How to Pick a State Before You Retire

Picking a retirement state is one of the largest financial decisions you will ever make, yet most people spend more time researching a car purchase. Move from California to Florida and you could keep an extra $15,000 to $30,000 per year depending on your income, simply from the tax difference.

Start With Your Income Sources, Not a Vibe

Before you look at weather or proximity to grandchildren, map out exactly where your retirement income comes from. Social Security, a pension, 401(k) withdrawals, IRA distributions, investment dividends, and capital gains are all taxed differently depending on the state.

Thirteen states still tax Social Security benefits to some degree. If Social Security makes up a large share of your income, that single fact should anchor your state search. Our full breakdown of states that don't tax Social Security shows exactly which states leave that income alone.

Capital gains matter too, especially if you are drawing down a taxable brokerage account. California taxes capital gains as ordinary income, up to 13.3%. Florida charges zero. That gap compounds fast over a 20-year retirement.

Run the Full Tax Exposure, Not Just Income Tax

Retirees fixate on income tax rates and miss the broader picture. A state with no income tax can still drain you through property taxes, sales taxes, and estate taxes.

New Jersey has no income tax on Social Security but carries an effective property tax rate of 2.13%, the highest in the country. A $400,000 home there costs you $8,520 per year in property taxes before you pay for anything else. Texas also has no state income tax, but its effective property tax rate runs around 1.60%, well above the national average of roughly 0.99%.

If you plan to leave assets to your children, check the estate tax situation. Twelve states plus Washington D.C. impose their own estate tax, some with exemptions as low as $1 million. Our guide to estate tax by state walks through every threshold. The states with no income tax are a good starting point, but they are only part of the math.

Use our retirement tax calculator to model your specific income mix against any state you are considering. A generic ranking list will not account for the ratio of Social Security to investment income in your particular situation.

Check Healthcare Access Before the Climate

Healthcare costs are the retirement budget item most people underestimate. The average retired couple is projected to spend $315,000 on healthcare expenses in retirement, according to Fidelity's 2023 estimate.

State matters for several reasons. Medicare Advantage plan availability and premiums vary significantly by county. Some rural states have fewer specialists and longer travel times to major medical centers. States with larger populations of retirees, Florida, Arizona, and parts of the Carolinas, tend to have more developed senior healthcare infrastructure.

Medicaid rules also differ by state, which becomes relevant if you or a spouse ever needs long-term care. Some states have more aggressive asset recovery programs than others, which can affect what you leave behind.

Build Your Shortlist With a Simple Scoring System

Once you have the financial layer figured out, build a shortlist of three to five states and score each one across categories that match your priorities.

For taxes, assign points based on whether the state taxes Social Security, pensions, and investment income. For cost of living, compare housing costs, average grocery prices, and utility costs. Mississippi consistently ranks as one of the lowest cost-of-living states in the country. Hawaii ranks as the highest, with a cost of living index roughly 84% above the national average.

For lifestyle fit, consider climate, crime rates, political environment, and proximity to airports if you travel. Some retirees also weigh gun laws, particularly for personal protection in rural areas or for avid sport shooters.

Visit your top two choices for at least two weeks each before committing. Stay in a rental, not a hotel. Shop at the local grocery store. Drive to the nearest hospital. No amount of research replaces spending actual time in a place.

---

Key Takeaways

• Thirteen states tax Social Security benefits, which can cost a retiree with $30,000 in annual Social Security income thousands of dollars per year depending on the state rate.
• Property taxes can easily offset a zero income tax advantage. New Jersey's 2.13% effective rate costs $8,520 annually on a $400,000 home.
• Healthcare spending averages $315,000 per retired couple over their lifetime, making state healthcare infrastructure and Medicaid rules a financial factor, not just a comfort consideration.

Compare states side by side on LiveOrDieHere.com to see how your retirement income holds up across taxes, cost of living, and more before you make a move.