In this article, we will take a look at the 5 worst states to retire in for taxes and cost of living. If you want to check out our detailed analysis on the worst states for retirement and saving for your golden years, you may go to the 20 Worst States to Retire in For Taxes and Cost of Living.
5. New York
Cost of Living: 125.1
One of the worst states to retire in for taxes and cost of living is New York. Living expenses are 25% above the national average, and New Yorkers have a significant tax burden as well. The income tax rate is very high, and New York City’s is an additional 3.078% to 3.876% higher. Social security benefits, military retirement plans, and retirement income from New York state and local government as well as federal government is tax-exempt. Private pensions and income from retirement accounts, on the other hand, are deductible up to $20,000. The state has an average state and local sales tax rate at 8.52%. Property tax rates are steep as well with reductions for qualifying seniors.
4. California
Cost of Living: 134.5
While social security benefits aren’t taxed in California, it is still one of the worst states a retiree can move to in terms of taxes and cost of living. Living expenses in the state are 34.5% above the national average, and the state also boasts some of the highest sales taxes in the United States. The average combined sales tax rate, according to Tax Foundation, is 8.82%. Pensions and income from retirement accounts are fully taxed at one of the highest state income tax rates.
3. Massachusetts
Cost of Living: 148.4
In Massachusetts, social security retirement benefits are fully exempt from taxation. However, most of the other forms of retirement incomes are taxed. The state has a flat personal income tax rate of 5%. There is a 6.25% state-level sales tax as well. Average property taxes are 1.14% of assessed home value, and qualifying seniors can claim a property tax break as well but cost of living is extremely high at 48.4% above the national average.
2. District of Columbia
Cost of Living: 148.7
Even though District of Columbia isn’t a state, it is included in our list as it is one of the worst places one can retire in for taxes and cost of living. Except for social security, most other income from retirement accounts are taxed. The sales tax rate is around 6%, same as the surrounding states of Virginia and Maryland. Cost of living is 48.7% above the national average.
1. Hawaii
Cost of Living: 179
The worst state to retire in for taxes and cost of living is Hawaii. With a cost of living that is 79% above the national average, the state is one of the most expensive ones that retirees can choose for themselves. The highest income tax bracket in the state is 11%. Retirement savings accounts and private pensions are fully taxed. However, social security benefits, private pensions, military and government pensions, and Tier 1 railroad retirement benefits are tax exempt. The average combined sales tax rate is 4.44%, and groceries are taxed at the full rate. The average effective property tax rate is 0.29%, one of the lowest in the US.
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