Is Virginia a Retirement-Friendly State?

Evaluating a state’s financial landscape is a key part of retirement planning. Understanding how taxes and living expenses interact provides clarity for prospective retirees. A comprehensive look at a state’s tax policies and general living costs offers a practical perspective on its suitability for retirement.

Taxation of Retirement Income

Virginia generally taxes most forms of retirement income, including distributions from pensions, 401(k)s, 403(b)s, and traditional IRAs. These withdrawals are typically subject to the state’s graduated income tax rates, which range from 2 percent to 5.75 percent. Capital gains generated from investments are also taxed as regular income within the state.

Social Security benefits are not taxed by Virginia. If any portion of a retiree’s Social Security benefits is subject to federal taxation, that amount can be subtracted when filing a Virginia income tax return.

For qualifying individuals aged 65 and older, Virginia offers a deduction of up to $12,000 against other forms of retirement income. This deduction can apply to pension income and withdrawals from retirement accounts, effectively reducing the taxable portion of these income sources.

Property and Sales Taxes

Property taxes in Virginia are assessed and collected at the local level. The average effective property tax rate in Virginia has been reported around 0.72 percent to 0.89 percent of a home’s assessed value, which is generally below the national average. Despite lower rates, high home values in many areas can result in annual property tax bills comparable to the national median.

Localities may offer property tax relief programs for seniors aged 65 and older or for individuals with disabilities. These programs can include exemptions, deferrals, or a combination of both, often based on specific income and asset limitations. Eligibility typically requires that the property serve as the applicant’s principal place of residence.

Veterans with a 100 percent service-connected, permanent, and total disability may qualify for a full real estate tax exemption on their primary residence. This exemption also extends to eligible surviving spouses, provided they do not remarry and continue to occupy the property as their principal home.

Virginia imposes a statewide sales tax rate of 4.3 percent. An additional 1 percent mandatory statewide local sales tax is applied across all localities, bringing the combined state and local sales tax rate to 5.3 percent in most areas. However, certain regions, such as Northern Virginia and Hampton Roads, may have a total sales tax rate of 6 percent, while specific localities like York County and Williamsburg can see rates as high as 7 percent due to additional local taxes.

Several exemptions from sales tax can benefit retirees. Groceries are taxed at a reduced rate of 1 percent. Prescription drugs are entirely exempt from sales tax, as are nonprescription drugs. These exemptions help to lower the cost of essential goods for residents.

Estate and Inheritance Tax Status

Virginia does not impose a state-level estate tax. An estate tax is typically levied on the total value of a deceased person’s assets before they are distributed to heirs. The responsibility for paying this tax rests with the estate itself.

Virginia does not levy an inheritance tax. An inheritance tax is distinct from an estate tax because it is paid by individual beneficiaries on the assets they receive from an estate.

While Virginia does not have these state-specific taxes, the federal estate tax may still apply to very large estates. The federal exemption threshold is substantial, meaning only estates exceeding a certain value, such as $13.99 million in 2025, are subject to this federal taxation. Most estates fall below this threshold and are not impacted by federal estate taxes.

Virginia Cost of Living Considerations

Virginia’s overall cost of living is slightly higher than the national average, with some analyses placing it around 2 percent to 4.2 percent above the U.S. average. The general cost of living encompasses various categories relevant to retirees, including housing, utilities, healthcare, transportation, and groceries.

Housing costs in Virginia typically exceed the national average, whether for renting or purchasing a home. The median home sale price in Virginia has been around $448,000, compared to a national average of $428,000, while average rent is approximately $1,700, slightly higher than the national average. Housing expenses vary significantly within the state, with Northern Virginia, near Washington D.C., experiencing higher costs due to demand, while more rural areas and smaller cities offer more affordable options.

Utility costs in Virginia are generally comparable to national averages. For instance, the average monthly electric bill in Virginia is around $166.26, with residential rates slightly below the national average.

Healthcare costs in Virginia are often lower than the national average, providing some financial relief for managing medical expenses. Grocery costs are notably more affordable, averaging around 16 percent less than the national average. Transportation costs, including gas prices, can vary, with Northern Virginia typically seeing higher prices, though the statewide average for gas may be below the national average.