The Worst States to Retire In: Avoid Living Out Your Retirement in These States
If your retirement age is quickly approaching or you’ve already eased into retirement, you may have realized what an adjustment this lifestyle change is for your budget. You might have had high hopes that your retirement plan was aggressive enough to allow you to live comfortably throughout your retirement years only to find out that expenses have wrecked your budget.
According to the 2019 Northwestern Mutual Planning and Progress Study, over 22% of Americans have less than $5,000 saved for retirement while 15% haven’t started saving yet. The state you live in may play a big part in your financial situation throughout retirement. Some states have ideal conditions that allow your retirement savings plan to stretch while others make it hard to live on a fixed income.
This guide analyzes 10 of the worst states for retirees to live in. By reviewing the information presented, you can learn more about your state and how it may affect the age at which you retire and your lifestyle in retirement.
Table of Contents
What Makes a State Bad for Retirees?
There are several factors to consider when deciding whether a state favors retirees. Some of the criteria used to conclude that a state is not conducive to retirement include the following:
- Retirement income taxes: There are several states with no income tax but other state taxes are also important. Analyzing the taxes on pensions and your Social Security benefits for different states can determine if they’re good for retirees.
- Property taxes: Taxes on your property also pull from your retirement income. Living in a state with high property taxes as a homeowner may force you to push back your retirement age or retire with less income.
- The state’s economy: A state with a healthy economy is a better bet for retirees because it may also mean the cost of living is lower. With a thriving economy, sales tax and other expenses are usually lower, allowing you to stretch your retirement funds.
- Healthcare costs: As you age, healthcare costs become a more important factor in your budget. A state with lower healthcare costs is more beneficial to retirees because they can seek treatment while staying in budget.
- Personal security: When deciding if a state is a good place to retire in, crime statistics and personal security issues should also be analyzed. As a senior citizen, you may live alone and appear vulnerable to criminals. Living in a state with a low crime rate may allow you to feel safer.
- Weather: As a retiree, you have free time to explore and enjoy pastimes. A state with great weather expands the possibilities for activities. States that are notorious for bad weather are not as appealing to those in retirement age since they may be forced to spend more time indoors.
The 10 Worst States for Retirement
1. New York
New York residents don’t pay taxes on their Social Security benefits. If your pension is taxable and you’re over the age of 59.5 or turn 59.5 during the year, up to $20,000 of your retirement income is excluded from state income tax. However, all other retirement income is subject to income taxes.
If you live in New York City, you’ll need to have an aggressive retirement plan since it’s known for its high cost of living. According to Business Insider, 1.5 million New Yorkers live below the poverty level due to high rents.
You can’t escape this high cost of living by seeking long-term care and moving into a nursing home. New York nursing homes have high care costs, at an average of $96,360 per year in central New York and $124,100 per year in the northern metropolitan area.
Maryland is an East Coast favorite and known for its history, seafood, mountains, and beaches. While the scenery in the state is beautiful, you may find your retirement income depleting fast. The state income tax is between 2% and 5.75% and your retirement income is included in this tax. If you’re 65 or older and a state resident, up to $31,100 of your pension income may be excluded from taxes. There are no taxes on Social Security benefits for state residents.
A 6% state sales tax applies to most purchases you make, as well as a gasoline tax of 51.90 cents per gallon. Maryland is one of the few states that sets hospital rates throughout the state. While this may seem to keep healthcare costs low, in 2015, a four-day hospital stay at a Maryland hospital cost over $14,200.
3. West Virginia
While the cost of living in West Virginia is generally low, the state imposes taxes on Social Security benefits. If any of your IRA distribution money or pension money is taxable and you included it in your federal adjusted gross income, you must also pay taxes on it to the state. If you’re 65 or older, your first $8,000 is exempt from state taxes.
While there’s no inheritance or estate tax in West Virginia, you are required to pay property taxes. Each county sets its own levy rate for property taxes and 60% of your home’s assessed value is used. With the collapse of the coal industry, West Virginia’s infrastructure has been neglected. A 5% unemployment rate and limited business opportunities caused the state economy to remain stagnant.
4. New Mexico
The New Mexico personal income tax rate ranges from 1.7% to 4.9%, depending on your income. Pensions, IRA distributions, and Social Security benefits are all taxed by the state. If you’re 65 or older, up to $8,000 of your retirement income may be excluded from taxes.
The age group with the greatest number of people in New Mexico is residents 65 or older. As a retiree, a large elderly population can make it hard to seek medical treatment quickly or find available long-term care when needed. In 2017, 69.8% of the deaths that occured in New Mexico were residents 65 or older.
5. New Jersey
New Jersey has a beautiful coastline, casinos, and other perks for residents. However, your pension and annuity income is subject to state taxes. Interest or dividends you received from your IRA are also taxable.
If you’re 62 or older, you may qualify for an exemption. If you’re filing separately, the first $20,000 of your retirement income isn’t taxable, $30,000 is exempt if you’re single, and $40,00 if you’re married and filing jointly.
In addition to taxes, New Jersey is known for its high cost of living. In Jersey City, the cost of living is 83% higher than the national average. Atlantic City is nearly 33% spendier when compared to the national average. Your retirement funds won’t go far in this expensive state.
6. Rhode Island
The small state of Rhode Island offers beaches, seafood, and a small-town feel. However, the state taxes your pension, income, and Social Security benefits. The tax rate on your retirement income ranges from 3.75% to 5.99%. While you may qualify for a tax break on your pension income, it may not be enough to make up for the high taxes.
Rhode Island has some of the highest healthcare costs in the nation. Approximately 15.9% of the population go without doctor visits because they can’t afford them; 4.9% of residents who forgo doctor’s visits due to affordability are 65 and older.
Louisiana provides residents a low cost of living, warm climate, and no Social Security benefit taxes. However, your pension and other retirement income is subject to taxes. If you’re over 65, you can exclude the first $6,000 of retirement income from state taxes.
In 2016, Louisiana’s state violent crime rate was higher than the national average by 42.56%. The state’s property crime rate was 34.56% higher than the national average. If you’re planning to live alone as a retiree, Louisiana may not be the safest place to call home.
Another beautiful east coast state you may want to avoid as a retiree is Connecticut. As a resident, you’re responsible for paying income tax on your pension and other retirement income. You may qualify for a tax exemption on your Social Security benefits if you’re a low-income senior.
In addition to taxes, the state is known for its high cost of living, which can throw your retirement planning for a loop. Some major cities in Connecticut, including Stamford, Norwalk, and Greenwich, have living costs that are 54% higher than the national average.
California may seem like a great state to retire in since it offers beaches, mountains, and great weather. However, the state is known for its high cost of living, so retiring there may not be as glamorous as you assume. As a popular West Coast city, San Francisco tops out with a cost of living at 62.5% higher than the national average.
While the state doesn’t tax Social Security benefits, other retirement income is taxed. The state follows federal guidelines and depending on your income, you could be responsible for a tax rate between 1% and 13.3%.
Illinois has many beautiful lakes and the great city of Chicago. However, brutal winters may make it less than ideal for retirees. The average winter temperatures in Illinois range from 16 degrees Fahrenheit to 29 degrees Fahrenheit.
As an Illinois resident, you’re not responsible for paying taxes on your Social Security benefits or retirement income. However, it’s known for imposing some of the highest property taxes in the nation. Approximately 6.4% of the average Illinois household’s income goes to property taxes.
Tips for Retiring in High-Tax States
If you live in a high-tax state but simply can’t relocate in your retirement years, there are ways to prepare for your retirement. When facing high costs of living or exorbitant taxes, consider the following:
- Make contributions to a Roth IRA: You contribute to a Roth IRA with post-tax dollars. When you’re ready to distribute, you won’t owe taxes on what you pull out.
- Open a health savings account (HSA): As you age, you may need additional medical care. Placing pre-tax dollars into an HSA will help ensure you can cover your medical expenses.
- Reduce your expenses: Making cuts to your expenses, such as cancelling cable TV or nixing dinners at restaurants, may help you to live an inexpensive retirement life. By cutting expenses, high taxes won’t affect your budget as dramatically.
- Work in retirement: To stay on track financially, look into jobs you can get in retirement. Additional income will help you live more comfortably, even in a state with high taxes.
When creating your retirement plan, it’s important to consider where you live. By reviewing a state’s retirement income taxes, health care costs, and other factors, you can ensure you’re living where you can stretch your dollars throughout your retirement years.
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