When planning for retirement, considering where you will live is a key decision. Whether it’s the sunny South or the four distinct seasons of the North, choosing a place to start the next chapter of your life requires taking into account numerous factors.
One crucial factor to consider is finances. Taxes play a significant role in decision-making. So, which state could be the most economical choice for you?
On the surface, finding a state without income tax or taxing social security benefits may seem like the ultimate criteria. However, there are other factors to consider.
For instance, while California doesn’t tax social security benefits, it has one of the highest state sales tax rates in the nation at 7.25%, according to data from the Tax Foundation. The average personal consumption expenditure in California is $53,082, as per the Bureau of Economic Analysis (BEA) data. The tax savings you might gain could be overshadowed by high living costs, potentially leading to a net loss.
Alaska doesn’t impose income tax, but with an average personal consumption expenditure of $54,331 according to the BEA, your retirement funds might not stretch as far as you’d like.
Before settling on a state, it’s essential to analyze all factors. Here are some states that are tax-friendly and affordable for retirees.
Wyoming ranks among the most tax-friendly states for retirees. It has no income tax, meaning your social security benefits, pensions, or retirement account withdrawals are not subject to state tax. According to the Tax Foundation data, Wyoming doesn’t levy estate or inheritance taxes, which could benefit your heirs.
With a personal consumption expenditure of $47,832, as per BEA data, Wyoming offers a cost-effective lifestyle.
Mississippi is a viable option for retirees with limited budgets. According to Smartasset data, Mississippi doesn’t tax social security benefits. Additionally, the state doesn’t tax retirement account withdrawals or both public and private pension income. For those considering part-time work, Mississippi’s flat individual income tax rate stands at 4.7%, according to the Tax Foundation.
Mississippi’s low personal consumption expenditure at $36,445, as per BEA data, makes it one of the most affordable states to retire in.
Georgia boasts a low cost of living and tax advantages for retirees. The state doesn’t tax social security benefits, though withdrawals from retirement accounts and pensions may be partially taxed. Starting in 2024, Georgia’s flat tax rate is 5.39%, according to AARP.
Georgia’s Department of Revenue offers various tax relief programs for retirees, including exemptions for permanent residents aged 62 and older and other tax breaks for individuals aged 65 and above. With a personal consumption expenditure of $43,488 based on BEA data, Georgia provides a reasonably economical lifestyle.
Nevada is extremely tax-friendly towards retirees. The state doesn’t tax social security benefits or retirement account withdrawals. Likewise, private or public pension income isn’t subject to taxation.
As an added incentive for retirees, Nevada doesn’t have estate or inheritance taxes, according to the Tax Foundation. With an average personal consumption expenditure of $44,831, Nevada offers a financially favorable environment for retirees.
Texas appears to be keen on attracting retirees. The state doesn’t tax social security benefits, retirement account withdrawals, or both public and private pension income due to its lack of income tax.
Texas also doesn’t impose state estate or inheritance taxes, potentially simplifying the estate planning process for retirees. With a personal consumption expenditure of $45,114 based on BEA data, Texas provides a relatively affordable living standard for retirees.
Oklahoma doesn’t tax social security benefits or military retirement income. However, retirement account withdrawals, public pensions, and private pension income are partially taxed.
According to the Oklahoma Tax Commission, individuals receiving Federal Employees Retirement System (FERS) benefits can exclude up to $10,000 of their income from state taxation, with the remainder subject to tax. Retirees in Oklahoma can also exempt up to $10,000 of their retirement income from taxation, with the rest subject to tax.
A $10,000 exemption is also available for withdrawals from retirement accounts, including 401(k)s, 457(b)s, SEP (Simplified Employee Pension), IRAs (Individual Retirement Accounts), and similar plans. Oklahoma’s progressive state income tax rates for the remaining portions of pensions or retirement accounts range from 0.25% to 4.75%, according to the Tax Foundation.
With a personal consumption expenditure of $38,650 as per the BEA data, Oklahoma offers a budget-friendly option for retirees.
Florida is known for its tax-friendly environment for retirees. The state lacks income tax, making social security benefits tax-free. Florida also doesn’t tax private or public pension income. Withdrawals from retirement accounts are also tax-exempt. However, the state’s higher consumption expenditure levels should be considered.
With a personal consumption expenditure of $50,689, according to the BEA data, Florida provides retirees a comfortable financial setting.
The original article, “Tax-Friendly and Affordable States for Retirees,” was published on the English edition of Epoch Times website.
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