What Are the Cheapest States to Retire In?

Retirement marks a significant life transition, offering an opportunity to reshape one’s lifestyle and financial outlook. The choice of where to live during these years substantially influences a retiree’s budget and financial security. Understanding varying costs across states is an important step in making informed decisions about a retirement home. Effective financial planning involves considering how location impacts expenses, as costs differ widely by region. This helps ensure retirement savings support the desired standard of living long-term.

Key Factors Influencing Retirement Costs by State

The overall cost of living for retirees is shaped by fundamental financial components that vary significantly across states. These variations encompass everyday expenses and tax burdens imposed by state and local governments. Recognizing these distinctions is important for assessing a state’s true affordability.

General living expenses form a large part of a retiree’s monthly budget. Housing costs, including home prices and rental rates, often represent the largest expense and differ significantly between states. Utility expenses, such as electricity, natural gas, water, and internet services, also contribute to varying costs, with regional climates influencing energy consumption. Grocery prices fluctuate by state, impacting daily necessities. Transportation costs, covering fuel, vehicle maintenance, and public transit, also differ significantly.

State and local taxation plays a substantial role in a retiree’s financial landscape. State income tax policies vary, with some states taxing all forms of retirement income, while others offer exemptions or no state income tax. Property taxes, levied by local governments, differ widely based on property values and local millage rates, directly affecting homeownership costs. Sales taxes, applied to goods and services, also impact daily spending, with rates varying by state and jurisdiction. A limited number of states impose estate or inheritance taxes, which can affect wealth transfer upon death.

Healthcare expenses, encompassing insurance premiums and out-of-pocket costs, constitute another financial consideration in retirement. While healthcare costs vary by state, they are highly individualized based on health needs, insurance coverage, and access to medical facilities. This category is complex to generalize, as personal health circumstances greatly influence actual expenditures.

Identifying Affordable States Based on General Living Expenses

Several states consistently rank low in general cost of living, providing retirees options to stretch their budgets. These states offer affordable housing, lower utility costs, and reduced prices for groceries and transportation compared to the national average. Focusing on these non-tax expenses can reveal significant savings opportunities.

Mississippi stands out with a particularly low cost of living, often having the lowest cost of living index in the United States. Its housing costs are notably affordable, with some of the lowest median home prices in the nation. It also has the lowest transportation costs. Groceries in Mississippi tend to be more affordable.

Arkansas is recognized for its overall affordability, ranking as one of the most affordable states for retirees. The state features low median rent prices and a relatively low median home sale price, making housing accessible. Its general cost of living is competitive across various categories, including groceries and transportation.

West Virginia consistently appears among states with the lowest overall cost of living, largely due to housing affordability. The state boasts some of the cheapest homes in the country. This low housing cost, combined with generally lower utility expenses, contributes to its overall affordability for retirees.

Iowa presents a low cost of living, particularly noted for its affordable groceries and overall living expenses. It remains an attractive option for those seeking a well-rounded and affordable retirement. Kansas and Oklahoma also offer significant affordability due to their lower cost of living across various expenditure categories, including housing and groceries. These states provide compelling options for retirees prioritizing minimal non-tax living expenses.

Identifying Tax-Friendly States for Retirees

Beyond general living expenses, certain states offer favorable tax policies for retirees, significantly impacting their financial well-being. These states often provide exemptions or do not levy taxes on common sources of retirement income. Understanding these tax structures is essential for maximizing retirement savings.

Nine states impose no state income tax, making them highly tax-friendly for retirees. In these states, income from pensions, 401(k)s, IRAs, and Social Security benefits is not subject to state-level taxation.
Alaska
Florida
Nevada
South Dakota
Tennessee
Texas
Washington
Wyoming
New Hampshire

Many states do not tax Social Security benefits, even if they have a state income tax. Only nine states tax Social Security, though some offer deductions or are phasing out the tax.
Colorado
Connecticut
Minnesota
Montana
New Mexico
Rhode Island
Utah
Vermont
West Virginia

States like Mississippi, Illinois, Iowa, and Pennsylvania are considered tax-friendly for retirees due to specific exemptions for retirement income. Mississippi does not tax retirement account income or Social Security benefits, and it has some of the lowest property taxes in the nation. Illinois and Pennsylvania exempt most retirement income, including Social Security, pensions, and 401(k) or IRA distributions, from state income tax.

Property taxes and sales taxes are other considerations for retirees. States such as Wyoming and Alabama have notably low property taxes. Additionally, five states do not levy a statewide sales tax, though some may allow local sales taxes.
Alaska
Delaware
Montana
New Hampshire
Oregon