NEW YORK (MainStreet) — The numbers are in, and if you are retired and living in Rhode Island, you have made a financially catastrophic mistake.
That’s according to the researchers at Kiplinger, which recently released its round-up of the best and worst states to retire in. Unless you are a one-percenter, when you retire it’s on a fixed income; the difference between a best state and a worst could be the divide between living on rice and beans washed down with tap water or also occasionally having a steak (or a salmon fillet) and half a jug of cabernet at dinner.
A few hundred dollars extra - or not - a month makes the difference in quality of life for a retiree. That’s why Rhode Island is a must avoid.
Rhode Island, which Kiplinger ranked as the worst place to retire, taxes Social Security income (37 states do not, according to Kiplinger researcher Rachel Sheedy), and it also “taxes virtually all other sources of retirement income, including pension income,” said Kiplinger.
Tune into this, too: the ranking of states, the best and the worst, is comparatively static from year to year, according to Sheedy. From last year to now in fact only one state fell out of the best list. South Carolina, said Sheedy, got nudged out. South Dakota slipped in.
Among the ten worst, there were no newcomers.
States may shuffle a bit inside the groups of ten, but, taken as a totality, this year’s ten worst are likely to be next year’s and the year after that. Ditto for the best.
So use this guide to help plan your retirement no matter when it may be.
The rest of the worst states are predictable, mainly. High tax New York comes in tenth. Its neighbor New Jersey is number 9. Another neighbor, Connecticut, is third. Add Vermont at second, and the Northeast is looking downright unfriendly to retirees. The reason: high taxes across the board and no meaningful tax breaks for seniors.
The negatives about - admittedly gorgeous - Vermont are typical of the region. Said Kiplinger: “the Green Mountain State doesn't coddle retirees. Not only does it tax most retirement income, including Social Security, it has a steep top income tax rate. Vermont's state sales tax rate is 6%, and local jurisdictions may add 1%. Vermont's property taxes are among the ten highest in the U.S., according to the Tax Foundation.”
Others on the least friendly list are California and Oregon.
But then there are three unexpected states on the worst to retire in list: Nebraska at #8; Montana at #6; and Minnesota at #4.
Said Kiplinger about Minnesota: “the North Star State offers cold comfort on the tax front to retirees. Social Security income is taxed to the same extent as it is on your federal return. Pensions are taxable regardless of whether they are military, government or private pensions. Income tax rates and the sales tax rate are high.”
You want good news? Good climates predominate among the best places to retire.
The tenth best state for retirees is sunny Florida.
South Dakota is #9: there is no state income tax and low sales taxes in the land of Mount Rushmore.
If you want to party, there is #8 Louisiana.
Delaware sneaks in at #7 for those who want a foothold in the northeast (no sales tax and “modest” income taxes, per Kiplinger).
Mississippi is #6.
Arizona is #5 (no tax on Social Security income and an overall low income tax rate).
Georgia places #4, Nevada #3, and Wyoming #2.
What’s in first place?
Alaska, said Kiplinger. There's no state income tax and no state sales tax, and every year Alaska gives residents a check reflective of the state’s oil wealth. This year that check came in at $1,884 which will buy a lot of firewood and Scotch to get through the long, dark winters.
Sheedy, at Kiplinger, offered global advice about retirement locations when she said “understand how where you live taxes retirees and also where you are planning to move.”
Do the math - Kiplinger at its website offers extensive data. Retirement income is easy to project - big spikes from a bonus or pay hike are unlikely. So the math is straightforward.
As for where to look, Sheedy said, “Much of the South is friendly to retirement income, and also much of the West.”
But California is a retirement no-go, so get up to speed about this.
“Some states give retirees a comparatively free pass,” said Sheedy. “Some don’t.”
And you know where you will want to live.
--Written by Robert McGarvey for MainStreet