"What's the best place to retire?" That's the question John Brady, president of TopRetirements.com, says they most often are asked. But, he says, the opposite question, "What's the worst place to retire?" sparks even more interest. "It seems like our members want to know where to avoid almost as much as they would like to know the best places to retire."
The new tax law, the Tax Cuts and Jobs Act of 2017, goes into effect this year, and will likely make a big difference for some retirees. Taxes are a serious consideration in what makes a state unattractive for retirement. In compiling this list, TopRetirements.com considered these factors:
High property taxes: Since retirees generally are on a fixed income, this is the No. 1 negative consideration. New tax laws make states with high property values more unfriendly to retirees. Under the new federal tax bill only $10,000 of state taxes (property and income combined) can be deducted from federal taxes. Being able to deduct took some sting out of the high taxes paid in many states. Now, for people with expensive homes and/or high incomes, almost every bit of those taxes hurts even more.
Taxation of Social Security and pension/retirement income: Thirteen states tax Social Security, four of those are on this worst 10 list.
Cost of living: If you are going to have trouble making ends meet in retirement, it makes a lot of sense to look for a place to retire where your scarce dollars will go further.
This list is ranked with the amount of property taxes paid as the No. 1 consideration, with state income taxes for retirees the No. 2 reason. This list does not consider more subjective factors that might be important to each retiree, such as climate, recreation, crime or healthcare.
From TopRetirements.com, these are the worst states for retirees:
- Highest property taxes in nation -- the median tax paid is $6,579
- New Jersey taxes pensions.
- The state has an inheritance tax (the estate tax is repealed as of 2018).
- At 8.97% on incomes over $500,000 it has one of the highest marginal tax rates.
- One of the highest cost of living (Ranked No. 41 out of 51).
- It has the lowest pension funding in the country.
On the plus side: New Jersey has a high exclusion for pension income, including military pensions. Social Security benefits are not taxed. It has some of the world's great beaches. New Jersey has a senior tax freeze program but it is hard to determine if that results in meaningful savings.
- Has the second highest property taxes paid in the nation, averaging $4,738 a year. Homes are generally expensive here, that means people pay a lot of tax.
- Estate taxes are high, although the exemptions are scheduled to match federal ones by 2020.
- Top marginal income tax rate is 6.99%, the lowest is 3%.
- Social Security and retirement income is taxable for higher income residents.
- Cost of living is high (No. 43 of 51). Its credit rating is lower than most as its pension funding levels are ranked one of the worst in the country. The state has had great difficulty agreeing on a balanced budget.
On the plus side: Connecticut has the highest personal exemptions in the country ($24,000 for a couple, although it starts to be phased out on incomes over $48,000).
- Residents pay an average $3,755 in property tax each year, because of high property values in the state. In some suburbs, the average is much higher.
- New York has one of the highest marginal tax rates of any state at 8.82%.
New York has improved its estate tax situation: for people who die after Dec 31, 2018 the Basic Exclusion Amount is $5.25 million.
- High cost of living (No. 48 out of 51).
On the plus side: In New York, all government pension income, including Social Security income, is exempt.
- Ocean State residents pay the fourth-highest property taxes in the nation, with a $3,618 average.
- Social Security and all retirement benefits are taxed.
- The estate tax starts on estates of more than $1.5 million.
- Marginal income tax rate of 5.99% on incomes over $139,400.
- High cost of living (No. 42). The state's finances are under duress from deficits and pension funding -- it has the 6th lowest pension fund rating in the country.
On the plus side: Rhode Island's many bays, harbors, and oceanfront property make living near the water very easy.
- High property taxes -- residents pay an average $3,511 a year.
- The state has only one income tax bracket, but it happens to be the highest base rate of any state on our list (5.1%).
- There is an estate tax on estates over $1 million.
- All private pension income is taxed.
- High cost of living (No. 45).
On the plus side: Massachusetts does not tax Social Security, military, or government pensions. It's ranked as the best-run state in New England (12th overall in the U.S.)
- The state has high property taxes (average is $3,507) and a high flat income tax rate of 4.95%.
- There is a tax on estates over $4 million.
- The state has the lowest credit rating in the nation.
- Sales tax is high at 8.64%
On the plus side: In Illinois, almost all retirement, income including Social Security, is exempt from taxation. The cost of living is about average. There are some property tax breaks for seniors.
- Hard hit by the new tax bill, this state made the list this year for several reasons. The average property tax bill in California is high at $2,839 a year.
- California has the dubious distinction of having the highest marginal tax rate in the nation (13.3%). Couples with income over $59,978 will pay 6%.
- Pension income is taxable.
- Expensive: California is ranked No. 49 of 51 states and the District of Columbia for cost of living.
On the plus side: California has no tax on Social Security income or estate tax. If you can afford to live here, California has a wonderful climate. It is ranked the 14th best-run state. Proposition 13 sets appraised value of your home at what you paid for it, plus 2% maximum annual increases, limiting property tax hikes. Thanks to Propositions 60 and 90, taxpayers over 55 can transfer some of that benefit to a new home.
- Very high property tax as a percentage of home value (4th).
- Social Security and pension income are taxed.
- The marginal tax rate is 6.84%, which starts at a very low $59,660 for couples.
- There is an inheritance tax.
- There are no exclusions for pension or other retirement income.
On the plus side: Nebraska has the 13th lowest cost of living in the country. It is ranked by 24/7wallst.com as the 6th best-run state in the U.S.
- High property taxes (9th highest as percentage of home value).
- Social Security and pension income is taxed.
- High marginal tax rate of 8.95% (on incomes over $416,700, but 6.8% on couple's income over $63,350).
- Estate tax on estates more than $2.75 million.
- High cost of living (No. 41).
On the plus side: Vermont is a beautiful state with friendly people. Mountains and forests provide outstanding recreation. It's ranked the 19th best-run state on the basis of unemployment rate, pension funding, credit rating, and poverty level.
- The fifth highest property taxes in the U.S. as a percentage of home value (average of $3,007).
- Retirement income is taxable.
- Relatively high marginal income tax rate of 6.27% on couples with income over $29,960 (and the highest rate is 7.65%).
On the plus side: Wisconsin has no tax on Social Security or military pensions. No estate or inheritance tax, and is rated the 20th best-run state in the nation.