Experts: How To Pick Your Best State To Retire
Considering a retirement move? Heres advice from experts who help retirees and soon-to-be-retired workers through the decision:
Laura Kovacs, assistant executive officer and director of education at the Scottsdale Area Association of Realtors in Arizona:Spend some time in places where you want to live before you commit to moving there. Go to a variety of different places that you seem to be attracted to places that have a lower cost of living and lower property taxes and test them out for a while. If youre interested in Florida or Arizona or California, stay there for a while and see if you like the climate at the time of year youre going to be living there. Make sure its really as affordable as you thought. When youre still working, take some time to go preview different types of communities and different types of lifestyles. And when youve retired, maybe try renting for a while before you commit to buying.
Total Tax Burden: 834%
Washington hosts a young population, with only 15.9% of its residents over age 65, and many major employers, thanks to the lack of state-mandated corporate income tax . Residents do pay high sales and excise taxes, and gasoline is more expensive in Washington than in most other states. The state comes in at 26 out of 50, with a total tax burden of 8.34%.
Unusually higher-than-average living and housing costs hurt Washingtonians, putting the state at 44th in terms of affordability. For some residents that might not matter, however, because their state was ranked by U.S. News & World Report as the overall best state to live in once again for 2021.
Washington spent $7,913 per capita on healthcare in 2014, $132 below the national average. Conversely, at $14,223 per pupil, it spent more on education than most in 2019, though it received a C grade for its school funding distribution four years earlier. In 2019, Washington earned the same grade for its infrastructure from the ASCE.
Why Are Taxes So Crucial
Some states in the U.S. are more tax-friendly for retirees when compared to others. The advantage of these states is determined by the rates of income tax, sales tax, and property tax that are charged by the state.
Tax data collected by personal finance site Kiplinger shows that the tax burden in one state can vary by almost thousands of dollars per year compared to another state. As such, it is beneficial to understand the tax benefits that some states provide for retirees.
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The Best States To Retire In From A Tax Perspective
Many factors influence the decision of where to retire. Family, familiarity of surroundings, climate and cost of living are among the many factors that affect ones choice of where to spend retirement years. What about state taxes? They are often overlooked and just accepted as an expense. However, for those with a keen eye for wealth preservation, state taxes are critically important in deciding where to live and ultimately retire.
How Is Social Security Taxed
When thinking about retirement, Social Security is usually one of the first things that comes to mind. These benefits are generally subject to federal tax, but it will depend on your total retirement income.
Only 13 states currently impose their own tax on Social Security benefits. They are: Colorado, Connecticut, Kansas, Minnesota, Missouri, Montana, Nebraska, New Mexico, North Dakota, Rhode Island, Utah, Vermont and West Virginia. And many other states offer exemptions for lower earners.
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Best Overall State For Retiring
Now, lets compare. By cross-referencing our list of Best States for Minimizing Taxes in Retirement with our list of states most densely populated with retirees, we find that only one state makes both lists.
The Sunshine State offers favorable taxes, pleasant climate and reasonable cost of living.
So Which Are The Best States For Retirement Taxes
Well, the absolute best state for retirement taxes will depend a bit on your own financial profile.
For example: If you will be leaving behind significant assets to heirs, avoid states with major estate taxes. Or, if you have valuable assets and will be earning sizable returns, then you might want to look for states with low taxes on interest and dividends.
However, in general, here are five of the states best for retirement taxes:
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Retirement Account And Pension Income
The way a state handles retirement account and pension income can have a huge impact on the finances of a retiree. Many states do not provide any kind of deduction, exemption or credit on withdrawals from a retirement account such as a 401 or IRA.
How might that affect a typical retiree? Lets say your effective state tax rate in one of these states is 4% and your annual income from your 401 is $30,000. That would add up to taxes of $1,200 on that retirement account income taxes that you wouldnt have to pay in states like Alaska and Mississippi .
Exemptions for pension income are more common. Only a handful of states fully tax income from a government pension, while a few more tax income from a private employer pension. The other states either exempt that income or provide a deduction or credit against it.
Is Social Security Taxable In South Carolina
Any Social Security that is included in your adjusted gross income for federal purposes can be subtracted out of your AGI on your South Carolina tax return. This, along with the low cost of living in South Carolina, means it is possible for some seniors in the Palmetto State to survive on Social Security retirement benefits alone.
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The Best States To Live: The Bottom Line
All of these rankings are based on averages and selected data. With any average, there will be experiences that are better, as well as worse.
You may live in a state that the list-makers say has a poor system of health care. And yet, you have a wonderful doctor and have received the best medical treatment you could want.
The lists dont consider other things like the types of communities. For example, college towns are worth considering because they may have interesting activities like art exhibits, lecture series and classes to audit. Or maybe you want to live by the water or in the mountains.
This is all to say that the rankings are useful for painting a big picture. But your results may vary.
The Best States To Retire In
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What Other South Carolina Taxes Should I Be Concerned About
If you plan on supporting yourself during retirement with investments that are not held in a retirement account, its important to be aware of South Carolinas tax on long-term capital gains. Gains made on investments, whether they were held for more than or less than one year, are subject to the South Carolina income tax rates shown in the table above. Long-term gains, which are held for at least one year, receive a 44% deduction, though.
South Carolina does not have an estate or inheritance tax.
What Is Quality Of Life
We asked 1,500 American adults around retirement age this question, and retail and dining came out at the top of the list, with 57% of respondents saying they’re important in quality of life.
Outdoor activities and cultural activities were high priorities as well, with spiritual community , organized activities for retirees , and civic organizations being less of a priority.
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Best And Worst States For Retirement In 2022
Choosing the best state for retirement requires careful consideration of the financial, health and social impacts on your life. Youll want to balance affordability and health care with the quality of life, social groups and available activities.
We gathered and analyzed the data most critical to retirees in all 50 states. We surveyed our readers, and their opinions are reflected in the RL Rating for each state. Then we crunched the numbers to find the best and worst states for retirement in 2022.
We Asked People What They Prioritize In A Place To Retire Then Ranked All 50 States Based On Those Priorities
One of the biggest questions in retirement planning is where to retire. Nearly 400,000 Americans moved states explicitly because of retirement in 2019 alone. And millions of Americans over 55 moved across state lines to warmer climates in Florida, Arizona, Texas, California, and other states typically thought of as retirement destinations.
Of course, deciding where to retire is more complicated than picking a state that has reasonable summers, mild winters, and plenty of sunshine. Even with a solid retirement fund, the cost of housing, healthcare, and other factors are still important.
To determine the best places to retire, The Motley Fool surveyed 1,500 Americans aged 55 and over about what they think the most important factors are when choosing where to retire.
The Motley Fool ranked all 50 states for retirement based on their responses.
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Floridathe Best State To Retire In
Its really not a surprise that Florida ranks so high as a choice for retirement living. The climate of Florida with its warm weather and mild winters attracts 1,000 new residents every day.
Persons 65 years and over make up 20.5% of the population which is ranked 4th in the US for overall population, behind California, Texas and New York.
Florida caters to the outdoor enthusiast with boating, fishing, and more golf courses than any other stateover 1,250!
For the traveler, Florida is itself a popular vacation destination and also offers ample access to airports, cruise ship ports, and amusement parks.
Kiplinger magazine said of Florida, Florida is among the tax-friendliest states in the country for retirees. There is no state income, estate or inheritance tax.
|Cost of Living Rank- per US News||Healthcare Rank- per Us News||Median Home Value- per Zillow|
Florida property tax averages 0.93-1.02%, which is below the national average of 1.19%.
So if you want one of the best states to retire in for taxes, definitely check out Florida because for most retirees the lifestyle is a huge plus also!
Is Social Security Taxable In Georgia
In short, no, Social Security is not taxed in Georgia. When filing income taxes here, you should subtract any Social Security that is included in the adjusted gross income on your federal tax return from your income on your Georgia tax return. That means none of your Social Security income will be subject to tax.
Property Taxes And Senior Property Tax Relief Programs
Homeownership is a good way for seniors to lock in their housing costs for the long run so that they dont have to worry about shifts in the housing or rental market. In some states, however, high property taxes or property taxes that can grow rapidly from one year to the next serve to discourage retirees from owning a home. Property tax rates and rules are drastically different between states.
For example, New Jersey homeowners typically spend around $8,400 annually in property taxes. In Alabama, most homeowners spend much less, at right around $600 a year.
One way many states help retirees limit the burden of property taxes is by offering exemptions or circuit breakers. The terminology varies by state, but exemptions typically allow seniors to protect part of their homes value from property taxes. They often have income limits, so households earning more than a certain amount are not eligible.
Circuit breakers can have the same effect as an exemption. Sometimes, they also limit the amount property taxes can increase from one year to the next for seniors.
Property tax deferrals are another helpful form of property tax relief for seniors. Deferrals allow seniors and retirees to put off payment of some or all of their property taxes until a later time. It is typical for deferred property tax payments to be subtracted from the revenue of an eventual home sale, meaning they never come out of a seniors income.
Honorable Mention: South Carolina
South Carolina barely missed out on our top 10, so we had to include an honorable mention. South Carolina blends great affordability with great weather and culture. There are many different types of activities across the state, and South Carolina is quite tax-friendly. Youll find great food and plenty of activities in South Carolina to enjoy during retirement. If you are looking for a place to retire, South Carolina should certainly be in consideration.
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The 10 Best States To Retire In For Taxes & Lifestyle
There are significant advantages to living somewhere with tax benefits. No state income taxes and no inheritance/estate taxes could equal huge savings for the savvy retiree!
Living in a state with little or no sales tax and low to moderate property tax can also translate into a huge bump in your monthly budget. And if leaving a legacy is important to you, it will help you keep more of your hard-earned retirement funds for your beneficiaries.
Of course, taxes arent always the most important aspect to consider. So to make my list of the 10 best states to retire in for taxes I also looked into lifestyle factors such as:
- the cost of living
- health ,
- the median home price
- and the general quality of life
Without a doubt, some states could be moved up or down the list for a variety of reasons. One persons ideal paradise could be anothers nightmare!
At the bottom, I included the states that consistently appear in the top 10 of almost every different list of the best states to retire in out there.
Best And Worst States To Retire In For Taxes
Taxes can be a major financial factor in deciding where to retire, but it can be complicated figuring out what states tax burden may be the best or worst for you. You have to consider how different state and local taxes will affect your retirement income.
Several states have no income taxes and they often make it a big selling point to attract businesses, retirees and other people. But these states may make up for the lack of an income tax by having other, higher taxes.
Income, property, and sales taxes all contribute to an individuals overall tax burden, and every state finds a different balance between them, Janelle Cammenga, a policy analyst at the tax policy-focused nonprofit Tax Foundation, told RetireGuide. Many states also tax at least a portion of social security income.
Taxes to Consider When Considering Where to Retire
- State and local income taxes
- State and local sales taxes
- Property taxes
- How or whether a state taxes Social Security benefits
- State inheritance taxes
- State estate taxes
Several states have no income taxes and dont tax your Social Security benefits. And while these may look like a good deal, they may have other taxes that take a sizable bite out of your income.
For example, Tennessee may not tax wage or social security income, but it has average sales tax rates of over 9.5%. Cammenga said. Each person will have to decide what combination of taxes works best for him .
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Cut Individual Income Taxes
A flat and fair 3.9% individual income tax rate means Iowans keep more of their hard-earned pay upfront. When the new rate is fully enacted in 2026, 98% of Iowa taxpayers with $10,000 or more of taxable income will benefit from a decreased tax liability.
3.9% Flat Income Tax
Beginning in tax year 2023, implement four tax brackets ranging from 4.4% to 6.0%.
In subsequent tax years, eliminate the top rate annually until a 3.9% flat tax rate is achieved in tax year 2026.
A 3.9% flat tax is projected to save Iowa taxpayers more than $1.67 billion by tax year 2026.
A flat tax will not result in low-income Iowans paying more. Low to moderate-income earners who qualify for the Federal Earned Income Tax Credit and other available tax credits will continue to receive a state tax refund when credits exceed state tax liability.