Often, when discussing retirement, people talk about when they want to retire, and what they want to do in the Golden Years. What’s typically left out of those discussions is where they plan to retire. Perhaps they assume they will stay in their current community, or head to Florida like so many retirees before them.
Although either of those options may work for you, smart retirement planning means exploring all of your options, and possibly planning a move to a more retiree-friendly state. Even if you’ve saved enough money to comfortably stop working, where you live can make a big difference to how far that money goes. Choosing to move to a state with a lower cost of living and more favorable tax conditions can help you make the most of your savings, and ensure you have the retirement you’ve envisioned, especially if you haven’t quite reached your saving goals.
So where should you retire? Although many individual factors will influence your decision, there are a few states that rise to the top when it comes to the most favorable conditions for retirees.
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Aspects to Consider When Choosing a State to Retire In
When choosing your retirement home, several factors will influence your decision. Your personal preferences and the proximity to family will undoubtedly top the list, but from a more pragmatic perspective, there are several other factors to consider.
- Taxation of retirement income: Retirees often have several sources of income, including pensions, retirement account withdrawals, Social Security benefits, military benefits, and more. Most of this income is taxable, and depending on your circumstances, the burden could be significant. Several states have no personal income tax, allowing you to keep more of your money.
- Taxation of property: Many states tax personal property, including your home and vehicle. A state with low or no property taxes will save you money.
- State economy: The overall state economy influences both the tax burden and the affordability of the area. Economically depressed states may lack access to necessary services, and have other problems, making them less appealing to retirees.
- Healthcare costs: Healthcare is a chief concern for retirees. The overall cost and availability of medical care can influence the affordability of a specific state and the friendliness to retirees.
- Personal security: What is the risk to your personal safety and well-being in a particular area?
- Weather conditions: For some people with chronic conditions, living in a state with warmer or more consistent weather conditions helps them stay healthy and comfortable. Others may not want to deal with severe cold or snow cleanup anymore. Your retirement home should be in a place with weather that’s appealing to your preferences.
Top 10 Best States for Retirement
Based on the criteria discussed above, 10 states rise to the top of the rankings for the best states for retirement.
Florida has long been a top destination, and has one of the country’s largest proportion of residents over age 65 to prove it. With pleasant, warm weather year-round, and a relatively affordable cost of living, Florida appeals to retirees for many reasons.
The state does not have a personal income tax, and fairly low property and sales tax rates (0.98% property tax and 6% to 8.5% sales tax based on county). The state’s high concentration of seniors means that it’s a hub for geriatric medical care. It also means that there are plenty of opportunities for an active lifestyle and social life with other people the same age. On the downside, Florida tends to be a target for major storms, and the crime rate is higher than 28 other states.
Iowa might be a surprising choice for retirement, but it’s attracting an increasing number of retirees drawn there by a low cost of living. Social Security benefits are not taxed, and residents receive a tax credit for pension income.
Other income is subject to a maximum tax rate of 8.98% for earnings above $69,256. Home prices in Iowa are lower than average, with a median price of $115,000, but the property taxes are somewhat higher than other states, with an effective tax rate of 1.53%. Still, Iowa’s relaxed pace of life, the availability of healthcare, and low crime rate are attractive to retirees, especially those who prefer to live in an area with defined seasons.
3. South Dakota
Like Iowa, South Dakota might not immediately spring to mind when considering retirement destinations, but despite the lack of sandy beaches and palm trees, it’s an increasingly popular option. In fact, the weather is arguably the only downside to life in South Dakota.
Living expenses are comparatively low (4% below the national average), health care costs are lower, and South Dakota does not have an income tax and exempts all pension income from taxes. The effective property tax rate is 1.32%. The state has a solid economy, so prices shouldn’t increase too much, and the crime rate is low.
The availability of healthcare, including open nursing home beds, is one of the chief draws for retirees to Oklahoma. The state also has one of the lowest costs of living in the country (about 15% lower than average) and Social Security income and pensions aren’t taxed. With a healthy economy, low crime rate, a mild climate with plenty of sunny days, and abundant cultural activities throughout the state, Oklahoma is quickly rising the ranks of best places to retire.
5. New Hampshire
The only New England state on our list, New Hampshire gets the nod for being a tax-friendly place for retirees. The Granite State only taxes interest and dividend income, so you won’t pay income tax on your Social Security, pension, or retirement plan withdrawals. New Hampshire also doesn’t have sales tax.
On the downside, New Hampshire’s property taxes are some of the highest in the nation, with an effective tax rate of 2.2%. Still, despite the property taxes, the state is still among the most affordable places to live in and offers plenty of activities for seniors, as well as easy access to Boston. Winters can be long and cold, but if you want to experience all four seasons and abundant natural beauty, New Hampshire is worth exploring.
Despite having one of the highest crime rates in the U.S. (according to USA Today), Missouri is an attractive option for retirees. A pleasant, moderate climate and low cost of living top the list of draws to Missouri.
Although retirees pay income tax, not all pension income is taxed. The current income tax rate ranges from 1.5% to 5.9%. Sales tax ranges from 4.225% and 10.350%, and the effective property tax rate is slightly lower than average at 0.99%.
Tennessee’s lack of personal income tax and booming job market are attracting new residents of all ages, but retirees are finding the Volunteer State to be especially attractive. Not only is the cost of living one of the lowest in the country, pension income is entirely exempt from taxes, and the combined state and local sales tax rates are some of the lowest in the country, at 9.46%. The mild climate is also appealing to retirees, even if crime rates in metropolitan areas are slightly higher than average.
Another state with a mild climate, Delaware residents also pay some of the lowest property taxes in the country and no sales tax. You’ll pay state income tax, but $12,500 in retirement income is excluded and people over 65 qualify for an additional standard deduction of $2,500 on their tax return.
Delaware is in a prime location within driving distance of Baltimore and Philadelphia, as well as New York and Washington D.C., ensuring access to some of the highest quality healthcare and cultural activities in the country. The state may be small, but it has miles of coastline, creating the ideal balance for retirees who want to be close to the ocean and have a low cost of living.
9. North Carolina
Whether you prefer the mountains or the ocean, North Carolina offers the best of both worlds. A popular choice among retirees for its moderate climate with four defined seasons, North Carolina isn’t exactly the best choice in terms of taxes, as all income is taxed at the 5.499% rate. That being said, the cost of living in North Carolina is lower than average, and healthcare costs rank 14th lowest in the country.
Although Montana has an income tax, it does provide some exemptions for retirement income, and the income tax rate ranges from 1% to 6.9% based on earnings. There’s also no sales tax in Montana, but gas and cigarette taxes are some of the highest in the country.
The cost of living is a bit higher than average, as property values have increased in recent years, but it’s still less expensive than most West Coast states. Retirees are drawn to Montana for the landscape and abundance of outdoor activities, but the climate can be extreme for some people.
How to Make the Most of Your Retirement
Regardless of where you decide to retire, planning ahead to make the most of your time and resources is a smart move. As you consider your options, take the following steps to make the most of your Golden Years.
- Create a retirement spending plan: Planning for retirement requires creating a budget that accounts for both essential expenses (housing, health care, food, transportation, and taxes) as well as discretionary spending. Your budget can make a big difference in your decisions about where to live.
- Maximize Social Security benefits: Although you can begin taking Social Security benefits at age 62, the longer you put off getting those checks, the more you’ll get per month. Every year you wait between ages 62 and 70, you earn a bonus 8% on your benefits, so waiting is beneficial.
- Make healthy choices. Taking care of yourself before retirement can make a big difference in your overall well-being and financial security after you stop working. Develop good habits such as eating a healthy diet, exercising, not smoking, and seeing your doctor to prevent or gain control over costly health conditions. A healthy lifestyle also ensures you can enjoy your well-earned retirement and do all of the things you want to do.
- Have long-term care plans. Even when you take care of yourself, unexpected illnesses such as Alzheimer’s or dementia can put you in a position where you need long-term care. Prepare for that possibility with adequate long-term care insurance, and have a plan for care if you are diagnosed with a serious disease. Now is also a good time to review your will, advance directives, and funeral and burial plans to ensure your wishes are honored.
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