In this article, we will take a look at the 25 best places to retire for taxes and cost of living. If you wish to skip our detailed analysis on retirement taxes and cost of living, you may go to 10 States to Retire in for Taxes and Cost of Living.

Retirement Taxes and Cost of Living

In 2023, 65 million social security beneficiaries were entitled to a record-breaking 8.7% Cost of Living Adjustment (COLA) in the US. On average, retirees are receiving a $140 raise in their checks, notes Social Security Administration. Average retiree benefits have, therefore, increased from $1,681 to $1,827. However, the social security monthly adjustments haven’t been all good news. According to The Senior Citizens League, 57% of taxpayers have been worried about more taxes due to the cost of living adjustments. Brian Vosberg, a certified financial planner and president of Vosberg Wealth in California, states that,

“From a tax savings perspective, there is not much you can do to mitigate your liability for this tax filing season.”

Moreover, the IRS has placed higher federal tax brackets to adjust for inflation. As this is a caveat for 2023, retirees should be looping in qualified tax planners to ensure that they have a tax-efficient retirement income. Many retirees are also considering moving to states offering lower or no income taxes. States that don’t tax retirement income include Alaska, Florida, Nevada, South Dakota, and Tennessee. However, considering only income tax for retirement isn’t a wise move. Property and sales taxes must also be accounted for to provide retirees with an accurate picture of total taxation. As such, some of the best states to retire tax-wise include Mississippi, Oklahoma, Alabama, and Arkansas.

Another important metric that retirees should consider when mapping out their potential retirement destinations is the cost of living. Retiring in a state that offers low taxes and affordable living can help retirees stretch their retirement incomes. Some of the most retirement-friendly states to retire to include Florida, Texas, and South Carolina. The weather is excellent, the natural landscapes are breathtaking, and the retirees fare well in expenses and taxation. For those living on fixed incomes, retirees must avoid states such as Washington, Maryland, California, and Hawaii, as these are the worst states to retire in for taxes. The cost of living is also expensive in these states, which is why they must not be considered for retirement. Instead, Alabama and Mississippi are some of the best states to retire on a fixed income.

For those looking for the best states offering a tax-friendly environment and affordable living costs, read below.

Methodology

In order to come up with the list of the best states to retire in for taxes and cost of living, we have listed out the most tax-friendly states from Smart Asset. These states offer the most efficient blend of retirement income, property, and sales taxes for retirees. Next, we sourced their cost of living indices from the Missouri Economic Research and Information Center (MERIC).

Next, places were ranked based on the cost of living from the highest to the lowest cost of living index. Scores above 100 imply that cost of living is above the US average, by the number of points above 100, while less than 100 have living expenses that are lower than the national average, by the corresponding percentage points.

Here are the best states to retire in for taxes and cost of living:

25. Idaho

Tax-friendliness: Tax-friendly

Cost of living: 106.1

Idaho, also known as the Gem State, offers a favorable combination of affordable living and a tax-friendly environment for retirees. It does not tax social security benefits, while its property and sales taxes are relatively low too. Other forms of retirement income are taxed, such as income from IRAs and 401(k)s, at state income tax levels. The cost of living is 6.1% above the US average, with many places in the state offering lower living costs than others.

24. Colorado

Tax-friendliness: Tax-friendly

Cost of living: 105.5

Colorado holds significant appeal to retirees due to its tax incentives and reasonable cost of living. Depending on age, retirees can deduct between $20,000 and $24,000 in retirement income from state taxes, rendering their social security or pensions mostly, if not entirely, tax-free. While cost of living is 5.5% above the national average, a range of options within the state align with retirees’ budgets.

23. Virginia

Tax-friendliness: Tax-friendly

Cost of living: 103.1

Virginia is another top retirement state offering a unique blend of affordable living and low taxes. Social security is not taxed in the state, while other types of retirement income can be deductible up to $12,000. Property and sales taxes are low, too, whereas the cost of living is a mere 3% above the national average.

22. Delaware

Tax-friendliness: Tax-friendly

Cost of living: 102.6

There are no taxes on social security benefits in Delaware. However, retirement account withdrawals are partially taxed in the state. There is no sales tax either, and property taxes are among the lowest in the US. The cost of living is 2.6% above the US average, but retirees can find cheaper options within the state.

21. Florida

Tax-friendliness: Very Tax-friendly

Cost of living: 102.3

One of the most tax-friendly states to retire to is Florida. Having no state income tax, retirees get to enjoy untaxed social security benefits, pension incomes, and even income from IRAs and 401(k)s. The cost of living is 2.3% above the US average. However, there are plenty of budget-friendly places to retire to in Florida.

20. Nevada

Tax-friendliness: Very Tax-friendly

Cost of living: 101.3

Owing to no income tax, all retirement income is tax-free in Nevada. The state also boasts relatively low property taxes, even though the sales tax is higher than average. The cost of living is only 1.3% above the national average, and retirees can find many cheaper options within the state.

19. Pennsylvania

Tax-friendliness: Tax-friendly

Cost of living: 99

A popular state to retire to, Pennsylvania is very tax-friendly towards retirees. All income from social security is fully exempt from taxation, as well as payments from retirement accounts. Sales taxes are low, on average, but property taxes are some of the highest. The cost of living is 1% lower than the national average.

18. South Carolina

Tax-friendliness: Tax-friendly

Cost of living: 96.5

One of the top states to retire in for taxes and cost of living is South Carolina. The state doesn’t tax social security, and other types of retirement incomes received are provided a $15,000 taxable income deduction. Property taxes in the state are 0.52%, well below the national average. The cost of living is also very affordable, being 3.5% lower than the national average.

17. South Dakota

Tax-friendliness: Very Tax-friendly

Cost of living: 93.8

Since South Dakota has no state income tax, all sorts of retirement incomes are tax-free. Sales taxes are also relatively low. However, property taxes are higher than the national average. The state also boasts affordable costs of living, with retirees enjoying living expenses that are 6.2% lower than the national average.

16. Kentucky

Tax-friendliness: Tax-friendly

Cost of living: 93.8

Another best state to consider retiring in for taxes and cost of living is Kentucky. Residents enjoy a lower-than-average cost of living in the state. There are no taxes on social security income, and seniors are also provided a deduction on receiving other types of retirement income. Property and sales taxes are also some of the lowest in the state.

15. Texas

Tax-friendliness: Tax-friendly

Cost of living: 93

Texas is also considered tax-friendly toward retirees. The cost of living expenses is 7% lower than the national average, making it an affordable option to consider. The state has no income tax, which means all retirement income goes untaxed. However, its property and sales taxes are among the highest in the states.

14. Wyoming

Tax-friendliness: Very Tax-friendly

Cost of living: 92.8

Wyoming is one of the most tax-friendly states to retire to in the United States. There are no state income taxes, and retirees receive all forms of retirement income without tax cuts. Property and sales taxes are lower than average, too. Retirees are also drawn in due to reasonable costs of living, which are 7.2% below the US average.

13. Michigan

Tax-friendliness: Tax-friendly

Cost of living: 92.7

If you’re a homeowner in Michigan, you likely pay high property taxes — however, the rest of the tax situation rules in favor of retirees. There are no taxes on social security, and other types of retirement incomes are also provided deductions. Sales taxes are moderate in the state, and cost of living is 7.3% lower than the US average.

12. Louisiana

Tax-friendliness: Tax-friendly

Cost of living: 92

Affordable living costs and a tax-friendly environment make Louisiana a top retirement destination. There are no taxes on social security retirement benefits or public pension incomes, and property taxes are well below the national average too. However, income from retirement accounts is taxed, with some exemptions involved. Sales taxes are some of the highest in the state.

11. Indiana

Tax-friendliness: Moderately Tax-friendly

Cost of living: 91.5

In Indiana, residents enjoy an affordable cost of living, which is 8.5% below the national average. There are no taxes on social security retirement benefits either. However, income from pensions and retirement savings accounts are taxed. Property taxes are some of the lowest in the US as well.

Click to continue reading and see the 10 Best States to Retire in for Taxes and Cost of Living.

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Disclosure: none. 25 Best States to Retire in for Taxes and Cost of Living is originally published on Insider Monkey.