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.
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.
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 percent sales tax rate is lower than in the majority of states. However, its income and property tax rates are among the top 20 highest.
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.
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.
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.
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 percent sales tax is the highest in the nation.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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 on Retirement Planning
- 50 Cheapest Places to Retire
- Survey Finds 42% of Americans Will Retire Broke — Here’s Why
- Best Cities for Retirement in These Income Tax-Free States
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.