At this moment, Americans who are 65 and older make up 15% of America. By 2030, that number is going to jump to 21%. By 2060? 25%. These are huge shifts in the age of our population, and that means that more and more Americans will be retiring and looking for the best place to retire to.
If you are 65 and older, then the odds are good that, like many other Americans, you are looking for the best place to retire in the U.S. There are many financial factors to keep in mind as you ask yourself this question, including:
- How the state treats retirement income, including rebates for seniors and their overall property tax burden
- The state’s overall quality of life, including transportation and recreational amenities
- The healthcare amenities that each state offers
There is no “silver bullet” in determining the best states to retire in the U.S., and no one answer will fit everyone’s situation. However, some general statements can be made, as there is no question that some states are better for seniors, retirees, and people on fixed incomes. As such, here’s a look at some of the best states for retirement.
Jump to a Section:
- What is a Qualified Retirement Plan?
- Which States Do Not Tax Retirement Income?
- What are the Best States to Retire in the U.S.?
- What is the Cheapest State to Retire in?
What is a Qualified Retirement Plan, and How
Does it Interact with State Taxes?
Proper retirement planning means that you can save up as much as you can to plan for your eventual retirement. More often than not, this involves extensive use of a qualified retirement plan. A qualified retirement plan is an employee-sponsored retirement plan that contains certain tax benefits for the recipients. They are often used as benefits to attract high-level and qualified talent. An employer will administer the plan, but most plans have customizability options with the employee, providing them with options to make certain investments.
There are many examples of qualified retirement plans, including a 401(k), 403(b), pensions, and more.
While qualified retirement plans can be very useful tools for retirement planning and supporting your income in your retirement, not every state treats qualified retirement plans the same way. As such, the benefits that you receive at retirement from federal taxation perspectives may not carry over into the world of state taxes. This depends on various factors, including the specific qualified retirement plan that you are using and what state you live in. This, in turn, can have a major impact on the best states to retire in the U.S.
Which States do Not Tax Retirement Income?
This question can get confusing, as it isn’t straightforward.
Nine states have no state income tax, meaning that they do not levy a tax on any personal income, including retirement accounts or pensions. Those nine states are Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, Washington, and Wyoming.
Two more states do tax income and distributions from an IRA or 401(k): Hawaii and Alabama. These states do tax pensions.
Three more states tax income but don’t tax pensions, IRA, or 401(k): Illinois, Mississippi, or Pennsylvania.
From a purely financial perspective, these states may have huge financial advantages for seniors. Furthermore, their status as a tax haven of sorts creates natural markets for seniors. This means – in theory – that these states should have plenty of businesses and services that are specifically geared towards recruiting seniors.
It’s essential to keep in mind that, although state taxes can take up a chunk of your financial resources, they are not the be-all, end-all of determining the best states to retire in the U.S. Federal taxes can be much more impactful on your bottom line than state taxes. Furthermore, other financial factors – like the overall cost of living in a state – can significantly affect your bottom line. A state with a high cost of living and low taxes will still be more expensive to live in than a state with a low cost of living and high taxes.
In other words: Develop a more comprehensive view of what a state’s overall financial picture is like when deciding the best states to retire in the U.S. Don’t make a final determination based on just one tax rate.
What are the Best States to Retire in the U.S.?
If the answer to this question was as simple as gauging state income taxes, the answer would be easy: You’d pick one of the fourteen states above. However, it isn’t that simple. A variety of other factors come into play when making this decision, including other types of taxes.
You should also examine if your state taxes social security, something that is received by almost every senior.
According to the AARP, 12 states tax some or all social security benefits: Colorado, Connecticut, Kansas, Minnesota, Missouri, Montana, Nebraska, New Mexico, Rhode Island, Utah, Vermont, and West Virginia. Living in a state that doesn’t tax your social security will leave more money in your pocket.
Property taxes can play a major role when learning about the best states to retire in the U.S. Most states levy property tax, which can be critical for funding local and school-related functions. Some states have higher property taxes than others, including many on this list: Alaska, Illinois, New Hampshire, and Pennsylvania, for example, have property taxes that are higher than the national average.
For seniors, the role of property taxes can be particularly problematic, as these taxes will increase regardless of your level of wealth since they are tied to the value of your home, not your income levels. Furthermore, renters pay property taxes, too, in the form of higher rents. As such, the role of property taxes must be taken into account when considering the best states to retire in the U.S.
Sales taxes are also important factors, particularly for seniors who are on fixed incomes. Only five states (Alaska, Delaware, Montana, New Hampshire, and Oregon) don’t levy a sales tax. States that do have such a tax vary from a low of 2.9% to a high of 7.25%. However, some local units of government also charge a sales tax, and this can add to your sales tax burden.
There are other taxes to consider, depending on your personal tax situation. This includes sales and use taxes, estate tax, inheritance tax, excise taxes, water fees, and more.
All of these factors must be considered before making a determination about the best states to retire in the U.S. Everyone will have a different answer. However, different studies have found that different states are more beneficial than others for retirement.
For example, SmartAsset lists Alaska, Florida, Georgia, Mississippi, Nevada, South Dakota, and Wyoming as the best states to retire in from a financial perspective, noting their low tax burden and/or lack of taxes on retirement income.
U.S. News also has a list. It notes that Alabama, Alaska, Florida, Illinois, Mississippi, Nevada, New Hampshire, Pennsylvania, South Dakota, Tennessee, Texas, Washington State, and Wyoming are all relatively tax-friendly for retirees. These rankings were given for different reasons, but all generally related to a combination of low tax rates or a lack of taxes for retirees. Some taxes provide an exemption for low-income individuals who have retirement savings, thus giving them an additional financial benefit if they do not make as much as wealthier individuals.
Kiplinger also made its list of the most tax-friendly states for retirees. 10th on the list was Tennessee, followed by Arizona, Alabama, Colorado, South Carolina, Nevada, Washington D.C., Wyoming, Hawaii, and Delaware. Unlike the previous two lists, Kiplinger took a broader look at the various circumstances that led to a state being considered tax-friendly, including all of the taxes that the state levies.
As noted above, simply determining the cheapest state to live in may not give you the full, complete picture that you are looking for, and it certainly won’t help you figure out the best states to retire in the U.S. There are a variety of other important factors to keep in mind when deciding where to retire. Keep in mind that other important factors – one’s not directly related to money – can impact any decision about the best states to retire in the U.S. This includes the following:
Quality Health Care
Perhaps nothing is as important to select a state to move to when you are 65 and older than the quality of health care that is offered by a state. This means that you need to investigate if a state will have doctors, nurses, physical therapy, and hospital systems. Even if you are blessed to be in good health, this is an issue you should pay attention to, as you don’t know what the future will bring.
Property crime and violent crime are essential metrics, particularly for seniors, who may find themselves targets of scams. As such, you want to live in a state with low-risk factors, low crime rates, and a robust police presence that can deter any criminals and address your needs if you are the victim of a crime.
You will also want to make sure that you pay attention to related services, including fire protection, EMS capabilities, and more. The ability of a community to care for itself can help show how they will be able to care for you as someone who is 65 and older, and this is unquestionably something that you will want to pay attention to as you get older.
Many seniors prefer states with mild winters or high air quality to ensure that they can live a healthier retirement. If this is important to you, make sure to examine the weather patterns of a state. Warmer states tend to attract more seniors, which helps explain why some states – like Florida or Arizona – tend to have the highest percentage of seniors living in it.
At the same time, there are other weather-related factors that you should keep in mind. As strange as this might sound, climate change is one of them. This impact is being felt throughout the United States, altering traditional weather patterns across the country. This is making extreme weather more likely and devastating places that typically see more difficult weather. No one likes dealing with weather extremes, of course, but these issues are even worse for seniors, who may not be able to evacuate as easily as younger families. As such, make sure to check out weather scores for extreme weather before making relocation decisions.
Getting around gets more challenging for seniors, who may need access to high-quality transportation services. Ideally, you will be able to drive yourself and your loved ones well into your old age. However, many seniors come to rely on public transportation to ensure that they can manage errands, see friends, and get to doctor’s appointments. Larger cities, like New York and San Francisco, offer robust transportation networks, and many also have customized transportation options for seniors who may need to get to medical appointments. These programs often come with income restrictions, so you’ll need to examine if you qualify before making any final decisions.
Fortunately, not everyone will have to deal with these issues, and many seniors have family or friends who can manage their transportation needs well into the future. If this is you, transportation is one less thing to worry about.
Access to high-quality healthcare
Growing older means health challenges. As such, you must have access to high-quality healthcare in your retirement years. This means making sure that you will have access to private or public health care to ensure your health needs are protected. Again, this can be a challenge: As shown by the most recent data, doctor shortages are becoming a real problem in the United States, particularly in certain areas of the country.
Transportation and transportation network
There is no question that people who are 65 and older have a harder time moving and getting from point A to point B. As such, you will want to get a good understanding of the transportation network of a state before you move to it.
Keep in mind that transportation is so much more than just roads and bridges. It also means walking paths, availability of public transportation, and the availability of services that are specifically geared to help seniors travel.
What are the Worst States to Retire in?
There are a variety of states that have very heavy tax burdens, and in some cases, those tax burdens can fall disproportionately on seniors or retirees.
For example, SmartAsset notes that California, Connecticut, Maine, Minnesota, Nebraska, Rhode Island, and Vermont are “not tax-friendly” for retirees.
Other rankings, like this one from Bankrate, take a more holistic view, looking not only at taxes but at overall affordability, wellness, and culture. This broader view results in Maryland having the worst rank, followed by Minnesota, Kansas, Montana, Alaska, Main/Arkansas, Alabama, Connecticut/Idaho, and Washington State.
There’s no question about it: Making a list of what state is the worst to retire in can be a challenge. There are some objective metrics – such as taxes, cost of living, and health care – but some things matter more to some individuals than others. If you’re someone who hopes to hike well into your old age, you’re going to want a state with a climate for hiking or other outdoor activities. If you want a state where you will have many other seniors nearby, states like Florida and Pennsylvania, may be more appropriate for you. As such, there are other metrics to keep in mind besides taxes.
One such example is the overall cost of living.
What is the Cheapest State to Retire in?
Remember, one dollar in one state won’t get you as far in another state, and you have to keep in mind the cost of living. This is particularly important for seniors, who usually live on some sort of fixed income, including social security and retirement savings. As such, finding states with lower taxes may not give you the comprehensive view that you need, and several factors should be considered when making retirement decisions – including just how inexpensive it can be to live in a state. This is why you need to keep an eye out for a state with a low cost of living. When combined with low taxes, you can find states that protect your financial future.
As always, decisions like this are customized based on what is best for your financial health, and a low cost of living for one person may not be as impactful for another. This is why it is so vital that you engage in comprehensive retirement planning throughout your life: Doing so can steer your investment and financial decisions, ultimately increasing your financial health as you get older.
For various reasons, some states are cheaper to live in than others. This specific item refers to a state’s cost of living. This usually involves several factors, including access to a high-quality labor pool, local taxes, transportation costs, local wages, and more. As a result, some things are naturally cheaper in some states as opposed to others. For various reasons, the cost of living is greater in some states than in others. Hawaii, California, New Your, Oregon, and Massachusetts all have the highest cost of living. Mississippi, Alabama, Oklahoma, Missouri, and New Mexico all have the lowest.
As you can see, various factors go into finding the best states to retire in the U.S., like choosing a state to live in during your retirement. This can be a complicated decision involving years of planning to get it right. It is in your interest to contact wealth professionals like Churchill Management Group. At Churchill, we can help you plan for your retirement and get you access to the high-quality financial planning services you deserve.
Financial Planning Services Disclosure; Churchill provides financial planning services to Clients that specifically engage Churchill for that service. The planning can include defining goals, designing a plan, assisting with implementing the plan, and evaluating and adjusting the plan over time, at the request of the client. The financial planning includes advice regarding securities investing and may include discussions of a client’s tax, insurance, employee benefits, estate planning, and other issues. Churchill, however, does not provide legal, insurance, employee benefit, estate planning, tax, or accounting advice, and the client must rely on legal, insurance, and accounting professionals for that advice and documentation.