10 Best States If You’re Retiring Early — And How Much Your Retirement Savings Will Be Taxed

Paul Bradbury / iStock.com

Commitment to Our Readers

GOBankingRates' editorial team is committed to bringing you unbiased reviews and information. We use data-driven methodologies to evaluate financial products and services - our reviews and ratings are not influenced by advertisers. You can read more about our editorial guidelines and our products and services review methodology.

20 Years
Helping You Live Richer

Reviewed
by Experts

Trusted by
Millions of Readers

Retiring early is the dream for many Americans, but one that’s not always easy to pull off. It takes decades of planning that should begin in your 20s. You need to earn a decent living so you have enough extra money to put into retirement savings every month, commit to building your retirement fund and budget wisely.

One strategy is to follow the Rule of 25, which means saving 25 times your annual expenses to cover bills throughout your retirement. To figure out your annual expenses, multiply your monthly expenses by 12. Next, multiply this figure by 25. The total you come up with is your “financial independence retire early number” (FIRE) number. This calculation will help you see how close (or far) you are from your financial and retirement goals. 

You also need to decide what you mean by “early retirement.” The traditional retirement age is 65 years old, but the actual average retirement age in the U.S. is 62, according to MassMutual. When it comes to planning for an early retirement, there’s obviously a big difference between retiring at age 60 vs. age 40.

Finally, figuring out where you to live in retirement is another important step. Some states are better for early retirement than others – partly because they are more tax-friendly.

A 2023 study from SmartAsset aimed to determine the best states to retire early according to various financial criteria. The study analyzed the following six metrics based on data from the U.S. Census Bureau, Kaiser Family Foundation, Council for Community and Economic Research and other sources:

• Effective income tax rates on people ages 55-64, including income from retirement savings distributions.
• State and local sales tax rates.
• Average effective property tax rates.
• Median annual housing costs.
• Non-housing cost of living (scores below 100 are lower than average)
• Average annual cost of a silver health insurance plan.

Here are the 10 best states to move to if you are retiring early, ranked by SmartAsset’s overall index score.

1. Kentucky

• Average effective tax rate: 1.0%
• Non-housing cost of living: 94
• Annual healthcare cost: $5,890
• SmartAsset Index: 78

2. South Dakota

• Average effective tax rate: 0.0%
• Non-housing cost of living: 95
• Annual healthcare cost: $6,686
• Index: 76.29

3. Wyoming

• Average effective tax rate: 0.0%
• Non-housing cost of living: 93
• Annual healthcare cost: $11,035
• Index: 75.71

4. Tennessee

• Average effective tax rate: 0.0%
• Non-housing cost of living: 95
• Annual healthcare cost: $5,410
• Index: 74.29

5. Mississippi

• Average effective tax rate: 0.0%
• Non-housing cost of living: 89
• Annual healthcare cost: $7,718
• Index: 73.71

6. New Mexico

• Average effective tax rate: 2.9%
• Non-housing cost of living: 99
• Annual healthcare cost: $5,150
• Index: 63.71

7. Pennsylvania

• Average effective tax rate: 0.0%
• Non-housing cost of living: 103
• Annual healthcare cost: $6,211
• Index: 62.29

8. Montana

• Average effective tax rate: 3.9%
• Non-housing cost of living: 98
• Annual healthcare cost: $6,110
• Index: 60.86

9. Florida

• Average effective tax rate: 0.0%
• Non-housing cost of living: 102
• Annual healthcare cost: $6,936
• Index: 60.57

10. Texas

• Average effective tax rate: 0.0%
• Non-housing cost of living: 95
• Annual healthcare cost: $6,430
• Index: 59.71

Share This Article: