Research conducted for Bankrate.com found that three out of 5 Americans want to spend their golden years in another city or state. A majority of the respondents said they would be interested in moving, regardless of gender, income and education, though the desire to move does seem to fade a bit with age. In fact, among people between 50 to 64 only 50% stated that they wanted to relocate.
There is no doubt that planning for retirement is complex and requires several major decisions. As retirement nears, people often have many concerns about whether they have accumulated adequate savings and when they should begin collecting social security. But along with deciding when to retire, another key question is where to retire.
Choosing a Place to Retire
The top criteria for choosing a place to retire varied considerably among respondents in the Bankrate poll. Finding an affordable place to retire was extremely important for 75% of respondents who were 65 and older, 25% of people polled desired proximity to a beach, and 18% were interested in retiring near a university, museum or other cultural institutions.
Relocating for retirement continues to be popular. In 2018, about 930,000 people ages 60 and older moved across state lines, an increase of about 16% from 2013, according to SmartAsset research.
Whatever reasons factor into their decisions, whether financial or personal, retirees must thoroughly consider the implications of moving, such as different tax rates and housing costs in new locales.
For those who want to relocate, deciding where to live should involve a thoughtful process instead of just picking a beloved vacation spot or a childhood hometown.
Important Retirement Relocation Questions
Is There State Income Tax on Retirement Income?
Before choosing a state to live in during retirement, retirees who receive the majority of their income from Social Security, pensions and retirement savings have to research each state’s taxation rates. For example, 37 states do not tax Social Security benefits, but 13 states do, for at least some retirees.
A few of the 37 states on that list don’t have state income taxes including Alaska, Florida, Nevada, South Dakota, Texas, Washington and Wyoming. Among the 13 states that tax Social Security, seven provide some sort of deduction or credit to limit or offset the cost of the tax for retirees.
Six remaining states (Minnesota, North Dakota, Nebraska, Rhode Island, Vermont and West Virginia) tax all Social Security Income that is taxed on the federal level. There are fewer states that do not impose taxes on pension income or distributions from retirement accounts.
Does the State Have an Estate or Inheritance Tax?
In most states that impose an estate tax, it usually doesn’t kick in until a person is transferring a significant amount—around $1 million or more to heirs. As a result, this is primarily a concern for people with fairly substantial assets. However, inheritance tax can affect heirs at much lower limits, with those who inherit sometimes owing money on even small transfers.
What is the Standard of Healthcare in the State?
Many retirees eventually develop health problems—either a chronic condition requiring medical management or an acute health issue such as a stroke. Therefore, it is prudent to conduct research about the quality of the hospitals and doctors in the new area—including which providers accept Medicare.
Retirees should also consider the costs of a nursing home or home care in their top choices for retirement because there’s a 70% chance a person 65 or older today will eventually require long-term care of some type. Long-term care is not covered by Medicare and it can cost more than $100,000 annually in some parts of the country, so comparing prices is necessary.
Top 5 Retirement Friendly States
1) Florida and Arizona
A warm climate continues to be one of the biggest draws for relocation. As a result, Florida and Arizona had the highest net migration of retirees in 2018. Additionally, nine of the top 10 cities where retirees are moving in recent years are located in regions of the country that do not have frigid weather. Specifically, according to 2018 Census data, there was a net migration of about 70,000 and 34,000 people ages 60 and older to Florida and Arizona, respectively.
Florida is also ranked number one in several surveys of best states for retirement because it is one of the most tax-friendly states for retirees in the U.S. Florida does not have a state income tax, which means Social Security retirement benefits, pension income and income from an IRA or a 401(k) are all un-taxed. Florida has no estate or inheritance tax, and property and sales tax rates are close to national marks. In WalletHub’s survey of best states to retire, Florida also received high marks for affordability, quality of life and health care.
Colorado was ranked number two on several surveys of best places to retire. The state receives high marks in many surveys for having low property taxes.
It also placed high on several lists due to excellent healthcare, superb quality of life and affordability. Kiplinger’s ranked the state as the 18th best state for retirement out of 20 recommendations, but praised the state’s excellent health care. Colorado ranks tenth in the United Health Foundation’s senior health rankings, with particularly strong evaluations in clinical care and positive behaviors.
Among its health-related strengths, the state has low rates of obesity and physical inactivity in seniors. It also has a low poverty rate among those 65 and older at 7.4%, compared with 9.3% nationwide.
Within the state, Denver has been one of the fastest-growing cities in the U.S. in recent years. Part of that growth may be due to retirees’ decision to relocate there. In 2018, there was a net migration of 1,288 seniors.
3) New Hampshire
New Hampshire is not among the states with the lowest cost of living, but it scores very high for taxes and health care. The Granite State’s current tax situation is advantageous. The state ranks among Kiplinger’s 10 most tax-friendly states for retirees because New Hampshire doesn’t tax Social Security benefits or other retirement income or levy any sales tax.
New Hampshire is one of just four states—Oregon, Montana and Delaware—that have no state or local sales taxes. That savings helps balance out the above-average living costs and below-average household incomes.
An exemption for property taxes is available to those age 65 and older who have lived in New Hampshire for at least five years. Towns and cities set additional eligibility rules, but the minimum exemption is $5,000 off the assessed home value.
New Hampshire ranks sixth in the U.S. for senior health, according to the United Health Foundation.
Utah is an excellent choice for active retirees and has excellent health care. Utah ranks fifth in the U.S. for the overall health of its 65-plus population, according to the United Health Foundation.
It also offers plenty of outdoor recreation options including five national parks, seven national monuments, five national forests and 43 state parks.
However, the state has unfriendly tax laws—it is one of the few states that taxes Social Security benefits. Nevertheless, income levels for older adults is about average for the U.S., and the state has the third-lowest poverty rate in the country for people 65 and older.
Wyoming ranks fifth in the nation for its fiscal health with sufficient cash to cover its obligations (thanks to revenues from oil and mineral rights), according to the Mercatus Center. That bodes well for its ability to maintain its generous tax benefits for retirees and all its residents. There is no state income tax at all, and the state sales tax is a modest 4.5%. As a result, Wyoming is one of the most affordable U.S. states and also rates high for quality of life.
Selecting a State
If a retiree is looking for the state that is best in one particular category such as lowest taxes, cost of living or health care it is possible to research for just one favorite characteristic. In the category of best state for tax friendliness, for example, WalletHub’s top five states include Alaska, Delaware, Montana, Wyoming and Nevada.
For the absolute lowest adjusted cost of living, the top five are Mississippi, Arkansas, Oklahoma, Tennessee and Alabama. For retirees who desire culture and entertainment, the top states for most museums and theaters per capita include New York, California and Pennsylvania.
Relocating in retirement can make a huge difference in a retiree’s personal and financial life. It is important to take time to analyze the best state for your needs and lifestyle.