Best States to Retire
I’m often asked by clients, what are the best states to retire. There are 10,000 people turning 65 a day and many are likely asking themselves this very question. There has been a migration of retirees moving from the coasts to the middle and southern states. This shift is likely to continue for the foreseeable future.
With the change in tax laws, this topic has become one of the more popular searches on the internet. There is no shortage of opinions and there are entire books written on this subject. To answer this question, you need to learn how much money has been saved, retirement ages, if there are any health issues, the type of retirement benefits, and the quality of life that the retiree wants to have in retirement.
We live in an area of the country that is one of the highest in terms of affordability, but it offers the best health care services. The table below created by WalletHub.com ranks affordability, health care, and quality of life. I sorted the table on affordability from least affordable to most affordable. The table includes a quality of life ranking, but I believe it’s subjective because this is more of a personal preference. For instance, some people like the change in seasons and others prefer a warmer climate. For the full description of the methodology, please click here.
| Overall Rank (1=Best) | State | Total Score | ‘Affordability’ Rank | ‘Quality of Life’ Rank | ‘Health Care’ Rank |
|---|---|---|---|---|---|
| 47 | Vermont | 47.76 | 50 | 6 | 23 |
| 40 | Hawaii | 50.66 | 49 | 34 | 2 |
| 38 | Connecticut | 51.09 | 48 | 20 | 7 |
| 36 | New York | 51.36 | 47 | 11 | 13 |
| 49 | Rhode Island | 45.94 | 46 | 43 | 18 |
| 46 | New Jersey | 47.85 | 45 | 33 | 29 |
| 21 | Massachusetts | 56.60 | 44 | 2 | 3 |
| 10 | Minnesota | 59.88 | 43 | 1 | 1 |
| 41 | Maryland | 50.55 | 42 | 30 | 19 |
| 26 | Nebraska | 55.26 | 41 | 17 | 8 |
| 35 | Oregon | 52.21 | 40 | 24 | 30 |
| 23 | Maine | 55.94 | 39 | 10 | 14 |
| 28 | Illinois | 54.87 | 38 | 25 | 11 |
| 32 | Alaska | 53.16 | 37 | 32 | 25 |
| 31 | Washington | 53.42 | 36 | 18 | 32 |
| 19 | North Dakota | 56.89 | 35 | 21 | 6 |
| 25 | California | 55.40 | 34 | 15 | 15 |
| 45 | New Mexico | 47.92 | 33 | 47 | 39 |
| 50 | Kentucky | 43.85 | 32 | 48 | 47 |
| 29 | Montana | 54.39 | 31 | 23 | 33 |
| 12 | Wisconsin | 59.32 | 30 | 4 | 20 |
| 16 | Michigan | 57.50 | 29 | 16 | 21 |
| 14 | Arizona | 57.60 | 28 | 29 | 12 |
| 7 | Iowa | 60.41 | 27 | 8 | 10 |
| 3 | Colorado | 62.19 | 26 | 9 | 4 |
| 4 | New Hampshire | 61.80 | 25 | 3 | 9 |
| 24 | Kansas | 55.73 | 24 | 26 | 35 |
| 9 | Pennsylvania | 59.94 | 23 | 5 | 22 |
| 48 | West Virginia | 47.26 | 22 | 41 | 49 |
| 34 | Indiana | 52.94 | 21 | 37 | 40 |
| 17 | Ohio | 57.43 | 20 | 27 | 28 |
| 22 | North Carolina | 56.42 | 19 | 31 | 34 |
| 13 | Idaho | 58.37 | 18 | 19 | 31 |
| 15 | Missouri | 57.60 | 17 | 36 | 26 |
| 6 | Utah | 60.73 | 16 | 14 | 16 |
| 11 | Delaware | 59.67 | 15 | 28 | 17 |
| 5 | Virginia | 60.82 | 14 | 13 | 24 |
| 30 | Georgia | 53.48 | 13 | 40 | 42 |
| 27 | Nevada | 54.96 | 12 | 35 | 41 |
| 44 | Arkansas | 48.53 | 11 | 49 | 46 |
| 42 | Louisiana | 50.06 | 10 | 45 | 45 |
| 2 | South Dakota | 63.72 | 9 | 22 | 5 |
| 8 | Wyoming | 60.13 | 8 | 12 | 36 |
| 37 | Tennessee | 51.22 | 7 | 44 | 44 |
| 33 | Oklahoma | 53.07 | 6 | 42 | 43 |
| 20 | Texas | 56.85 | 5 | 38 | 38 |
| 18 | South Carolina | 57.15 | 4 | 39 | 37 |
| 43 | Mississippi | 48.87 | 3 | 50 | 50 |
| 39 | Alabama | 50.88 | 2 | 46 | 48 |
| 1 | Florida | 65.60 | 1 | 7 | 27 |
Source: https://wallethub.com/edu/best-and-worst-states-to-retire
Major considerations on where to retire include property tax rates, state income taxes, inheritance taxes, sales taxes, and taxes on Social Security. I don’t think the decision on where to live should be made solely on taxes alone. In my opinion, healthcare is also an important consideration. Massachusetts might be one of the least affordable states, but if you need urgent care, it has one of the best network of hospitals. Below is a table of the most tax friendly states.
Most tax-friendly states
| Rank | State | State sales tax | State tax on Social Security benefits | Property tax | Income tax |
| 1 | Alaska | 1.76% | None | 0.97% | 0.00% |
| 2 | Wyoming | 5.41% | None | 0.52% | 0.00% |
| 3 | Delaware | 0.00% | None | 0.57% | 5.55% |
| 4 | New Hampshire | 0.00% | None | 1.94% | 0.00% |
| 5 | Washington | 6.29% | None | 0.89% | 0.00% |
| 6 | Nevada | 7.98% | None | 0.65% | 0.00% |
| 7 | Florida | 6.80% | None | 0.90% | 0.00% |
| 8 | South Dakota | 6.39% | None | 1.19% | 0.00% |
| 9 | Tennessee | 9.46% | None | 0.71% | 0.00% |
| 10 | Hawaii | 4.35% | None | 0.29% | 7.20% |
Source: GOBankingRates
In my post last week, I wrote how tax reform has punished states with high state and local taxes (SALT). The Tax Cuts and Jobs Act capped the SALT deduction to $10,000. Property taxes at the local level have hit New Jersey and California the hardest. If you are wealthy, it is more likely that state income taxes and inheritance taxes will come into play.
The table above can be misleading because Alaska, Florida, Nevada, South Dakota, Texas, Washington, Wyoming, New Hampshire and Tennessee only tax interest and dividend income, it is earned income that is tax-free. Also, states with no income taxes often make up a loss of tax receipts with higher sales taxes, exorbitant fuel taxes, and other taxes.
Social Security benefits can also be taxable. At the federal level, Social Security is taxed up to 85% of your benefits, depending on your income. Some states tax Social Security benefits and others do not. It varies from state to state and rates are constantly changing. The same goes for inheritance taxes that differ from state to state. I expect that tax laws will continue to change drastically in coming years. The high tax states will likely need to change their tax codes to remain competitive. For instance, New Hampshire’s Legacy & Succession Tax was repealed in 2002. Other states followed and lowered their inheritance rates.
Asset protection should also be a consideration of where you should live, especially as you age if there are not enough assets to afford long-term care. State, federal and territorial homestead exemption statutes vary. Some states, such as Florida, Iowa, Kansas, Oklahoma, South Dakota and Texas have provisions, if followed properly, allowing 100% of the equity to be protected. Other states, such as New Jersey and Pennsylvania do not offer any homestead protection.
The state that you live in will ultimately be a major factor in how long your money will last in retirement. My focus is on managing your investments so that you can enjoy your retirement no matter where you decide to live. If you have any questions on this topic, please feel free to give me a call or send me an email.
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