What Are the Best States to Retire Based on Your Financial Goals?
When it comes to your retirement, your home isn’t necessarily going to be where you live now but where you can afford. Before you relocate, you want to make sure you have saved enough to live on since pension checks and Social Security may not be enough to cover all your living expenses.
For those that want to retire in the United States, there are some states that don’t have any state income taxes. For many retirees that have the means to move, it will make sense financially to move, especially if your home state has some high taxes, such as New York or California. Your world can now suddenly open up and you can start to enjoy time you have worked so hard for, after saving with different financial goals by age.
Best States to Consider Retiring In
These states rank high on list for the best states to retire in. Between different combinations of low tax rates and fiscal soundness, you are sure to find a state that suits your financial and personal goals for retirement.
South Dakota
It may not be the first state you think of when it comes to retiring but it’s one of the best states to retire due to the affordability. Due to its low living expenses, including healthcare costs, it’s also one of the best states for taxes on retirees. It also ranks third in the country for fiscal soundness. This means that there is high confidence that the state can keep up with both short- and long-term expenses so it will still be a great state for taxes down the road.
Exterior of the South Dakota State Capitol building
Hawaii
Living isn’t necessarily cheap on an island paradise and it does have one of the highest living costs in the country. However, the landscape can still work well for your finances. Healthcare costs are still affordable and come in at 11.4% below the national average. This is due to the efficient healthcare system and a healthy population.
View of Magic Island in Alaska Moana Honolulu, Hawaii
Georgia
The low cost of living along with the warm weather make Georgia a good place to consider. Healthcare expenses are also affordable. There is a favorable tax situation that puts Georgia on the list for the 10 best states for taxes for retirees.
Downtown Atlanta Skyline showing several prominent buildings and hotels under a blue sky
North Dakota
North Dakota has a lot of the same benefits as South Dakota for retirement. However, your retirement income, including your Social Security benefits, won’t get a tax break. The income tax is low so it is still considered tax friendly. The state ranks as the second highest for fiscal soundless.
The Capitol Building of South Dakota
Tennessee
Every major metro area in the state has a below average cost of living in many expense categories, including healthcare. It also doesn’t have any state income tax so you are able to stretch your retirement income further. It does have a higher sales tax than most states but does rank eighth for fiscal soundness.
Nashville Tennessee State Capitol Skyline Aerial
Alabama
Alabama is a popular place to retire because you get a lot of the same attractiveness as Florida, such as nice beaches, warm weather, and golfing, but with a lower price. The low cost of living also includes healthcare and retirees usually spend 4.4% less on healthcare costs than the average retired American couple. Taxes are also good for your budget and income tax can be as low as 5% and your Social Security benefits will be exempt from this.
Golden sunlight reaches the horizon showing around the capital statehouse in Montgomery Alabama
Virginia
Virginia has a lot of high household incomes among seniors that are much higher than the national average so the overall cost of living is not too much of a problem. Healthcare costs, which are a big concern for many retirees, are affordable. The state doesn’t tax your Social Security benefits and will also allow you, if you are over the age of 65, to deduct income up to a certain level depending on your income level.
Richmond, Virginia, USA downtown skyline
Florida
Florida is known as a popular retirement spot. It has the highest share of residents that are over the age of 65. It has beautiful beaches and warm weather but the main draw for this state is the tax situation. Florida doesn’t have an estate or inheritance tax or a state income tax, and it won’t tax your Social Security benefits or other income. It also gets top marks for fiscal soundness.
The scenic road where ocean meets city view to Downtown Saint Petersburg, Florida
New Hampshire
The tax situation in New Hampshire gives retirees an advantage. It won’t tax your Social Security benefits or retirement income and there isn’t any sales tax. The savings you get on taxes can help balance out the below-average household incomes and above-average living costs. It also ranks fifth in the country for senior health, which may be important for retirees who are relying heavily on the healthcare system.
Portsmouth, New Hampshire, USA townscape
Utah
Utah is a great place for active retirees. According to the United Health Foundation, it ranks second in the country for overall health of the senior population. It can also provide seniors with a lot of outdoor recreation options to help stay active during retirement. There are seven national monuments, five national forests, five national parks, and over 40 state parks for plenty of boating, climbing, and hiking. The activities that can be found in Utah can outweigh the negatives when it comes to some unfriendly tax laws. Even with some higher taxes than other states, the state has the third-lowest poverty rate in the country for those who are older than 65.
Salt Lake City, Utah at sunset
Idaho
The affordability of Idaho makes it easier to stretch the money you have saved for retirement. The taxes have their pros and cons. There is sales tax and state income tax that can be high in some cases. However, Social Security benefits aren’t taxed and Idaho is also a state that doesn’t have an estate or inheritance tax.
Summer view of Boise Idaho during a hot air festival
South Carolina
When you move to South Carolina, you get mild weather as well as some southern charm. The affordability can also draw you in. You won’t be taxed on Social Security benefits and there are exemptions on other types of retirement income. Property taxes tend to be low and there isn’t an estate or inheritance tax. There is also a below average living cost, making it easier to live on a fixed income.
Drone Aerial of the State Capitol Building in Downtown Columbia, South Carolina, USA
Iowa
Living costs will give you the biggest advantage when it comes to living in Iowa. The healthcare costs are affordable and Social Security benefits are untaxed. Those that are 55 and older may be able to exclude some of their taxable retirement income as well.
Des Moines Iowa At SunSet, Aerial Image
Pennsylvania
Healthcare costs in Pennsylvania are below average and the tax situation is also friendly. Social Security benefits are not taxed so you can boost your income even further.
Philadelphia, Pennsylvania, USA downtown skyline at dusk on the Schuylkill River
Delaware
Delaware gives retirees plenty of tax advantages. It won’t tax Social Security benefits and there are also exceptions for qualified pension income. Income tax rates are modest and there isn't any sales tax. You will also find budget friendly healthcare costs.
Saturated early morning light hits the buildings and architecture of downtown Wilmington Delaware
How to Decide Where to Retire
Many factors can go into play when it comes to the best states to retire in. Planning for retirement is an important part of determining your financial goals. There are different criteria you will want to consider when it comes to your ideal place for your retirement and one of the best states to retire.
Cost of Living
When you are retired, you may go out more. Think about how you want to spend your time and then calculate the cost with these commitments. Also look at basic living expenses, such as gas prices, housing costs, and grocery bills. You may find that a city that seems pricy can have a reasonable cost of living or a place with low taxes has a higher price on everyday goods. Don’t forget to look at the cost for healthcare. Include costs for therapies and specific services you may have to pay out of pocket for, such as dental or vision care.
Quality of Life
If you like an urban lifestyle then it may be worth it to choose a place where you can walk to community events, eateries, and shopping malls. If you like a peaceful environment then a rural area or small town may be a better fit. Make sure you are by people your age in order to build a new circle of friends. Some cities do have retirement communities that make it easier to meet others and be involved in events. Others have senior centers that help you create an environment where you can make new friends and socialize.
The Tax Environment
Certain states are going to be more tax friendly than others but you also want to look at the full financial picture to see what you will really need to pay in retirement. Some states that have a high income tax but won’t tax Social Security in retirement so it’s possible your current tax situation will change as you move toward retirement. There are some states with no income taxes, including Florida, Alaska South Dakota, Texas, Wyoming, Washington, and Nevada. While you may save on income taxes in these states, there can be other taxes or cost of living differences you have to account for. Even if you live abroad while you are retired, if you are a U.S. citizen then you still need to file a tax return every year so staying in the United States may still be in your best interest when it comes to taxes.
Climate
If you have lived all your life in an area where it is cold and snows then a southern state or state with a beach may be appealing. You might choose a retirement spot near rivers or lakes if you like boating and fishing. If you take climate into account then you can be involved in things you love and stay more active.
Your Travel Plans
If you plan to take regular trips to visit your children then consider how far away your new location is going to be from your family members. A spot that is several hours away by car means you want a reliable and comfortable vehicle to travel in. If you will need to fly then consider flight prices and options in the area. If you plan to travel a lot or want family to be able to come to you then it’s important that you are in an area with an airport close by that allows you to take flights to the area you are interested in.
Consider Taking a Trial Run
Before you purchase a new residence in the area, spend some time in the new location to learn more about the daily life. If you can, it may be beneficial to rent at different times of the year so you can learn more about the pace, traffic, and culture that you will have when you are a permanent resident. Explore the community activities during your short stay and talk to locals about insights and recommendations so you can get a better understanding of the area.
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Taxes Retirees Have to Pay Attention To
When looking at the best states to retire, there are more things to consider than just income tax. Taxes seniors pay while in retirement will depend on the state they live in.
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Most states won’t tax Social Security at all. There are three states that do tax Social Security income in some way and some do provide a credit or limit to help offset the cost.
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The way a state handles retirement accounts and pension income will also have a huge impact on your finances. There are 22 states that don’t provide any kind of exception, credit, or deduction on withdrawals from your retirement account. Exceptions for pensions are going to be more common to find. Only nine states will fully tax your government pension and 16 tax your income from a private employer pension. Other states will either exempt the income or give a credit or deduction against it.
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Homeownership helps seniors lock in housing costs so they won’t have to worry about a shift in the rental market. However, some areas that have high property taxes or ones that grow quickly from one year to the next will discourage you from owning a home. States may help retirees limit the load of property taxes by giving circuit breakers or exemptions. These exemptions can help seniors protect part of the home value from property taxes. There are usually income limits so households that earn more than a certain amount won’t be eligible for these exceptions. Circuit breakers also have the same effect as exemptions. These can limit the amount of property taxes that can be increased from one year to the next.<br>
Property tax deferrals can be helpful for homeowners as well. The deferrals will allow a senior to put off the payment of some or all of the taxes until a later time. These may be deferred so they are subtracted from the home sale and they don’t come out of a senior’s income.
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It can be easy to overlook sales tax since it’s paid gradually. Sales tax is important to pay attention to since seniors are usually on a fixed income. There are four states that don’t have a sales or local tax. Hawaii has a similar tax to a sales tax but it’s one of the lowest in the U.S. Most states with a sales tax do provide exceptions that benefit seniors. Common exceptions are for prescription drugs, groceries, and medical equipment.
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Legislators across the U.S. have started to either repeal their state’s estate tax or increase the local estate tax exemption. States are also following the federal government’s lead. Six states currently have an inheritance tax. Inheritance taxes will usually provide exceptions or lower rates for direct family members and then fully tax those who are non-relatives.
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In Conclusion
Keep your long term savings goals in mind when it comes to where to retire. While you need to think about where you will be the happiest retiring, you also should think about what makes the most sense financially when it comes to paying a wide assortment of taxes.