Surprising Data Reveals The Top 25 Tax-Friendly States To Retire

·9 min read
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adamkaz / Getty Images

If you want to stretch your retirement savings as far as possible, don't focus solely on the cheapest places to retire. Pay attention to taxes in the places you're considering, too, because they can take a big bite out of your retirement income.

Narrow It Down: The Most (and Least) Tax-Friendly Cities for Retirees
Also: The Most and Least Tax-Friendly Countries

GOBankingRates looked at income, sales and property tax rates across America to find out whether Social Security is taxed, all to help you pinpoint the most tax-friendly states for retirees.

Last updated: Oct. 14, 2021

ShriramPatki / Getty Images/iStockphoto
ShriramPatki / Getty Images/iStockphoto

25. Michigan

  • State sales and average local tax: 6%

  • State tax on Social Security: None

  • Effective property tax: 1.44%

  • Income tax rate (65+): 4.25

Retirees can benefit from Michigan's low income tax rate and no taxes on Social Security benefits. However, residents will pay 6% in sales tax.

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StacieStauffSmith Photos / Shutterstock.com
StacieStauffSmith Photos / Shutterstock.com

24. South Carolina

  • State sales and average local tax: 7.46%

  • State tax on Social Security: None

  • Effective property tax: 0.56%

  • Income tax rate (65+): 7%

South Carolina has the fourth-lowest property tax rate, and Social Security benefits escape taxes. But the state's income tax rate is the second highest in our rankings.

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Sean Pavone / Shutterstock.com

23. Massachusetts

  • State sales and average local tax: 6.25%

  • State tax on Social Security: None

  • Effective property tax: 1.44%

  • Income tax rate (65+): 4.25%

Despite its nickname "Taxachusetts," Massachusetts isn't even close to being the worst state for retirees when it comes to taxes. In fact, it beats out 22 of them. For starters, MA doesn't tax Social Security benefits -- and its 6.25% sales tax rate is lower than in the majority of states. However, its property tax rates are among the highest.

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Michael Fitzsimmons / Shutterstock.com

22. Pennsylvania

  • State sales and average local tax: 6.34%

  • State tax on Social Security: None

  • Effective property tax: 1.51%

  • Income tax rate (65+): 3.07%

Pennsylvania's income and sales tax rates rank among the 12 lowest on our list. But its property tax rate is the 3rd highest.

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welcomia / Shutterstock.com

21. Idaho

  • State sales and average local tax: 6.03%

  • State tax on Social Security: None

  • Effective property tax: 0.75%

  • Income tax rate (65+): 6.93%

Retirees benefit from a relatively low property tax and no tax on Social Security income in Idaho. But income tax is the 4th highest on the list.

SeanPavonePhoto / iStock.com
SeanPavonePhoto / iStock.com

20. Texas

  • State sales and average local tax: 8.19%

  • State tax on Social Security: None

  • Effective property tax: 1.69%

  • Income tax rate (65+): 0%

Seven of the cheapest cities to retire are in Texas, a separate GOBankingRates study found. You won't pay any income tax or tax on Social Security, however, Texas doesn't make it into our top 10 most tax-friendly states for retirees because of its high sales tax and property tax rates.

digidreamgrafix / Shutterstock.com
digidreamgrafix / Shutterstock.com

19. North Carolina

  • State sales and average local tax: 6.98%

  • State tax on Social Security: None

  • Effective property tax: 0.85%

  • Income tax rate (65+): 5.25%

Social Security benefits aren't subject to state taxes in North Carolina. But the state's income tax rates are higher than the rates in more than half of the states.

Sean Pavone / Shutterstock.com
Sean Pavone / Shutterstock.com

18. Alabama

  • State sales and average local tax: 9.22%

  • State tax on Social Security: None

  • Effective property tax: 0.40%

  • Income tax rate (65+): 5%

Alabama has the second-lowest property tax in our rankings. But its sales tax rate is the third highest in the U.S.

f11photo / Shutterstock.com
f11photo / Shutterstock.com

17. Maryland

  • State sales and average local tax: 6%

  • State tax on Social Security: None

  • Effective property tax: 1.04%

  • Income tax rate (65+): 4.75%

Maryland ranks among the top 20 best states for retirement taxes because it doesn't tax Social Security benefits. Its income tax rate is relatively low, and its sales tax is lower than more than half the states on this list.

Sean Pavone / Shutterstock.com
Sean Pavone / Shutterstock.com

16. Virginia

  • State sales and average local tax: 5.73%

  • State tax on Social Security: None

  • Effective property tax: 0.86%

  • Income tax rate (65+): 5.75%

Virginia retirees benefit from no taxes on Social Security and the 10th-lowest sales tax. But the income tax rate is higher than more than half the states on this list.

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Shutterstock.com

15. New Hampshire

  • State sales and average local tax: o%

  • State tax on Social Security: None

  • Effective property tax: 2.03%

  • Income tax rate (65+): 5%

New Hampshire is one of the best places to live for retirees to escape taxes. It has no sales tax, no state income tax and no tax on Social Security. The only reason New Hampshire isn't the No. 1 tax-friendly state for retirees is because its property tax rate is the third highest in the U.S. and the highest on this list.

SeanPavonePhoto / iStock.com
SeanPavonePhoto / iStock.com

14. Mississippi

  • State sales and average local tax: 7.07%

  • State tax on Social Security: None

  • Effective property tax: 0.65%

  • Income tax rate (65+): 5%

Mississippi is one of the states that require the least amount of retirement income to live comfortably, a GOBankingRates study found. Retirees also benefit from low taxes on retirement income because Social Security income isn't taxed in Mississippi.

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Shutterstock.com

13. Kentucky

  • State sales and average local tax: 6%

  • State tax on Social Security: None

  • Effective property tax: 0.82%

  • Income tax rate (65+): 5%

Although the income tax rate is higher in Kentucky than many of the states on the list, retirees don't have to worry about a state tax on Social Security.

Plus, Kentucky's largest city -- Louisville -- has one of the best neighborhoods for retirement in America thanks to a low cost of living, plenty of amenities and a relatively high percentage of adults 65 and older, a GOBankingRates study found.

Related: The Most and Least Tax-Friendly Countries

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Davel5957 / iStock.com

12. Arizona

  • State sales and average local tax: 8.40%

  • State tax on Social Security: None

  • Effective property tax: 0.67%

  • Income tax rate (65+): 3.34%

There's a reason Arizona is a haven for retirees. They can escape the cold weather and a big tax bill by moving here. Its income tax rate is among the lowest in the U.S., and Social Security benefits aren't taxed.

In fact, one of Arizona's biggest cities -- Tucson -- is one of the best places to live on only a Social Security check, another GOBankingRates study found.

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Ron_Thomas / Getty Images

11. Indiana

  • State sales and average local tax: 7%

  • State tax on Social Security: None

  • Effective property tax: 0.87%

  • Income tax rate (65+): 3.23%

Indiana's income tax rate ranks among the 20 lowest in the U.S. Plus, there's no state tax on Social Security. But Indiana's sales tax is higher than in more than half of these states.

Mike Liu / Shutterstock.com
Mike Liu / Shutterstock.com

10. Hawaii

  • State sales and average local tax: 4.44%

  • State tax on Social Security: None

  • Effective property tax: 0.30%

  • Income tax rate (65+): 8.25%

The cost of living is high in Hawaii, but retirees can hang on to more of their income to cover expenses because the tax bite is small in the state. Social Security benefits escape state taxes, and Hawaii has the lowest property tax rate in our rankings. Plus, its capital and largest city -- Honolulu -- is one of the coolest places to retire in the world.

GarysFRP / iStock.com
GarysFRP / iStock.com

9. Oregon

  • State sales and average local tax: 0%

  • State tax on Social Security: None

  • Effective property tax: 0.98%

  • Income tax rate (65+): 9%

Oregon has the highest income tax rate in the U.S. However, it's still one of the more tax-friendly states for retirees because it doesn't tax Social Security income and has no sales tax.

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Shutterstock.com

8. Washington

  • State sales and average local tax: 9.23%

  • State tax on Social Security: None

  • Effective property tax: 0.92%

  • Income tax rate (65+): 0%

Washington is one of the states with the lowest taxes for retirees because it has no state income tax or a tax on Social Security. Plus, the property tax rate is lower than in half of the states. However, it's state sales tax is the third highest on the list.

On top of that, Washington's capital -- Olympia -- is one of the most affordable cities for retirees who want an active lifestyle, a GOBankingRates study found.

SeanPavonePhoto / iStock.com
SeanPavonePhoto / iStock.com

7. Tennessee

  • State sales and average local tax: 9.55%

  • State tax on Social Security: None

  • Effective property tax: 0.73%

  • Income tax rate (65+): 0%

Tennessee doesn't tax Social Security benefits. But Tennessee retirees need to watch out for the state's sale tax, which is the second highest in the U.S. and the highest on our list.

Nagel Photography / Shutterstock.com
Nagel Photography / Shutterstock.com

6. South Dakota

  • State sales and average local tax: 6.40%

  • State tax on Social Security: None

  • Effective property tax: 1.22%

  • Income tax rate (65+): 0%

South Dakota is another one of those states with no income tax. And Social Security benefits escape taxes in the state. But its property tax rate is higher than in a majority of states.

Read: Retirees Confess What They Wish They'd Done With Their Money

Sean Pavone / Shutterstock.com
Sean Pavone / Shutterstock.com

5. Florida

  • State sales and average local tax: 7.08%

  • State tax on Social Security: None

  • Effective property tax: 0.94%

  • Income tax rate (65+): 0%

No taxes on income or Social Security benefits make Florida one of the most tax-friendly states for retirees. Its property and sales tax rates rank in the middle of states.

f11photo / Shutterstock.com
f11photo / Shutterstock.com

4. Nevada

  • State sales and average local tax: 8.23%

  • State tax on Social Security: None

  • Effective property tax: 0.66%

  • Income tax rate (65+): 0%

Nevada is one of the states that do not tax Social Security. Plus, it doesn't have a state income tax. However, the sales tax in Nevada is higher than in most states.

DenisTangneyJr / iStock.com
DenisTangneyJr / iStock.com

3. Delaware

  • State sales and average local tax: 0%

  • State tax on Social Security: None

  • Effective property tax: 0.58%

  • Income tax rate (65+): 5.55%

Delaware is one of the best states to retire taxwise because there is no state tax on Social Security or sales tax. Plus, its property tax rate is among the lowest in our rankings.

WitGorski / Getty Images
WitGorski / Getty Images

2. Wyoming

  • State sales and average local tax: 5.33%

  • State tax on Social Security: None

  • Effective property tax: 0.55%

  • Income tax rate (65+): 0%

Wyoming is the second-best state to retire to avoid a big tax bite.

There's no state income tax or tax on Social Security benefits. Plus, Wyoming's sales and property tax rates are among the lowest in the U.S. It's also one of the best states to retire rich thanks to a relatively low cost of living and competitive rates on interest-bearing savings accounts.

emperorcosar / Shutterstock.com
emperorcosar / Shutterstock.com

1. Alaska

  • State sales and average local tax: 1.76%

  • State tax on Social Security: None

  • Effective property tax: 1.02%

  • Income tax rate (65+): 0%

Alaska is the most tax-friendly state for retirees because it has no state income tax or tax on Social Security. And its sales tax rate is the fourth lowest on our list. But keep this in mind: The cost of living in Alaska is higher than in most states.

More From GOBankingRates

Cameron Huddleston contributed to the reporting for this article.

Methodology: To determine the top 25 tax-friendly state for retirees, GOBankingRates examined data from the Tax Foundation on each state's (1) 2021 combined state and average local sales tax rate, (2) state tax on Social Security benefits, (3) effective state property tax rate, and 4) state marginal income tax rate that would apply to the 2019 national average income before taxes of consumers 65 and older, sourced from the Bureau of Labor Statistics. The income tax rate was determined assuming the standard deduction in each state taken by a single filer. States were scored on each factor and then ranked against each other with no. 1 being the most tax-friendly state for retirees. State tax on Social Security benefits was weighted twice as much as other factors in the final scoring. All data was gathered on and up to date as of Feb. 17, 2021.

This article originally appeared on GOBankingRates.com: Surprising Data Reveals The Top 25 Tax-Friendly States To Retire

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