The Best States For Retirement That Help Make Your Savings Last
There are a lot of factors to consider when deciding where to settle down in retirement. Maybe you want to be close to family, find a beachside paradise or be within walking distance of a scenic golf course. No matter your retirement dreams, we think you should also consider the financial ramifications of your move. That’s why we put together a list of the best states for retirement.
How We Chose The Best States For Retirement
Different states offer different benefits for retirees, and it can make a big difference on how long your savings last. We studied the numbers and compiled a list of the best states for each financial consideration to help you decide where you want to spend your golden years. You can skip to the end to see our overall financial winners, but first, here’s what you should start considering before you move.
Taxes
Taxes have one of the biggest impacts on your retirement savings’ longevity. With considerations for income taxes and property taxes, you’ll want to examine if where you want to move will protect your investment.
First off, if you’re wondering if you pay taxes on retirement incomes, the answer is yes. According to the IRS, most retirement accounts count as taxable income. This includes, but is not limited to, military retirement pay, pensions, IRAs, 401(k) withdrawals and unemployment benefits. This income will be taxed federally just like when you were employed and is subject to the same tax brackets as regular earned income.
Social Security is also taxed on the federal level depending on your income. If you’re living purely on your social security, you’ll probably avoid paying too much in taxes, but if you have additional retirement income, you’ll probably need to plan on paying the federal government some.
So in short, everyone pays federal income taxes on retirement withdrawals, but state income taxes are not as simple. Depending on each state’s laws, your tax payments will vary greatly. For example, you’ll pay nothing on your annual retirement income to the state of Texas. But depending on how much you withdraw, you could be responsible to pay up to 13.30% of that same income in California in taxes.
If your goal is to pay nothing in taxes on your retirement income, below is the list of states that have no income tax.
States with No Income Tax
Alaska
Florida
Nevada
New Hampshire
South Dakota
Tennessee
Texas
Washington
Wyoming
Of course, there are often other costs to consider when moving to some of these no-income tax states. Many of these states have high property taxes to recoup revenue forgone by not taxing income. They may have high costs of living or other non-financial “costs” like long winters and isolation (we’re talking about you, Alaska). Still, if somewhere on the list floats your boat, then the lack of income tax can be a real boon.
If the state you’re considering is not on the no-income tax list, it isn’t hopeless: you’ll just want to be informed. There are many states that are labeled “retirement friendly” even with state income tax. Just be sure to check things like taxes on social security benefits, any deductions for retirement income or required inheritance or estate taxes. Plus, you’ll want to check other tax ramifications like property tax and sales taxes in order to make an informed decision on how taxes will affect your retirement.
Cost of Living
The other financial consideration in our list of best states for retirement is the overall cost of living. Different states have vastly different costs when it comes to housing, groceries, health car, and transportation, and these differences can really stunt or stretch your budget.
Cost of living will vary from city to city, but the Missouri Economic Research and Information Center gathered information from many of these cities to create an average cost of living index for each state. This data takes into account everything from daily expenses like groceries and transportation to large costs like health care and housing to create an idea of which state has the most affordable living and which does not.
Best States for Cost of Living
West Virginia
Oklahoma
Kansas
Alabama
Mississippi
Missouri
Arkansas
Iowa
Indiana
Tennessee
Cost of living reflects the 2024 first quarter data gathered by MERIC through voluntary surveys from cities throughout the US.
Source: Cost of Living Data Series | Missouri Economic Research and Information Center (mo.gov)
Overall, the most affordable states are found in the Midwest or South while the more expensive states are in the Northwest and Northeast. It probably comes as no surprise Hawaii and Alaska have the highest cost of living overall — cost of living rates that nearly double the more affordable states.
Again, just because your desired state isn’t on this list doesn’t mean it’s a no-go. It just means you might have to save more now or budget more later. In fact, check out How Long $1 Million in Retirement Will Last in Every State to see how much retirement savings you should plan on.
The Best States for Retirement: Our Results
Retirement taxes and cost of living are two great metrics to start your retirement dream hunting. However, it can sometimes feel overwhelming looking at the data alone. We looked at the above metrics and more to find what we consider the five most retirement friendly states for your wallet.
Mississippi
Mississippi earns a spot on our retirement friendly list because it has one of most retirement-friendly tax policies of all the states. While you do pay state income taxes on income in general, Mississippi does not collect taxes on social security, pensions, IRAs or 401(k) withdrawals — effectively making your retirement income tax-free.
It also has low housing costs and property taxes, earning it’s #5 ranking of states with the most affordable cost of living in the U.S. In addition, Mississippi is a good place for your heirs because there is no estate or inheritance tax. Be warned, Mississippi does have rather high sales taxes so it isn’t financially perfect, but we think overall it’s pretty close to a home run.
Arkansas
It’s Arkansas’s low cost of living that makes it one of the best states for retirement. It’s ranked in the top states for affordability and consistently comes out in the top 10 when it comes to housing, groceries and transportation savings. Arkansas also offers no taxes on social security, low property taxes and relatively low state income tax. Basically, you can rest easy because you know you’ll be able to stretch your retirement savings a long way.
Tennessee
Tennessee offers retirees no state income taxes to speak of. No matter how you’re preparing for retirement, you won’t be taxed when you pull out your savings. It also has low property taxes and low housing costs. With a 10th place score in cost of living, Tennessee is an affordable place to buy a home, grocery shop and savor some of the finer things in life.
Georgia
Georgia is a little lower on our cost of living list, but still holds its own by ranking just outside the top 10. It has no social security tax or estate or inheritance taxes. While sales taxes are high, groceries are exempt from it, and property taxes are low. Combined with the overall low house prices, it’s pretty affordable overall.
As an added bonus, people over the age of 65 can deduct as much as $65,000 in retirement income per person on their state taxes (if you’re 62-64, that deduction falls to $35,000). It doesn’t quite make it as nice as no state income tax, but it does help make Georgia more affordable.
Oklahoma
Oklahoma is considered tax-friendly toward retirees with no social security income tax and only taxing withdrawals from retirement accounts partially. Plus, what you are taxed might not be that much. Oklahoma’s state income tax begins at just .25% and only goes as high as 4.75%.
It also ranks well in cost of living, stealing the second spot overall. Plus, Oklahoma doesn’t tax inheritances and provides a $10,000 deduction at tax time toward other types of retirement income. Like other Midwest states, the sales tax is a little high, but the low property prices help to offset that hit.
Are You Ready to Go?
We found our winners when it comes to retirement savings, but don’t panic if your favorite destination isn’t on the list. While finances are important, there are a lot of factors that’ll go into choosing the best state for you. We simply think any choice should be a financially informed one. In fact, if the state you’re considering is a little more expensive, check out our Tips on Retiring Comfortably Without Being A Millionaire to still have an awesome retirement. Above all, we hope you can glide into your golden years financially prepared.
Contributor Whitney Hansen covers banking, credit cards and investing for The Penny Hoarder. She also writes on other personal finance topics.
This was originally published on The Penny Hoarder, which helps millions of readers worldwide earn and save money by sharing unique job opportunities, personal stories, freebies and more. The Inc. 5000 ranked The Penny Hoarder as the fastest-growing private media company in the U.S. in 2017.
