December 17, 2019 — If you are shopping around for the best state to retire in, the good news is that there are a number of states that would really like you to choose them. These states know that the homes retirees buy and the money they spend locally represents an important and clean industry. So they have taken steps to make themselves attractive to retiring boomers.
States like North Carolina, Nevada, Florida, and Texas don’t have a problem attracting retirees. They have a good reputation and many attractive places to retire. Others, such as West Virginia and Mississippi, have a harder time bringing in retirees without incentives. In this list we will concentrate on states that have taken specific steps to increase the number of people retiring in those states. .
13 States That Do the Best Job of Attracting Retirees
Our list includes most of the states that have no income tax, with one exception. We excluded Alaska because it is such an expensive place to live and so cold in winter. Here are 13 states that have gone the extra mile in their efforts to bring in retirees.
Florida. No income or estate tax. Amendment 10, the Save our Homes Act, is a top notch program that protects homeowners from big property tax increases. The Sunshine State has a warm winter climate, extremely long coast line, and an endless list of towns where retirees can find things to do and communities to welcome them.
Nevada. No income tax or estate tax. In Las Vegas and Reno there is plenty to do and hundreds of active adult and 55+ communities. Winters are warm and outdoor recreation and scenery in the mountains is excellent.
South Dakota. No income tax, no income or estate tax. Winters aren’t so great here, but there are some nice places to live, a strong economy, and many attractive places to live.
Texas. No income, estate or inheritance taxes. Texas is one of the few states with a Certified Retirement Community program, which aims to make towns in the state more attractive to retirees.
Wyoming. No income tax, no estate or inheritance taxes. Plus a strong economy and some great recreation in the Rocky Mountains and National Parks.
Louisiana. The State has a Certified Retirement Community program, no estate or inheritance taxes. Cost of living is low. Fishing, hunting, and boating are top notch.
Mississippi. The State has a Certified Retirement Community program and some of the lowest property taxes in the nation, no estate or inheritance taxes. Cost of living is very low.
North Carolina. Certified Retirement Community program, no estate or inheritance taxes. Out of state retirement income is generally taxed. The State has a great variety of places to retire – from the Atlantic coast to the interior to the mountains around Asheville.
Tennessee. It has the Retire in Tennessee Program and no estate or inheritance taxes. The State tries a lot harder than almost any state to bring retirees to this friendly state. It does tax unearned income like dividends and interest, but these are generally not an important source of income for most retirees.
West Virginia. It has a Certified Retirement Community program, and no estate or inheritance taxes. Social Security is taxed, however, so that is a potential negative. Outdoors in West Virginia there is a lot to do, and real estate prices are attractive.
Washington. The State has no income tax, although there is an estate tax. Real estate prices in the western part of the State are very high, but retirees can enjoy a wonderful lifestyle in this varied state.
Georgia. The Peach State does have an income tax, but because it offered a very generous $65,000 per person exclusion for people over 65, not many retired folks would have to pay income tax. Winters are pretty warm here.
Kentucky. The State has a high ($31,110 per person) retirement income exclusion. The state has a lower cost of living, which should appeal to retirees struggling on a budget.
Taxation of pensions
Some other states are welcoming to retirees with breaks on pension taxation, although what they include and exclude can be tricky (military, government, and in-state pensions are most often excluded in whole or part). If taxes are important to you in retirement, before you decide on a state it’s a good idea to do some research, or even prepare a sample tax return.
States that are not so friendly to retirees
States that tax Social Security benefits are easy to single out as being non-friendly to retirees. There are 13 of those: CT, CO, KS, MO, MN, MT, ND, NE, NM, RI, UT, VT, and WV (some of these exclude a portion of these benefits, and WV will phase it out completely beginning in 2020). Although the taxes you might pay on Social Security are probably not going to break the bank, it does not make a “retirement-friendly” statement to tax them.
Homestead and other Property Tax Exemptions
Although almost all states and many cities have some type of program to control or reduce property taxes on people over 65, most of them are extremely limited and pertain only to people with limited incomes. However a few have taken action that protect practically everyone, not just those with low incomes or over 65. Two of the most far-reaching programs are in California and Florida, and they definitely help retirees. It is worthwhile checking when considering a state or municipality to see if you might qualify for property tax relief – it can make a difference.
California’s Proposition 13 restricts annual increases of assessed value of real property to an inflation factor, not to exceed 2% per year. However if you sell your home and buy a new one the taxes will be computed on the value at the time of purchase, so the law tends to discourage people from moving. Florida’s Save Our Homes program limits the annual increase in assessment so that it does not exceed the lower of the following:
a. Three percent of the assessed value of the property for the prior year; or
b. The percentage change in the Consumer Price Index (CPI)
Estate and Inheritance Taxes
Since retirees are in the last third of their lives they should be thinking about how their estates might be taxed. Although federal inheritance taxes now really only affect a tiny percentage of the wealthiest Americans, some states are not so kind. Six states have an inheritance tax: Iowa, Kentucky, Maryland, Nebraska, New Jersey, and Pennsylvania. Thirteen states plus Washington, D.C. have an estate tax; Maryland has both an estate and an inheritance tax. A few of these are in synch with the federal estate tax exclusion, which is now quite high ($11.4 million in 2019). However some states, particularly in the Northeast, start taxing estates at much lower levels. Those states should not be viewed as retirement-friendly, at least for people with larger estates. States that tax estates include Connecticut, Hawaii, Illinois, Iowa, Kentucky, Maine, Minnesota, Nebraska, New York, Oregon, Pennsylvania, Rhode Island, Vermont, Washington, and Washington, D.C.
Encouragements that go beyond taxes
Six states have established Certified Retirement Communities to encourage retirees to settle in their states. Those programs typically require each city to meet certain criteria including affordable cost of living, low taxes, low crime rate, quality medical care, recreation, educational and cultural opportunities – and most importantly, a warm, inviting community spirit. Those states include Texas (with 50 or more cities in the program), Louisiana (5 towns), Mississippi (15 towns), West Virginia (6 areas), Tennessee (19 rural and urban communities), and North Carolina (13 communities). Kentucky had a certified program but it appears to be inactive.
Where you want to retire is always more important than any incentive that might come your way. Lifestyle and proximity to friends or relatives can be much more important than taxes or other economic factors. The same goes for healthcare and climate. But, if all things are equal, you might consider retiring in a state that goes out of its way to invite you there with its policies and programs. In the case of the states above, you can be confident that they want retirees and have many good reasons for you to retire there.
Comments? What do you think? In your experience do these states strike you as retirement-friendly? Do you know of other states we should have considered? Please share your thoughts in the Comments section below.