Are you wondering which states are best for retirement? As a retiree since 2012 let me share the best states for retirement based on taxes, weather, and lifestyle. My method for calculating the best states for retirement are objective and intuitive.
In retirement, you want to live in a place that has reasonable taxes. Every day, you’d love to go outside and enjoy nature. Further, you’d love to have great food and entertainment activities. Clearly a state like Hawaii is in the top 5 due to its amazing weather and wonderful pace of life.
However, let’s determine the best states for retirement with a little more objectivity using taxes and lifestyle as key variables. It doesn’t matter if you retire rich if your state has bad weather, poor culture, high taxes, and bad laws.
Which States Are Best For Retirement?
America is amazing because we’re free to relocate anywhere in the country that suits our desires. A lot of people scoff at the idea of just moving because of family and job responsibilities.
But when you can take a plane anywhere in the continental US in under six hours, telecommute from home, and FaceTime with people you care about, why wouldn’t you at least give moving to a nicer place a shot? There are now plenty of flexible work from home opportunities thanks to the global pandemic.
The best states to live in have a combination of low taxes and incredible weather. California is awesome, but our taxes are horrendous. Hawaii is also amazing, but food and housing are also costly. At least Hawaii’s sales tax is only 4-4.5% and pensions are state tax-free.
I’ve been to a large majority of the 50 States and hav spent 10 years on the East Coast before moving out West in 2001. I’m biased for California and Hawaii. To me, the best state for retirement is Hawaii, if you can afford it. However, it’s time to get objective for the greater good of all Americans.
For a better life in retirement, be willing to relocate.
Taxes Are Important When Considering Best States For Retirement
When we calculate cost of living, we typically think of 1) Housing (rent or mortgage), 2) Car (loan payments and interest), and 3) Education and Child Care (student loans or child schooling). However, in actuality, taxes are usually the number one largest ongoing expense.
Let’s take a look at the Federal Income Tax brackets for 2022. Let’s hope they don’t go up too much under Joe Biden. But if you are making over $400,000 a year, Biden has promised to raise your taxes. T
axes must be considered when trying to determine the best states for retirement. You also have to understand whether there is state income tax, the level of property tax, social security tax, and so forth.
State Income Tax Rates
From a previous post regarding our polled incomes (2,400+ votes), the vast majority of readers here are going to be taxed at the 25%-33% rate federally. After Uncle Sam gets his cut, we need to take a look at individual states and the associated income tax.
Let’s take a look at state income tax rates to get an idea of how much citizens are taxed around the country.
As we can see the grey states represent those with no state income tax and the lighter the purple, the less overall income tax for the top brackets. However, we also need to take into account that some states with no income taxes are going to make it up at the gas pump or via higher property taxes i.e. Washington State, Texas, and New Hampshire.
Overall, the cost of living tends to be a lot more in cities where people would like to live and be by the coasts. We also need to consider our #1 largest expense aside from taxes, which is housing. Median home prices vary significantly from state to state.
Cheapest And Most Expensive States For Home Prices
The bottom 10 range from $125k-155k and include (cheapest to most expensive): Ohio, Michigan, West Virginia, Tennessee, Kentucky, Arkansas, Nebraska, Oklahoma Georgia and Iowa.
The top 10 range from $237k-471k and include (cheapest to most expensive): Oregon, Maryland, Colorado, Washington, New Jersey, Virginia, New York, California, Hawaii, and Washington D.C.
The following chart below is the median household income by state.
Money is basically made on the coasts with lots of it coming in from San Francisco, NYC, Boston and D.C. Therefore, it costs an arm and a leg to live around these metros. A median house in SF is going for around $1.1 Million, for example. It would be damn hard to make a living and reside in the SF Metro if one isn’t making $200,000 or more.
I really like the $200k figure, as it also represents roughly the current median household price in America. The American dream is pretty much about home ownership, freedom, and comfortable living. We want to be able to work hard and be free with a roof over our heads that we own. So with that said, let’s delve into some states really worth exploring if our income isn’t specific to a geographic region.
The Most Attractive States For Retirees
Let’s first take a look at the states with the lowest tax burden for residents according to the US Census Bureau. Below are the best states for retirement based on the lowest tax rates.
States With The Lowest Taxes To Save Retirees Money
Florida – No income tax, low cost of living, and warm weather.
Arizona – Low state income tax, low cost of living, and warm weather.
Nevada – No income tax, low cost of living, and warm weather.
Texas – No income tax, super low cost of living, and warm weather.
Wyoming – Wyoming is unique in that it doesn’t tax any income, including retirement and social security. Sales tax is a mere 4%, there is low cost of living and wide open spaces.
South Dakota – If freezing temperatures and being in the middle of the U.S. don’t bother you, in similar fashion to Wyoming, this is one of the best states for retirement.
Alaska – Also has no income tax, but it’s far away from the mainland, cold, dark, and not cheap due to the importation of goods.
States With The Most Millionaires For Retirement
Now let’s look at the states where there are the most millionaires. Millionaires are more mobile than others, all else being equal. Therefore, it is logical to conclude that states with more millionaires provide better lifestyles. After all, if you’re a millionaire, you’ll want to use your resources to live the best life possible.
To nobody’s surprise, Hawaii has the most number of millionaires per 1,000 household in the country. New Jersey and Connecticut have a lot of millionaires given a lot of residents make their money from NYC.
States With The Lowest Taxes And Most Millionaires For Retirement
The final step is to compile the highest ranked states on both charts to come up with the best states for retirees! Below are the states with the lowest taxes and the most number of millionaires. As a result, these states are objectively the best states for retirement.
Live In A Nicer State Already
If you’ve spent a lifetime saving, investing, and working, it’s time to reward yourself with a fantastic retirement. Please don’t live in a state with high taxes and a higher amount of crime and poverty. America is a big country. Time to move to a better state!
Given I’m OK with paying a lot more taxes than the average citizen, Hawaii continues to be my number one state for retirement. Every time I go back to Hawaii, I get happier. My stress level goes from a moderate 5 or 5 out of 10 to a 2 or 3.
If you want a combination of lower taxes and a nicer lifestyle, Florida is a great state for retirees. But I wouldn’t count out Nevada, since Nevada also has no state income taxes. Given how slow Nevada was in counting the ballots during the 2020 presidential election, its extremely slow pace of life might be exactly what retirees want!
Where I Plan To Re-Retire
Ever since the global pandemic began, I decided to work again. I didn’t go back to a traditional day job. Instead, I decided to work on Financial Samurai. Since a lot of fun activities were and are still closed, I decided to find ways to make more money online.
However, once I get vaccinated and there is herd immunity, I’m done with work. I even put together a pre-retirement checklist that is even better than the first.
I’m happy to re-retire in California for the next couple of years. I think it’ll be fun to explore this great state while my baby daughter gets stronger.
But by 2023, my plan is to retire in the best state in America: Hawaii. Hawaii is such a wonderful state. I immediately feel less stressed every time I’m there because the culture is more laid back. Maybe I won’t fully retire, but fake retire instead by working on my passion projects. But either way, I plan to retire in a state with great weather, chill people, and a slower lifestyle.
Here in San Francisco, everybody is talking about how much money they are making from their investments. There’s a non-stop hustle culture which I want to escape. People are seriously too type-A ambitious here.
Of course, taxes, weather, and where the richest people want to live aren’t the only factors that determine the best states to retire. There are other considerations such as climate change, diversity, and politics are other considerations. Choose the factors that are most important to you.
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Earn More Income Through Real Estate
Real estate is my favorite way to achieving financial freedom because it is a tangible asset that is less volatile, provides utility, and generates income. Further, real estate is a great way to earn more passive income in retirement.
Given interest rates have come way down, the value of rental income has gone way up. The reason why is because it now takes a lot more capital to generate the same amount of risk-adjusted income. Yet, real estate prices have not reflected this reality yet, hence the opportunity.
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Which States Are Best For Retirement is a Financial Samurai original post. I’ve been helping people achieve financial freedom sooner, since 2009.