Thinking of Moving to a More Tax-Friendly State When You Retire?

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Which are the best states for retirees?

Where to retire is a big topic of conversation lately among my friends and colleagues. While some are considering retiring in more affordable European cities, many others want to stay in the U.S. in states with lower taxes than where they currently reside. There are also plenty of people who simply want better weather and more sunshine. Still others want to move wherever their children live, regardless of the taxes. I get it. It is more fun to play with the grandkids in person than to visit by zoom.

For Americans open to moving and seeking a more affordable lifestyle, though, finding a more tax-friendly state is a good option. According to the Cato Institute, people of all ages are doing just that. However, some states are particularly interested in attracting seniors and retirees for various reasons and implemented tax cuts on retirement income which includes income from, for example, Social Security and 401(k)s.

Why do some states focus on tax cuts for older adults?

So why do some states want to attract seniors and retirees?

Seniors vote at significantly higher rates than other age groups in the U.S.
As a group, older adults have a lot of buying power and don’t mind spending.
Some policymakers believe seniors impose lower costs because they do not use services such as the public school system.

Which states provide the best bang for your buck tax-wise?

It’s important to do your research before deciding to move to a more tax-friendly state. Just because the government doesn’t tax your social security income, as is the case in 38 states, doesn’t mean these states are the most tax-friendly or the best states to retire. Some of these states have high property taxes and/or sales tax or high tax rates for 401(k)s or pensions. Kiplinger offers a State‐by‐State Guide to Taxes on Retirees which compares income tax, sales tax, property tax, and tax on retirement income in the different states. Using their analysis, they categorize the states and Washington D.C. as either “most tax‐friendly,” “tax‐friendly,” “mixed,” “not tax‐friendly,” and “least tax‐friendly.”

MOST TAX-FRIENDLY STATES

According to Kiplinger, the following states are the most tax-friendly in the U.S.

Moving to one of these states can help stretch your dollars in retirement. However, consider if these areas are places you would feel comfortable. Do they have the climate you desire? Or the religious community in which you would like to participate? Are you comfortable with the politics? How age-friendly are the specific areas you are considering? All of these factors are important to think about before making a decision.

1. Delaware

2. Hawaii

3. Wyoming

4. District of Columbia

5. Nevada

6. South Carolina

7. Colorado

8. Alabama

9. Arizona

10.Tennessee

FIND MORE INFORMATION ABOUT WHAT MAKES THESE STATES TAX-FRIENDLY HERE

LEAST TAX-FRIENDLY STATES

Retirees living in these states pay higher overall taxes than in other state. You may be surprised at some of the states considered the least tax-friendly. For example, Texas, as this state is one of the few with no state income tax. However, consider the property and sales taxes. It’s likely no great surprise that both New York and New Jersey made this list of the 10 least tax-friendly states.

1. New Jersey

2. Illinois

3. Kansas

4. Nebraska

5. Connecticut

6. Vermont

7. New York

8. Wisconsin

9. Iowa

10.Texas

FIND MORE INFORMATION ABOUT WHAT MAKES THESE STATES LESS TAX-FRIENDLY HERE

The bottom line

If you are like many of us starting to think about where we want to retire, there are many factors to consider. It’s not all about the money, although taxes and affordability are important considerations that can impact your quality of life. Take advantage of the resources available to help make this important decision. And remember, if you do make a move and don’t like it, there is no reason it has to be forever.

Where are you thinking of living in retirement and why? Which do you think are the best states for retirees?