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Surprising Data Reveals Top 25 Tax-Friendly States To Retire

Cameron Huddleston
·10 min read
a mature man walks away from the sea at sunset  carrying his mini mal surfboard after a day's surfing .
a mature man walks away from the sea at sunset carrying his mini mal surfboard after a day's surfing .

If you want to stretch your retirement savings as far as possible, don’t focus solely on the cheapest places to retire. Pay attention to taxes in the places you’re considering, too, because they can take a big bite out of your retirement income.

Narrow It Down: The Most (and Least) Tax-Friendly Cities for Retirees

GOBankingRates looked at income, sales and property tax rates across America to find out whether Social Security is taxed, all to help you pinpoint the most tax-friendly states for retirees.

Last updated: Dec. 23, 2020

11674, How Long $1 Million Will Last in Retirement in Every State, Massachusetts, States, USA, United States of America, america, horizonta
11674, How Long $1 Million Will Last in Retirement in Every State, Massachusetts, States, USA, United States of America, america, horizonta

25. Massachusetts

Income tax: 5.1%
Property tax: 1.13%
State sales tax: 6.25%
State tax on Social Security: None

Despite its nickname “Taxachusetts,” Massachusetts isn’t even close to being the worst state taxwise for retirees. In fact, it beats out 25 of them. For starters, it doesn’t tax Social Security benefits — and its 6.25% sales tax rate is lower than in the majority of states. However, its income and property tax rates are among the top 20 highest.

Watch Out: 35 Retirement Planning Mistakes That Waste Your Money

South-Carolina
South-Carolina

24. South Carolina

Income tax: 7%
Property tax: 0.54%
State sales tax: 7.22%
State tax on Social Security: None

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

Read: How To Protect Your Retirement Savings During the Pandemic

11709, Horizontal, States
11709, Horizontal, States

23. Pennsylvania

Income tax: 3.07%
Property tax: 1.48%
State sales tax: 6.34%
State tax on Social Security: None

Pennsylvania’s income and sales tax rates rank among the 20 lowest in the U.S. But its property tax rate is the 11th highest.

Decision Time: Key Signs You Should Sell Your Home When You Retire

North-Carolina
North-Carolina

22. North Carolina

Income tax: 5.5%
Property tax: 0.83%
State sales tax: 6.9%
State tax on Social Security: None

Social Security benefits escape state taxes in North Carolina. But the state’s income and sales tax rates are higher than the rates in more than half of the states.

New Orleans, Louisiana, USA CBD skyline at night.
New Orleans, Louisiana, USA CBD skyline at night.

21. Louisiana

Income tax: 4%
Property tax: 0.5%
State sales tax: 10%
State tax on Social Security: None

Retirees can benefit from Louisiana’s low income tax rate and no taxes on Social Security benefits. However, its 10% sales tax is the highest in the nation.

San Antonio, Texas, USA skyline.
San Antonio, Texas, USA skyline.

20. Texas

Income tax: None
Property tax: 1.62%
State sales tax: 8.19%
State tax on Social Security: None

Seven of the cheapest cities to retire are in Texas, a separate GOBankingRates study found. 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.

Louisville-Kentucky
Louisville-Kentucky

19. Kentucky

Income tax: 5.8%
Property tax: 0.79%
State sales tax: 6%
State tax on Social Security: None

Although the income tax rate is higher in Kentucky than in a majority of states, retirees don’t have to worry about a state tax on Social Security.

Plus, Kentucky’s largest city — Louisville — has one of the best neighborhoods for retirement in America thanks to a low cost of living, plenty of amenities and a relatively high percentage of adults 65 and older, a GOBankingRates study found.

Related: The Most and Least Tax-Friendly Countries

Baltimore Maryland
Baltimore Maryland

18. Maryland

Income tax: 4.75%
Property tax: 1%
State sales tax: 6%
State tax on Social Security: None

Maryland ranks among the top 20 best states for retirement taxes because it doesn’t tax Social Security benefits. Its income tax rate is lower than the rate in half of the states, and its sales tax is the 12th lowest. But property taxes in Maryland are high.

Alabama
Alabama

17. Alabama

Income tax: 5%
Property tax: 0.38%
State sales tax: 9.01%
State tax on Social Security: None

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

10978, Cities, Horizontal, States, United States, Virginia, america
10978, Cities, Horizontal, States, United States, Virginia, america

16. Virginia

Income tax: 5.75%
Property tax: 0.84%
State sales tax: 5.63%
State tax on Social Security: None

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

Aerial view of a Downtown Los Angeles at sunset.
Aerial view of a Downtown Los Angeles at sunset.

15. California

Income tax: 4%
Property tax: 0.71%
State sales tax: 8.25%
State tax on Social Security: None

Retirees benefit from a relatively low income tax and no tax on Social Security income in California. Because of the state’s high cost of living, though, even a nest egg of $1 million won’t last as long in retirement as in most other states.

Jackson, Mississippi, USA skyline over the Capitol Building.
Jackson, Mississippi, USA skyline over the Capitol Building.

14. Mississippi

Income tax: 5%
Property tax: 0.61%
State sales tax: 7.07%
State tax on Social Security: None

Mississippi is one of the states that require 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.

Indianapolis skyline with the White River, Indiana.
Indianapolis skyline with the White River, Indiana.

13. Indiana

Income tax: 3.23%
Property tax: 0.84%
State sales tax: 7%
State tax on Social Security: None

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 states.

A view of downtown Eugene, Oregon.
A view of downtown Eugene, Oregon.

12. Oregon

Income tax: 9%
Property tax: 0.95%
State sales tax: None
State tax on Social Security: None

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.

Downtown Phoenix skyline at dusk.
Downtown Phoenix skyline at dusk.

11. Arizona

Income tax: 2.88%
Property tax: 0.66%
State sales tax: 8.25%
State tax on Social Security: None

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.

In fact, one of Arizona’s biggest cities — Tucson — is one of the best places to live on only a Social Security check, another GOBankingRates study found.

Arizona vs. Florida: Which Retirement Haven Is Right for You?

Hawaii
Hawaii

10. Hawaii

Income tax: 7.2%
Property tax: 0.29%
State sales tax: 4.35%
State tax on Social Security: None

The cost of living is high in Hawaii, but retirees can hang on to more of their income to cover expenses because the tax bite is 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.

Knoxville, Tennessee, USA city skyline at World's fair Park.
Knoxville, Tennessee, USA city skyline at World's fair Park.

9. Tennessee

Income tax: None
Property tax: 0.71%
State sales tax: 9.46%
State tax on Social Security: None

Tennessee doesn’t tax Social Security benefits. But Tennessee retirees need to watch out for the state’s sale tax, which is the second highest in the U.S.

South-Dakota
South-Dakota

8. South Dakota

Income tax: None
Property tax: 1.19%
State sales tax: 6.39%
State tax on Social Security: None

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 a majority of states.

Read: Retirees Confess What They Wish They’d Done With Their Money

Orlando Florida at dusk
Orlando Florida at dusk

7. Florida

Income tax: None
Property tax: 0.9%
State sales tax: 6.8%
State tax on Social Security: None

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

Nevada
Nevada

6. Nevada

Income tax: None
Property tax: 0.65%
State sales tax: 7.98%
State tax on Social Security: None

Nevada is one of the states that do 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.

Washington-Seattle
Washington-Seattle

5. Washington

Income tax: None
Property tax: 0.89%
State sales tax: 6.29%
State tax on Social Security: None

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.

On top of that, Washington’s capital — Olympia — is one of the most affordable cities for retirees who want an active lifestyle, a GOBankingRates study found.

New-Hampshire-Manchester
New-Hampshire-Manchester

4. New Hampshire

Income tax: None
Property tax: 1.94%
State sales tax: None
State tax on Social Security: None

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.

Wilmington is the largest city in the state of Delaware, United States and is located at the confluence of the Christina River and Brandywine Creek.
Wilmington is the largest city in the state of Delaware, United States and is located at the confluence of the Christina River and Brandywine Creek.

3. Delaware

Income tax: 5.55%
Property tax: 0.57%
State sales tax: None
State tax on Social Security: None

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

Jackson Hole, WY, USA - May 13, 2008: Ski slopes in Jackson Hole with panorama of vintage houses.
Jackson Hole, WY, USA - May 13, 2008: Ski slopes in Jackson Hole with panorama of vintage houses.

2. Wyoming

Income tax: None
Property tax: 0.52%
State sales tax: 5.41%
State tax on Social Security: None

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. It’s also one of the best states to retire rich thanks to a relatively low cost of living and competitive rates on interest-bearing savings accounts.

10978, Cities, Horizontal, States, United States, alaska, america
10978, Cities, Horizontal, States, United States, alaska, america

1. Alaska

Income tax: None
Property tax: 0.97%
State sales tax: 1.76%
State tax on Social Security: None

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 fifth lowest in the U.S. But keep this in mind: The cost of living in Alaska is higher than in most states.

GOBankingRates
GOBankingRates

Taxes and Retirement — How Does Your State Compare?

Retirees need to consider the impact taxes will have on their income. But that’s not the only thing they should think about when deciding where to retire.

There are several factors to consider when looking for a place to retire — including the cost of living and access to healthcare. A state that isn’t the most tax-friendly might actually be a good fit for your retirement needs.

More From GOBankingRates

Methodology: GOBankingRates examined four tax rates: 1) average state and local sales tax, sourced from the Tax Foundation; 2) state tax on Social Security benefits, sourced from Kiplinger; 3) effective state property tax, sourced from the National Association of Home Builders; and 4) state income tax rate based on the median income of adults ages 65 to 74, sourced from the Bureau of Labor Statistics. State tax on Social Security benefits was weighted twice as much as other taxes.

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