Ranking the best and worst places to retire requires some research and a clear understanding of how you plan to spend your retirement years.
Choosing the right retirement locale for you should be included in your retirement planning.
Considering the cost of living, tax burden, health care options and overall quality of life can help you zero in on the best location for you.
Different organizations and publications provide different averages that rank states for retirement. But comparing data on different states — and balancing their rank with your priorities in retirement — may give you a much different “best state” to retire than any other list.
Best and Worst States for Cost of Living
Cost of living refers to the level of prices for everyday basic items — food, housing, transportation, taxes and health care. It varies from state to state and between cities and towns in each state.
The most expensive places to retire include Hawaii, the Northeast and the West Coast. The Midwest and Deep South tend to be the least expensive retirement destinations, according to survey data from the Council for Community & Economic Research.
|Highest Cost of Living States||Rank||Lowest Cost of Living States||Rank|
|District of Columbia||2||Kansas||49|
Because it takes in so many expenses, the cost of living plays the biggest role in how far you can stretch your retirement income. So choosing a state with a cost of living that fits into your retirement can help with your finances.
States Where Your Retirement Dollar Is Worth the Most and Least
By the time you retire, you realize a dollar doesn’t go as far as it used to. But it may go farther in some states than others because of differences in the cost of living from state to state.
The U.S. Bureau of Economic Analysis tracks this data, and if you crunch the numbers you can compare the purchasing power of a dollar in different states. In Maine, a dollar is worth a dollar. But it’s only worth pocket change in Hawaii, and you’ll get the most bang for your retirement buck in Mississippi.
|Best Value States||Value of a Dollar||Worst Value States||Value of a Dollar|
|Alabama & Mississippi (Tie)||$1.16||New York||$0.86|
|South Dakota, West Virginia & Kentucky (Tie)||$1.14||California & New Jersey (Tie)||$0.87|
|Oklahoma, Ohio & Missouri (Tie)||$1.13||Massachusetts||$0.91|
|Indiana, Iowa, Louisiana & Nebraska (Tie)||$1.12||Maryland||$0.92|
Multiplying your expected retirement budget by these numbers will let you get a feel for how much buying power your retirement income will have in different states.
Most and Least Tax-Friendly States for Retirees
Taxes can be a major financial factor in deciding where to retire, but it can be complicated figuring out what state’s 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 individual’s 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.”
- 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 don’t 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 and a half percent.” Cammenga said. “Each person will have to decide what combination of taxes works best for him [or her].”
States with Highest and Lowest Income Tax Rates
Forty-three states and the District of Columbia have state income taxes. The top rates for each state vary widely — from a low of 2.9 percent in North Dakota to California’s high of 13.3 percent.
|State||Highest Rates||State||Lowest Rates|
If North Dakota’s 2.9 percent still looks too expensive for your tastes, there are seven states that have no income taxes.
- South Dakota
New Hampshire and Tennessee don’t have income taxes, but they are the only two states that tax interest and dividend income, which may be of interest if you’re counting on these investments for your retirement income. Tennessee has been phasing out this tax and will no longer impose it starting in 2021.
States with the Highest and Lowest Sales Tax Rates
States with low income tax rates often try to make up the difference with higher sales tax rates.
Retail sales taxes are relatively easy to understand — usually a flat percentage of your purchase price. But critics argue that sales taxes hurt people smaller amounts of money and slower income growth — two qualities that may include lots of retirees.
|Highest Tax States||Sales Tax Rate||Lowest Tax States||Sales Tax Rate|
|Tennessee||9.55%||Kentucky, Maryland, Michigan, District of Columbia (Tie)||6%|
While Alaska has no state sales tax, it allows cities or other jurisdictions to charge local sales taxes.
Not all purchases are subject to sales taxes, but that varies by state. All but 13 states don’t tax groceries. Illinois is the only state to tax prescription drugs, but at least nine states do not tax over-the-counter medications.
States’ Tax Policies on Your Social Security
Most states levy some type of income tax on your Social Security benefits, but 19 states exempt your Social Security income from state income taxes.
Two states — Utah and Nebraska — tax your Social Security income the same way the federal government does.
First, you add up your adjusted gross income, nontaxable interest and one-half of your Social Security benefits. This will give you your “combined income.”
If you have other sources of income, and your combined income is $25,000 for single filers or $32,000 for married couples filing jointly, your Social Security is treated like any other income for tax purposes.
Highest and Lowest State Property Tax Rates
All 50 states and the District of Columbia have property taxes. For private citizens, these taxes are based on a percentage of your home’s value. Most states base their tax on 100 percent of the value, but Nevada bases its property rate on 35 percent of the assessed value of your home.
|State||Highest Property Tax Rates||State||Lowest Property Tax Rates|
|New Jersey||1.89%||District of Columbia||0.46%|
|Nebraska & Wisconsin (Tie)||1.76%||Hawaii||0.26%|
All 50 states and the District of Columbia offer some type of property tax relief for retirees. Most states provide exemptions for seniors if you meet age and income requirements.
At least 40 states provide homestead exemptions or tax credits to older property owners. Homestead exemptions reduce the assessed value of your home, effectively lowering your tax rate.
States with Inheritance and Estate Taxes
The estate tax, a tax levied on your estate when you die before it’s distributed to your heirs, is generally associated with the federal government.
“Those thinking of moving should also be aware of which states levy estate and inheritance taxes,” Cammenga said. “These are mostly concentrated in the Northeast, although a number of states in the Midwest — in addition to Washington and Oregon — levy them, as well.”
The District of Columbia and 12 states have their own estate taxes and six have an inheritance tax — which taxes the heirs after they receive their share of the inheritance, rather than the estate left behind before it’s distributed.
Maryland is the only state that has both an estate and an inheritance tax.
Estate taxes don’t kick in until the estate is worth a certain amount. Anything below this is considered an exemption. Exemption amounts for estate taxes range from a low of one million dollars in Oregon and Massachusetts to a high of $5.9 million in New York.
There are no exemptions on inheritance taxes.
Most states have a sliding rate on inheritance and estate taxes.
|Connecticut||Estate tax||$5.1 million||0.8% - 16%|
|District of Columbia||Estate tax||$5.8 million||12% - 16%|
|Illinois||Estate tax||$4 million||0.8% - 16%|
|Iowa||Inheritance tax||N/A||0% - 15%|
|Kentucky||Inheritance tax||N/A||0% - 16%|
|Maine||Estate tax||$5.7 million||8% - 12%|
|Maryland||Estate Tax and Inheritance tax||Estate tax only:|
|Estate tax: 0.8% - 16%|
Inheritance: 0% - 10%
|Massachusetts||Estate tax||$1 million||0.8% - 16%|
|Minnesota||Estate tax||$3 million||13% - 16%|
|Nebraska||Inheritance tax||N/A||1% - 18%|
|New Jersey||Inheritance tax||N/A||0% - 16%|
|New York||Estate tax||$5.9 million||3.06% - 16%|
|Oregon||Estate tax||$1 million||10% - 16%|
|Pennsylvania||Inheritance tax||N/A||0%- 15%|
|Rhode Island||Estate tax||$1.6 million||0.8% - 16%|
|Vermont||Estate tax||$2.8 million||16%|
|Washington||Estate tax||2.2 million||10% - 20%|
Best and Worst States for Health Care If You’re a Retiree
Hawaii is the healthiest state for seniors and Mississippi is the least healthy according to a recent survey by the United Health Foundation. The foundation publishes America’s Health Rankings each year.
The rankings use 34 measures to produce the foundation’s Senior Report, comparing how the states stack up to one another on health care for seniors. The measurements in the report are spread across five categories: individual behavior, community and environment, policy, clinical care and all outcomes for health conditions.
In 2019’s report, the top ranked states are spread around the country in the West, Midwest and Northeast. Those that ranked the lowest were concentrated in the South.
|Best States||Rank||Worst States||Rank|
States Ranked by Medicare Quality
While Original Medicare — Medicare Part A and Part B — are administered by the federal government and the same for all states, Medicare Advantage plans and Medigap policies may vary from state to state.
These plans are sold by private insurers that contract with Medicare. They are regulated by state insurance commissions instead of the federal government. You should also check your Medicare Advantage or Medigap plan to see if it will cover you when you move.
The quality of Medicare coverage may vary from state to state, according to U.S. News & World Report which ranks states on the quality of Medicare.
|Best States||Rank||Worst States||Rank|
States with the Best and Worst Quality of Life for Retirees
Quality of life may mean different things to different people. That makes it hard to quantify and rank states as best or worst.
Ballotpedia analyzed 19 different state comparisons — ranging from tax burden and business climate to health care and poverty rates — to give states an overall quality of life ranking. The rankings were based on an aggregate of 20 years of data in all 50 states.
|Best States||Rank||Worst States||Rank|
But your own tastes are a big part of determining how you’ll define “quality of life” in retirement. Just like financial and health care considerations, you should consider what you want out of life in retirement when you undertake retirement planning.
- The right climate for your taste isn’t simply about being comfortable or providing you with more activities you may enjoy. As you age, you become more susceptible to weather-related health problems. Read up on hot weather and cold weather risks and safety for seniors from the National Institute on Aging when researching places to retire.
- Retirement travel plans
- Make a bucket list of trips you want to take and consider a location with easy access to the transportation you’ll take. This may mean locating close to a major airport to reduce the chance of connecting flights — and may make it easy for others to visit. Or if you prefer frequent cruises, consider a place within an easy driving distance to a cruise ship terminal.
- Culture and arts
- You can find a vibrant arts and culture scene in every region of the United States, according to the National Center for Arts Research at Southern Methodist University. The center publishes an annual Arts Vibrancy Index that ranks more than 900 communities in every American county. The best include metros as large as New York and “micropolitan” communities as small as Brookings, South Dakota.
As you narrow down your list of locations where you want to retire, you’ll be better able to research locales in your search area that offer the best qualities that cater to your interests — whether they involve outdoor activities or arts and culture or travel opportunities.
24 Cited Research Articles
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- Hill, C. (2019, November 9). The Most Tax-Friendly U.S. State for Retirees Isn’t What You’d Guess – and Neither Is the Least Tax-Friendly. Retrieved from https://www.marketwatch.com/story/this-is-the-least-tax-friendly-state-in-america-for-retirees-and-surprise-its-in-the-midwest-2019-11-06
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