Surprising Data Reveals The Top 25 Tax-Friendly States To Retire

10 months ago

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If you you’re looking to stretch your retirement savings as far as possible, don’t focus solely on which place has the lowest rent, the best access to public transportation or the most affordable groceries. Pay attention to taxes in the locations you’re considering, too, because they can take a big bite out of your retirement income.

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GOBankingRates looked to find out whether Social Security is taxed, what income, state sales and local taxes you’ll pay in all the states, and property tax rates across America — all to help you pinpoint the most tax-friendly states for retirees.

25. Alabama

State sales and average local tax: 9.25%
State tax on Social Security: None
Effective property tax: 0.39%
Income tax rate (65+): 4.70%

Alabama has the second-lowest property tax in our rankings. But its sales tax rate is the fourth highest in the U.S.

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24. Texas

State sales and average local tax: 8.20%
State tax on Social Security: None
Effective property tax: 1.66%
Income tax rate (65+): 0%

Four of the best cities to retire on $2,000 a month are in Texas, a separate GOBankingRates study found. You won’t pay any income tax or tax on Social Security, however, Texas doesn’t make it into our top 10 most tax-friendly states for retirees because of its high sales tax and property tax rates.

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23. Maryland

State sales and average local tax: 6%
State tax on Social Security: None
Effective property tax: 1.04%
Income tax rate (65+): 4.45%

Maryland ranks among the top 25 best states for retirement taxes because it doesn’t tax Social Security benefits. With its sales tax rates in the bottom third in the United States, residents save in that category, too.

22. California

State sales and average local tax: 8.82%
State tax on Social Security: None
Effective property tax: 0.73%
Income tax rate (65+): 3.07%

California’s date falls on both ends of the spectrum. Its sales tax is seventh highest among all states, but its effective property tax stands below 1%.

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21. Louisiana

State sales and average local tax: 9.55%
State tax on Social Security: None
Effective property tax: 0.54%
Income tax rate (65+): 3.20%

Louisiana residents of all ages have sales-tax trouble. Its state sales and average local tax is tied for highest of any state at 9.55%, but its effective property tax of 0.54% landed Louisiana on the list of the 25 best places to retire when it comes to taxes.

20. Virginia

State sales and average local tax: 5.75%
State tax on Social Security: None
Effective property tax: 0.87%
Income tax rate (65+): 4.82%

Virginia retirees benefit from no taxes on Social Security and the 10th-lowest sales tax. But the income tax rate is higher than all but seven states in the country.

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19. North Carolina

State sales and average local tax: 6.99%
State tax on Social Security: None
Effective property tax: 0.82%
Income tax rate (65+): 3.66%

Social Security benefits aren’t subject to state taxes in North Carolina. But the state’s income tax rates are at about the midpoint of all 50 states.

18. Kentucky

State sales and average local tax: 6%
State tax on Social Security: None
Effective property tax: 0.82%
Income tax rate (65+): 4.27%

Although the income tax rate is higher in Kentucky than only two states on the list, retirees don’t have to worry about a state tax on Social Security. The state sales and average local tax of 6% also is among the lowest rates on this list of states with the lowest taxes for retirees.

17. Indiana

State sales and average local tax: 7%
State tax on Social Security: None
Effective property tax: 0.84%
Income tax rate (65+): 3.15%

Indiana’s income tax rate ranks among the 20 lowest in the U.S. Plus, there’s no state tax on Social Security. But Indiana’s sales tax is higher than in more than half of the 50 states.

16. Mississippi

State sales and average local tax: 7.07%
State tax on Social Security: None
Effective property tax: 0.65%
Income tax rate (65+): 3.89%

Mississippi requires the least amount of retirement income to live comfortably, a GOBankingRates study found. Retirees also benefit from low taxes on retirement income because Social Security income isn’t taxed in Mississippi.

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15. Idaho

State sales and average local tax: 6.02%
State tax on Social Security: None
Effective property tax: 0.70%
Income tax rate (65+): 4.44%

Retirees benefit from a relatively low property tax and no tax on Social Security income in Idaho. The income tax rate, however, is the seventh highest on the list.

14. South Carolina

State sales and average local tax: 7.43%
State tax on Social Security: None
Effective property tax: 0.56%
Income tax rate (65+): 3.79%

South Carolina has the fourth-lowest property tax rate, and Social Security benefits escape taxes. But the state’s income tax rate in the top half in our rankings.

13. Arizona

State sales and average local tax: 8.37%
State tax on Social Security: None
Effective property tax: 0.65%
Income tax rate (65+): 2.50%

There’s a reason Arizona is a haven for retirees. They can escape the cold weather and a big tax bill by moving here. Its income tax rate is among the lowest in the U.S., and Social Security benefits aren’t taxed.

12. Oregon

State sales and average local tax: 0%
State tax on Social Security: None
Effective property tax: 0.94%
Income tax rate (65+): 7.85%

Oregon has the highest income tax rate in the U.S. However, it’s still one of the more tax-friendly states for retirees because it doesn’t tax Social Security income and has no sales tax.

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11. Hawaii

State sales and average local tax: 4.44%
State tax on Social Security: None
Effective property tax: 0.31%
Income tax rate (65+): 6.57%

The cost of living is high in Hawaii, but retirees can hang on to more of their income to cover expenses because some parts of the tax bite are small in the state. Social Security benefits escape state taxes, and Hawaii has the lowest property tax rate in our rankings. Plus, its capital and largest city — Honolulu — is one of the coolest places to retire in the world, even if the state trails only Oregon in terms of income tax rate.

10. Washington

State sales and average local tax: 8.86%
State tax on Social Security: None
Effective property tax: 0.88%
Income tax rate (65+): 0%

Washington is one of the states with the lowest taxes for retirees because it has no state income tax or a tax on Social Security. Plus, the property tax rate is lower than in half of the states. However, it’s state sales tax is the fourth highest on the list.

9. Tennessee

State sales and average local tax: 9.55%
State tax on Social Security: None
Effective property tax: 0.68%
Income tax rate (65+): 0%

Tennessee doesn’t tax Social Security benefits. But Tennessee retirees need to watch out for the state’s average sales and local taxes, which tied for the highest in the U.S.

8. North Dakota

State sales and average local tax: 6.97%
State tax on Social Security: None
Effective property tax: 0.95%
Income tax rate (65+): 0.85%

North Dakota’s sales and property taxes are in the middle of the pack, but its income tax puts it on this list. In the United States, eight states don’t have an income tax. Among those that do, North Dakota’s is the lowest.

7. South Dakota

State sales and average local tax: 6.40%
State tax on Social Security: None
Effective property tax: 1.18%
Income tax rate (65+): 0%

Retirees can’t go wrong, tax-wise, living in either Dakota. South Dakota is another one of those states with no income tax. And Social Security benefits escape taxes in the state. But its property tax rate is higher than in all but two states on the GOBankingRates ranking.

6. Florida

State sales and average local tax: 7.02%
State tax on Social Security: None
Effective property tax: 0.91%
Income tax rate (65+): 0%

No taxes on income or Social Security benefits make Florida one of the most tax-friendly states for retirees. Its property tax falls at about the middle of the states, and sales tax rates rank in the lower end of the 50 states.

5. Nevada

State sales and average local tax: 8.23%
State tax on Social Security: None
Effective property tax: 0.60%
Income tax rate (65+): 0%

Nevada is one of the states that does not tax Social Security. Plus, it doesn’t have a state income tax. However, the sales tax in Nevada is higher than in most states — sixth on GOBankingRates list of tax-friendly states for retirees.

4. New Hampshire

State sales and average local tax: 0%
State tax on Social Security: None
Effective property tax: 1.96%
Income tax rate (65+): 0%

New Hampshire is one of the best places to live for retirees to escape taxes. It has no sales tax, no state income tax and no tax on Social Security. The only reason New Hampshire isn’t the No. 1 tax-friendly state for retirees is because its property tax rate is the third highest in the U.S. and the highest on this list.

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3. Delaware

State sales and average local tax: 0%
State tax on Social Security: None
Effective property tax: 0.59%
Income tax rate (65+): 4.53%

Where taxes are concerned, Delaware is one of the best states to retire because there is no state tax on Social Security or sales tax. Plus, its property tax rate is among the lowest in our rankings.

2. Wyoming

State sales and average local tax: 5.36%
State tax on Social Security: None
Effective property tax: 0.56%
Income tax rate (65+): 0%

Wyoming is the second-best state to retire to avoid a big tax bite. There’s no state income tax or tax on Social Security benefits. Plus, Wyoming’s sales and property tax rates are among the lowest in the U.S.

1. Alaska

State sales and average local tax: 1.76%
State tax on Social Security: None
Effective property tax: 1.02%
Income tax rate (65+): 0%

Alaska is the most tax-friendly state for retirees because it has no state income tax or tax on Social Security. And its sales tax rate is the fourth lowest on our list – fifth lowest in the U.S. But keep this in mind: The cost of living in Alaska is higher than in most states. A previous GOBankingRates study found that Alaska was second only to Hawaii when it comes to the highest cost of living by state.

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Jami Farkas and Cameron Huddleston contributed to the reporting for this article.

_{Methodology: To determine the top 25 tax-friendly state for retirees, GOBankingRates examined data from the TaxFoundation on each state’s (1) 2023 combined state and average local sales tax rate, (2) state tax on SocialSecurity benefits, (3) effective state property tax rate, and 4) state marginal income tax rate that would applyto the 2021 national average income before taxes of consumers 65 and older, sourced from the Bureau ofLabor Statistics. The income tax rate was determined assuming the standard deduction in each state taken bya single filer. States were scored on each factor and then ranked against each other with no. 1 being the mosttax-friendly state for retirees. State tax on Social Security benefits was weighted twice as much as otherfactors in the final scoring. All data was gathered on and up to date as of March 6, 2023.}

This article originally appeared on GOBankingRates.com: Surprising Data Reveals The Top 25 Tax-Friendly States To Retire

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