Once you’ve saved enough to retire, the question of where to retire is a frequent next discussion. What’s the best state to live this next phase of life? A quick internet search leads to…confusion. Each article conflicts with the next. Why? Well, there is no BEST state to retire. It all depends on what’s most important to you. You might crave more sun, lower taxes, or proximity to family.
When we help clients plan where they want to retire, we believe it’s important to start with goals, then walk through the impact they can expect by prioritizing cost vs. location vs. other goals. Let’s look at a few common categories of goals, then discuss how to figure out which state is best for you.
I want to keep my income taxes low.
A friend retired recently and moved to a different state to reduce the amount he’d lose to income tax. He and his wife are world travelers with no kids. Their retirement home is more of a place to recharge between global expeditions, so the less they pay in tax, the more exciting experiences they can have. If this sounds like you, you might consider one of the eight states with no personal income tax:
- South Dakota
If you plan on buying your dream home in retirement, don’t forget to factor in property taxes. For a full list, here’s a list of states ranked by total tax burden, including income tax, property tax, and sales tax.
I want to avoid estate tax and preserve more wealth for my family.
I advised a couple whose primary focus was passing as much wealth as possible to his family. He worked hard to build his wealth and had a big vision of how his wealth could be used for good, a vision his family shared. So, for them, avoiding state estate tax was important.
The federal estate tax only applies if your estate exceeds $12.92 million for an individual or $25.84 million for a married couple. But eleven states apply an additional estate tax. If you’re focused on saving on estate tax, here’s a list of these states, their top tax rates, and the amount you can pass tax-free, called an exemption.
- Connecticut: 12%, $9,100,000
- District of Columbia: 16%, $4,000,000
- Hawaii: 20%, $5,490,000
- Illinois: 16%, $4,254,800
- Maine: 12%, $6,010,000
- Maryland: 16%, $5,000,000
- Massachusetts: 16%, $1,000,000
- Minnesota: 16%, $3,000,000
- New York: 16%, $6,110,000
- Oregon: 16%, $1,000,000
- Rhode Island: 16%, $1,648,611
- Vermont: 16%, $5,000,000
- Washington: 20%, $2,193,000
Iowa, Kentucky, Nebraska, New Jersey, Pennsylvania, and Maryland have what’s called an inheritance tax, a tax on what you receive as the beneficiary of an estate. Spouses, children, grandchildren, and some other heirs are typically exempt from paying inheritance taxes.
As we discuss in Should I Leave Washington State to Avoid the Estate Tax, moving isn’t your only option to avoid estate taxes!
I want a lower cost of living to stretch my dollar further.
If squeezing a bit more out of your dollar is important to you, Forbes recently ranked states by cost of living, including ranking on the cost of living index, housing availability, and a few other factors. While lower cost of living generally comes with lower salaries, you’re not worried about salary level when you’re retired, so you can enjoy lower costs without the pay cut!
Family and community are most important to me.
Are you looking forward to spending time with the grandkids and making lasting memories with family? We helped a couple achieve their lifelong goal to uproot, move across the country, and set up a family paradise on a lake near their kids and grandkids, one they can pass down to future generations, as well! Another friend has family in four different countries, and they expected to spend nearly half their time traveling the world to see family, so they moved to a lower cost state with easy access to an international airport.
This kind of goal doesn’t have a ranked list or statistical study because it all depends on your unique situation. We do recommend having an open discussion with your family about this kind of goal before picking up and moving. Do they plan to stay there long-term? Do you have expectations that conflict with theirs? Then, find a place that strikes your perfect balance between proximity to family and your other retirement goals.
Write your story, not someone else’s.
The traditional retirement factors we discuss above must be filtered through your unique story. For me, family and community are my top two (pickleball is number 3!), which means I might be ok paying a bit more in taxes to be closer to my kids and grandkids. My story also includes working to help develop the next generation of advisors here at Alterra, as I discuss in 4 Parts of a Joy-Filled Retirement.
There is no single perfect place that has everything, so it’s about writing YOUR story and deciding what’s most important to you.
The BEST state to retire in
Let’s look at this in a unique way. Your state of mind is more important than your state of residence. Contentment and discontentment are two contrasting states of mind that reflect our overall satisfaction and happiness in life. Contentment reflects a sense of fulfillment and peace, while discontentment reflects a lack of satisfaction and a constant desire for something else. Where you live is less important than how you choose to live. So, in many ways, a state of contentment is the best place to retire! I’ve seen this play out in my own life.
A tale of two stories.
My mother-in-law, Ginny, was divorced, had limited resources, but would say she loved her retirement life. After nearly dying from heart failure at age 55, she received each day as a gift and lived to be almost 90. What did she do well? Ginny was content, satisfied, and at ease with her circumstances. She never moved away from family and church community support. She always looked for ways to serve others. She took each of her grandkids (which included my four kids!) on World Wildlife adventures. She travelled overseas to visit kids she had sponsored in developing countries. She regularly hosted four generations of family at a camp at Cannon Beach, including her own mom who lived to age 99. As Ginny needed more expert care, she voluntarily moved into a retirement community with the proper support. She quickly became the unofficial greeter and tour guide and bought birthday cards for all the residents. My wife and I visited regularly, even sharing a burger and malt the week before she died. Her life was purposeful.
My father-in-law was remarried, had significant resources, but was never really satisfied. He seemed restless, and unhappy with his circumstances. He was a skier who bounced back and forth between sun and snow. But unfortunately, he did not have good relationships in his community and never made time for family. Once he could no longer ski, his life was empty. He watched the stock market during the day and the news at night. As his health declined, we were forced to move him into assisted living with qualified medical care, but he never embraced it and never engaged the community there. On paper he had a more attractive retirement life. But my mother-in-law’s life was much more meaningful.
Be like Ginny and find YOUR best retirement state.
Wealth is a means to an end, a tool to enjoy life, provide for loved ones, and impact causes you care about. While reducing costs can be important, don’t let the tax tail wag the dog. Focus first on your unique story and what’s most important to you. Think through a plan (with your financial advising team, if you have one!) and seek advice from others who are a step or two ahead of you. Embrace the idea that this is not a one and done exercise. Maybe your retirement has more than one location: one state for your more active years and another for your senior years.
How you retire is more important than where you retire. Whatever your goals, plan with intention and seek contentment. Be like Ginny!
The “Alterra” name was coined by joining the Latin roots “alter”, the origin of the word “altruism” with “terra” meaning earth or land. This name reflects the company philosophy of “clients before profits” and providing firmly grounded advice.