I finally got it under control the penalty was not bad and the interest was probably less than I would have had from a bank - hmmmm...
How to qualify for the FEIE and how to apply foreign tax credits and if you have significant personal source income in the US can all influence how complex your tax situation. I can say if you are a retiree and all your income is actually derived from US investments and retirement
pay it isn't that dramatic or draconian - basically you don't have any foerign income. Foreign income is money
earned on a job overseas, overseas investments etc. Qualifying for the income exclusion is a residency matter as much as a tax matter. If you are "cruising" and on the move and unless you specifically take up a visa type that "makes" you some sort of resident in a country then you probably don't and won't qualify as a foreign resident - and the opposite, taking a residency may expose your US earned income to local taxes depending on the country you took residence in. And for those who say "screw Imaginationstan" what they don't know about my income won't hurt them, imagine beinng is tax jail and bargaining from there.
And, once again - Being a foreign resident does not mean you are exempt from US federal or state taxes - It just means you may qualify for a foreign earned income exclusion if you meet certain conditions. If you establish residency in New Zealand
and derive all your income from US investments and retirement
pay - foreign earned income is actually a red herring. And if it weren't or your income were below the exclusion you still have to file a return to get it - It is not up to you to decide not to file a US return.
The only way I know to really "sever" your US liability is to renounce US citizenship and even if you did that and still took income from US retirement you probably would have to pay US taxes even though you are no longer a citizen - hmmmm? We tax lots of foreigners who work in the USA and earn money
Not to be alarmist but really do a little know before you go and if you have a complex income situation (you already know who you are) get some advice as you proabably can afford it.