As our faithful readers know well, we are avid admirers of lists of the best and the worst places to retire. The more arcane the list topic, the better: (Best Places to Start Over Again, Best Places You Never Heard of, etc.). Recently we came across a list from money-rates.com of “The 10 Worst States for Retirement”. While the website undoubtedly put some careful research into developing their list, we couldn’t disagree more with the results.
Money-Rates.com started off with a reasonable methodology, selecting 4 factors to help screen the list:
Economic (Unemployment, tax burden, cost of living)
Climate (Humans like 68 degrees, so the authors preferred places with the least deviation from that mean temperature)
Crime (Nobody likes crime in their neighborhood)
Life Expectancy (Know anyone who doesn’t want to keep living?)
In our opinion it was unfortunate that the authors stuck with this logical methodology to an illogical conclusion. Of the 10 states Money-Rates.com selected as the worst states to retire, only 2 or 3 would make our Top 10 Worst List. And 3 of their choices would be on our best states to retire list. Let’s analyze their 4 selection criteria as they apply to a retiree’s situation:
Economic. Some of the economic factors used might be reasonable for younger workers to use in evaluating a move to a new state, but most don’t work well when it comes to retirees. For example, unemployment is a bad thing, but since most retirees aren’t looking a job, it has less direct impact on them. Tax burden is a worthwhile hurdle – to a point. But many of the retirees we talk to would be happy to have enough income to be taxed on it.
The fiscal health of your new state might be a more important consideration. A recent Pew Report identified 10 problem states including Michigan, Florida, California, Rhode Island, New Jersey, Oregon, and Nevada. These states were chosen because of their unsustainable public pensions and other economic issues. NJ, IL, and CA are particularly singled out for either seriously unfunded pension plans and/or overly generous benefits. Before retiring in any of these problem states you should carefully consider what might happen if those problems continue or get worse. For example, public services you might be expecting to enjoy (like programs for seniors, libraries, public transit) could be severely curtailed and negatively affect your quality of life.
Your Tax Situation in Retirement Will Be Very Different from When You Were Working
In retirement your tax situation will be very different than it was during your working days. Looking at taxes simplistically could result in you making a decision for the wrong reason. Rather than simply avoiding a state because someone says it is a “high tax” state, you need to look at the kinds of taxes it has, and compare that to the kinds of income and assets you have.
For example, if you will receive a sizable military pension, look for one of the 15 states like New York or Pennsylvania that exempt all or most income from military pensions. Some states are desirable for retirees because they exempt all pension income; others tax regular pensions but exempt some or all public pensions. Social security is taxed in 6 states (Minnesota, Nebraska, New Mexico, North Dakota, Rhode Island, and Vermont), while 8 other states tax a portion of it. See this social security link for more. Property taxes typically affect retirees more than other taxes do. They vary widely across the country and are generally higher in the northeast and Midwest. Many states like Florida provide permanent residents with limits on how much property taxes can go up. It is worth digging to find out the tax situation in your new state and town. And even after you have all the facts about taxes, remember what a wise lawyer told us once – “Don’t let the tax tail wag the dog.” Translation – life is too short to base the decision on where you live purely on taxes – surely family, recreation, climate, and quality of life are more important considerations to base your happiness on.
Climate. The close to 68 degrees criterion is certainly original, but not necessarily in sync with how most people evaluate climate. Other climate issues, such as humidity or allergens, can be important factors for some people. We’re not sure that their 68 degrees criterion worked out in practice; we were surprised that 4 Sunbelt states were selected on their worst states to retire list.
Crime. Obviously, no one wants to move to an area with high crime. But like real estate, crime is local. If you move to an active adult community that is near a city with a high crime rate, your chances of becoming a crime victim are miniscule – because you live far away from the rougher neighborhoods victimized by crime, and you spend most of your time in your new gated world. Likewise cities tend to have high crime rates, yet many baby boomers actively seek out cities for their cultural attractions and public transit. Retirees almost always live in neighborhoods insulated to some degree from high crime areas. Unfortunately, the authors’ emphasis on crime placed some popular retirement states on the “worst” list.
Life Expectancy. Again, this seems like a worthwhile criterion, since just about everybody wants to stick around and enjoy retirement, now that they have earned it. The flaw in money-rates’ logic is that by the time you retire in your 60’s or 70’s, the damage is done. Your exposure to harmful substances in the future will be for a fraction of your lifespan. And more importantly, life expectancy figures tend to have a lot more to do with diet, exercise, health care, and socio-economic status. These factors tend to be within an individual’s control, except for possibly the quality of health care (and if you have enough money you can overcome that).
10 Peculiar Choices – Along with Our Commentary
1. Nevada – Yes, Nevada is in terrible shape right now as the foreclosure capital of the U.S. Unemployment is high as this pro-growth state struggles with no growth. But on the other hand, it has a great climate for retirees, plenty of golf courses, and world class entertainment. Given its financial difficulties we would be cautious, but NV, which has a low cost of living, would not be near the top of our list for worst places to retire.
2. Michigan – Michigan is definitely struggling: real estate values are plummeting, the climate isn’t that great, and taxes are fairly high. We wouldn’t recommend it as a retirement state, either, unless you have lived here all your life and want to live in one of its more outstanding retirement towns – Ann Arbor, Grand Rapids, or Charlevoix for example.
3. Alaska – The 49th state not only has no income or sales taxes, it actually pays residents an annual allotment. On the other hand, it is cold and the prices are sky high. We agree with this choice as a “worst” state-unless you are a true outdoor buff.
4. South Carolina – The authors really have to be kidding with this ranking. The Carolinas (North and South) are the preferred place to retire among baby boomers according to a recent Pulte survey. SC is a low tax state and it has a tremendous coastline from Myrtle Beach to Charleston. Plus it has a Goldilocks climate – not too hot and not too cold. Home prices are well below the national average. (See our recent article comparing NC and SC for retirement). SC is on our list of “best” places to retire.
5. Maryland – Yes, MD is a high tax state and a bit on the expensive side too (Zillow.com reported the median home price was about $246,000 in 2010). In our opinion, MD is not as desirable a retirement choice as two of its neighbors, Virginia and Delaware. On the other hand, MD has interesting retirement towns along the Chesapeake and the coast, such as Ocean City and Annapolis. There are definitely worst states to retire in – like New Jersey (highest property taxes in the country). Our verdict – not a “worst” state.
6. Tennessee – Again, this is a very strange choice. TN has a low cost of living, low taxes, and pretty moderate climate. We wouldn’t recommend retiring to a little town in the country, but Nashville, Lake Tellico, Chattanooga, and Knoxville are very popular places to retire and for good reason. We disagree; TN is number 3 on our “best” states list.
7. Ohio – Like Michigan, Ohio is having some economic troubles, taxes are high and its climate is not that attractive. It wouldn’t be high on our list either, except for folks who have lived all of their lives there and want to live near friends and family in a place like Cuyahoga Falls. We agree; OH is a “worst” state.
8. North Carolina – NC does have more unemployment now than it has had in a long time. Fiscal policy has been criticized. But it is the hot place for retirement right now, including the most popular retirement town at Topretirements.com – Asheville. Few other states can boast the variety of interesting retirement towns that NC has – from Hatteras to Mt. Airy in the mountains. No way would this state make our list of worst states to retire.
9. Mississippi – There are parts of Mississippi that are not suitable for retirement, particularly for out-of-staters. On the other hand it has many attributes attractive to retirees – low taxes, well below average cost of living, and warm winters. We wouldn’t put it on the “worst” list.
10. Arkansas – The authors cite its high crime and taxes as reasons for why it made this list. But they seemed to forget its attractive resorts and retirement towns like Hot Springs, Cherokee Village, and the entire Ozarks region. In those places crime is low and so is the cost of living – taxes are not a factor unless you have a big income. We disagree; this is not a “worst” state.
Which leads us to… Considerations We Recommend for Choosing a State
Everyone’s retirement criteria will be different – so don’t be a slave to anyone else’s list. Instead, pick the factors that apply to your situation from this list (in addition to money-rates’ considerations):
– Medical care – Is it close, qualified, suitable for your special needs?
– Transportation – Public transit, proximity to an airport, and frequency of service
– Cultural life – Do you like going to concerts, the theatre, a good library, etc
– Recreation -What do you like to do for fun, and how often
– Proximity to friends and family – Often one of the best reasons to choose a retirement destination
– Employment – if you want/need to work, consider the area’s employment options
– Fitting in – Are you a good fit for your new neighborhood and its politics, religion, and social values?
For further reference:
To find what Topretirements thinks are some of the worst places to retire, refer to the links below (Warning: there is some conflict between our lists for best and worst – some states are on both – due to complexity of rating criteria and what gets rated!)
Topretirements 10 Worst Retirement States
Best States to Retire in
100 Best Places to Retire
List of the Best Places to Retire Lists
Look for future articles on “States that Don’t Tax Social Security or Pensions”, and “Best States for Quality of Life”.
What Do You Think?
Use the Comments section below to share your opinions about what you think are the best, and worst, retirement states.