Where Should You Retire? The Best and Worst States for Retirees

From Taxes to Health Care, Find the Best States to Retire in 2024 and Beyond

The best advice for retirement is simple: plan early. You may have enrolled in a 401(k) and saved money, but knowing how to retire is more than that. Between the mountains or the beach, there are many factors to consider when determining the best state for retirement. We outline the top contenders and what you can start doing now to get there.

Planning for Retirement: A Checklist

As you or your partner approach your golden years, there are several steps to take to get your financial and living situation in order. Knowing how much money you need to retire and how much more you can save will give you a better idea of what state or specific neighborhood you can move to.

Merrill Edge advises individuals and couples to follow a pre-retirement checklist:

• Modify your investment portfolio to match your projected risk tolerance during retirement.
• If you are in your 50s, consider catch-up contributions to your 401(k) or IRA account and consolidate accounts if possible.
• Think about downsizing and minimizing loans and credit card debts.
• Take stock of your savings and assets to calculate your retirement income (roughly 4% of your total savings and assets).
• Ask yourself realistically how much money you expect to spend each year in retirement (e.g., travel expenditures, housing, etc.)
• Research health care options, such as Medicare or long-term care insurance.
• Figure out which states have appropriate living costs to your goals.
• If you do not know how much you still need to save, you can use a retirement calculator to take into account inflation, taxable retirement income, and how much you’ve already saved.

Factors to Consider in a Retirement Location

Location, location, location! There’s a reason it’s a major saying. Where you live during retirement will affect your happiness and quality of life. Here are a few questions to consider before making a decision:

• Where will your friends and family be?
• How close is it to a major city, if you want to be near one?
• What is the cost of housing?
• What is the cost of everyday living?
• What is and isn’t taxed?
• What is the healthcare situation?
• Is it diverse and inclusive?
• Is it safe?
• What is the weather like throughout the year? Is climate change a major issue (e.g., water levels in coastal states)?

When researching retirement-friendly states, look at the state from every angle. Kentucky is particularly attractive from a tax perspective since social security and railroad retirement benefits are exempt from state income tax. However, studies also rank Kentucky as one of the worst states for retirees due to poor healthcare opportunities and senior populations living below the poverty line. While some aspects may seem appealing, others can become quick deal-breakers.

Best States for Retirement

It’s no surprise that Florida is a fan favorite for retirees. AARP often lists Florida in its list of top states for retirees, especially veterans. It cites affordability, veteran healthcare facilities, and tax-friendliness. But, you may be surprised at the other states that top the list of the best states for retirement.

A recent study by WalletHub ranked all 50 states from best to worst states for retirement. The study used 45 metrics, including the following:

• Adjusted cost of living
• Tax-friendliness on pensions and social security income
• Annual cost and quality of health care and in-home services
• Senior levels of activity, obesity, and disability
• Share of the senior population
• Access to public transportation and entertainment
• Crime rate
• Weather

Based on the study’s criteria, the best states for retirement in 2024 are as follows:

1. Florida
2. Colorado
3. Virginia
4. Deleware
5. Wyoming
6. Idaho
7. New Hampshire
8. Minnesota
9. Montana
10. Pennsylvania

Based on the study’s criteria, the worst states for retirement in 2024 are as follows:

1. Kentucky
2. New Jersey
3. Mississippi
4. Rhode Island
5. Oklahoma
6. Lousiana
7. New York
8. Washington
9. Arkansas
10. Illinois

It’s important to remember that this is not a definitive list, but rather a starting point for determining the best location for your needs. While some states may be more affordable, you may want to prioritize the weather or medical services.

Tax-Friendly States

One of the most important factors in deciding where to retire is taxation. After all, it’s not just about how much you saved for retirement, but also how much you can save during retirement. Which states are the most tax-friendly?

Income Taxation

Whether it’s Social Security, pensions, retirement distributions, or investment income, tax exemptions are a big part of choosing a state to retire. However, where you find state income tax exemptions, you may find higher forms of other tax, such as sales tax.

Currently, the following states have zero income tax:

• Alaska
• Nevada
• Wyoming
• South Dakota
• Texas
• Tennessee
• Florida

Note: Though New Hampshire has no wage tax, the state currently taxes interest and dividends.

The following states do not tax 401(k), IRA or pension distributions:

• Illinois
• Mississippi
• Pennsylvania

Note: Alabama and Hawaii do not tax pensions, but they will tax other retirement distributions. Iowa residents are also not taxed on retirement income.

It is also important to research other taxes, including estate tax and sales tax, to make the most well-rounded judgment.

Military Retirement Pay Taxation

Military retired pay (MRP) and Survivor Benefit Plan (SBP) payments are another important area of financial concern for veterans and their families. While these programs are fully exempt from taxation in states like Texas, Illinois, Florida, New York, and others, you should check for updates from the Military Officers Association of America (MOAA), as proposed changes to state legislature have been frequent.

Prepare for Your Retirement Today

Perhaps you haven’t yet weighed the merits of Minnesota or New Hampshire, but one thing is for certain: the best time to start planning your retirement is now.

We think you’ll also like:

1. Long-Term Care Insurance: What You and Your Family Should Know
2. Invest Tax-Advantaged Retirement Funds in Private Equity for Growth
3. America’s Retirement Crisis: Problems and Solutions

[Editors’ Note: To learn more about this and related topics, you may want to attend the following on-demand webinars (which you can view at your leisure, and each includes a comprehensive customer PowerPoint about the topic):

1. Current Trends in Leveraged Finance
2. How to Read a Balance Sheet – And Why You Care!
3. Valuation / What’s it Worth? Valuing a Business for Sale

This is an updated version of an article originally published on May 21, 2021.]

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