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. Whether you want to retire to 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.
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 will have in retirement, 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:
Location, location, location. It’s a major research requirement if you want to learn how to retire well. Where you live during retirement will affect your happiness and quality of life. Here are a few questions to consider before making a decision:
When researching retirement-friendly states, you should 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 health care opportunities and senior populations living below the poverty line. While some aspects may seem appealing, others can become quick deal breakers.
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 health care 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:
Based on the study’s criteria, the best (and worst) states for retirement in 2021 are as follows:
|Best States||Reasons for Ranking||Worst States||Reasons for Ranking|
|1. Florida||Affordability, Quality of Life||1. New Jersey||Affordability, Quality of Life|
|2. Colorado||Affordability, Health Care||2. New York||Affordability, Health Care|
|3. Delaware||Affordability, Health Care||3. Mississippi||Health Care, Quality of Life|
|4. Virginia||Affordability, Quality of Life||4. New Mexico||Health Care, Quality of Life|
|5. North Dakota||Health Care, Quality of Life||5. Rhode Island||Affordability, Quality of Life|
|6. Montana||Affordability, Health Care||6. Kentucky||Health Care, Quality of Life|
|7. Idaho||Affordability, Quality of Life||7. West Virginia||Health Care, Quality of Life|
|8. Utah||Affordability, Quality of Life||8. Connecticut||Affordability, Quality of Life|
|9. Minnesota||Health Care, Quality of Life||9. Texas||Health Care, Quality of Life|
|10. New Hampshire||Health Care, Quality of Life||10. Illinois||Affordability, Quality of Life|
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 top the list in affordability, you may be prioritizing weather or medical services.
One of the most important factors in deciding where to retire is taxation. After all, it’s not just about how much you’ll have saved for retirement, but also how much you can save during retirement.
Which states are the most tax-friendly?
Whether it’s Social Security, pensions, retirement distributions or investment income, which state you choose could be determined by its tax exemptions. 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:
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:
Note: Alabama and Hawaii do not tax pensions, but they will tax other retirement distributions.
In addition to these states, it is important to research other taxes, including estate tax and sales tax, to make the most well-rounded judgment.
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.
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.
©All Rights Reserved. May, 2021. DailyDACTM, LLC d/b/a/ Financial PoiseTM
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