Retirement doesn’t mean the end of dealing with money matters, and where you choose to reside during those years can have a huge impact on your finances.
Every state has its own rules about taxes and how to treat retirement income like pensions, 401(k) withdrawals, and Social Security, with some states being better than others for retirees.
So, as you make decisions about what you spend your money on, where to live, and other retirement planning moves , here are some states to consider to help you save money on taxes.
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1. Florida
Florida is an enticing place for retirees because of the warm weather and residential options that cater to retirees.
It's also a great place if you’re worried about a high tax bill. The state has no income tax and doesn’t tax Social Security, retirement account withdrawals, or your income from a pension.
However, it’s important to remember that Florida still has property taxes, and rates vary from location to location.
Also, due to the high incidence of extreme weather, homeowners insurance may be unaffordable if you can get it. It’s important to factor those costs in if you plan to buy a home there.
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2. Nevada
It may be a good gamble to move to Nevada when you retire for the warm weather and retirement tax benefits.
Nevada doesn’t tax Social Security, retirement account withdrawals, or pension income. It’s also a state that doesn’t tax income, making it affordable for retirees.
The state is also in the top 10 when it comes to the lowest property tax rates in the country. If you buy a home there, expect to pay around a 0.55% property tax rate.
3. South Dakota
South Dakota is very friendly to retirees when it comes to taxes. There’s no tax on Social Security, retirement account withdrawals, and pensions. It also doesn’t state tax income.
The state also has a low cost of living, including housing. According to Redfin, the median sale price was $321,600 in August compared to $433,229 for the entire United States in that same month.
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4. Wyoming
Another state that doesn’t tax income is Wyoming. In addition to that, the state also won’t tax your Social Security, private or public pensions, or your retirement account withdrawals.
Wyoming also has affordable property taxes, making the top 10 for lowest property tax rates by state in the U.S. You should factor in an average property tax rate of 0.61% when putting your retirement budget together.
5. Washington
The state of Washington makes it affordable for retirees to live there with zero taxes on your Social Security benefits, retirement withdrawals, or income from a pension. It's also one of nine states with no state income tax.
Be aware that you may have to use the money you save in taxes on housing. The median sale price of a home in Washington was $644,600 in August, and the state has an average property tax rate of around 0.84%.
6. Alaska
If you prefer to live somewhere cold with lots of outdoor activities when you retire, there’s nowhere that can meet your requirements quite like Alaska.
The state also is tax-friendly to retirees. The state has no taxes on Social Security, retirement account withdrawals, or private and public pensions.
The state is also easy for seniors when it comes to property taxes. If your primary residence is in Alaska, you have a mandatory exemption on property taxes for the first $150,000 of assessed value if you’re 65 or older.
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Tennessee is another state that doesn’t tax your income or your Social Security, retirement account withdrawals, or pension income.
The state ranks in the top 15 states when it comes to affordable property taxes, so you can save some cash living there, depending on where you decide to buy a home.
8. Texas
In addition to no state income tax, Texas welcomes retirees by not taxing Social Security, pensions, or any of your retirement withdrawals.
Be aware that of the nine states with no state income tax, Texas has the highest average property tax rate on the list, at 1.6%. You’ll need to factor that in when budgeting your costs if you retire in the Lone Star State.
9. Illinois
Illinois is tax-friendly to retirees as the state is one of four that will not tax your retirement income. You can enjoy the full benefits of your Social Security, retirement account withdrawals, and pensions without paying taxes.
However, there are other costs you may have to account for. Illinois has a flat income-tax rate of 4.95%, which could be an issue if you decide to take up a side hustle or earn other income while living there.
The state also has the second-highest average property tax rate in the U.S., with homeowners paying around 2.08% in property taxes.
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Mississippi is particularly tax-friendly for retirees who wish to live there as it doesn’t tax Social Security, retirement account withdrawals, or distributions you receive from a pension.
Mississippi does have a 4.7% tax rate for any income you may earn while you live there, so factor that into your budget when deciding if you should retire there.
11. Pennsylvania
Pennsylvania is tax-friendly if you decide to retire there as it doesn’t tax your Social Security, withdrawals from a retirement account, or a pension.
However, the state does have some restrictions on what it considers retirement withdrawals. It’s important to talk to a financial advisor or tax advisor to ensure you know what you may have to pay taxes on and what you don’t.
Bottom line
Choosing the right retirement haven isn't just about sunshine and golf courses. Taxes, both income and sales, can significantly impact your lifestyle.
So, before you retire , crunch the numbers, compare tax brackets, and consider incorporating tax-advantaged strategies.
Remember, a little planning today can translate to a more financially secure tomorrow in your dream retirement location.
Money tips that can work for everyone
No matter what your bank account balance is, there's always an opportunity to optimize and improve your finances. Here's a quick checklist of things you can look at today.
Focus on paying off your debt. Debt can hold you back from making progress with your overall financial well-being. Aside from cutting expenses, there are tools that can help you pay off debt faster like balance transfer credit cards and debt counseling.
Earning extra income can give you breathing room. If finances are tight, earning some extra money to supplement your income can make a huge difference. A new job is one option to consider, but if you're not ready to make a big change or already retired, a part-time side job could be a better choice.
Cut your expenses. It sounds painful and so not fun, but it doesn't have to be. Take a look at your biggest expenses because that's where you'll probably find the biggest savings. For example, auto insurance rates have been soaring so shopping around for a new insurance company can be the fastest way to cut your bill. Also, look for ways to cut your grocery bill (despite rising inflation).
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