Monday

November 19th, 2018

Act Two of Life

Cheapest States for Retirement 2018

Stacy Rapacon

By Stacy Rapacon

Published May 16, 2018

Cheapest States for Retirement 2018

Where you plan to retire has a lot to do with how much money you need to save for retirement. Local living costs may even lead (or force) you to relocate to a place that better suits your retirement nest egg. Indeed, 67% of people say they'd move to a less expensive location for a more financially comfortable retirement, according to a survey by Merrill Lynch and Age Wave, a research firm focused on the aging population.

To help you find such affordable retirement destinations, we identified the 26 states that offer a below-average cost of living compared to the U.S. as a whole. Of course, plenty of other factors beyond low living expenses figure into retirement decisions, from proximity to family and climate preferences to tax burdens and health care considerations. Weight them all. Some of the cheapest states to live in actually fared poorly in our overall retirement rankings of all 50 states. In other words, the cheapest state for retirement isn't necessarily the best state for your retirement.

Maine

Overall retirement ranking: #22 out of 50 states

Population: 1.3 million

Share of population 65+: 18.2% (U.S.: 14.5%)

Cost of living: 2% below U.S. average

Average income for 65+ households: $40,256 (U.S.: $53,799)

Average health care costs for a retired couple: Below average at $401,781 (U.S.: $423,523)

Tax rating for retirees: Mixed

The Pine Tree State can be a little prickly when it comes to its retirees. While living costs are a bit below average--with health care costs for a retired couple particularly affordable at 5.1% below average--incomes for senior households are even lower, averaging 25.2% below the typical U.S. level. And tax breaks do little to boost retirement budgets: While Social Security benefits are not subject to state taxes, most other retirement income is taxable. There's even an estate tax, though it only applies to estates worth more than $11.18 million in 2018.

Pennsylvania

Overall retirement ranking: #14

Population: 12.8 million

Share of population 65+: 16.7%

Cost of living: 3% below U.S. average

Average income for 65+ households: $48,706

Average health care costs for a retired couple: Below average at $411,414

Tax rating for retirees: Most Tax Friendly

The Keystone State locks in an affordable standard of living for retirees. Health care costs for a 65-year-old retired couple come in 2.9% below the national average. And the tax situation, among the 10 friendliest in the U.S. for retirees, can boost your bottom line even more: Most retirement income, including Social Security benefits, is not taxed. Unfortunately, Pennsylvania's own budget is not so sturdy. With not enough cash to cover short- or long-term obligations, its fiscal health ranks a low 45th among all 50 states, according to rankings from the Mercatus Center at the George Mason University.

Illinois

Overall retirement ranking: #43

Population: 12.9 million

Share of population 65+: 13.9%

Cost of living: 4% below U.S. average

Average income for 65+ households: $54,051

Average health care costs for a retired couple: Above average at $435,889

Tax rating for retirees: Mixed

The Prairie State's fiscal standing has been sliding downward for years. Illinois has weighty long-term debts, large unfunded pension liabilities and big budget imbalances. All this puts it in the second-lowest spot on the state rankings for fiscal soundness, behind only New Jersey, according to George Mason University's Mercatus Center. In October 2015, ratings agency Fitch downgraded the state's credit rating to near-junk status. That means the tax breaks on a variety of retirement income sources, including 401(k) plans and individual retirement accounts, are hardly assured, and higher taxes are on the table. Already, state and local sales taxes are as high as 11% in some areas.

Wisconsin

Overall retirement ranking: #41

Population: 5.8 million

Share of population 65+: 15.2%

Cost of living: 4% below U.S. average

Average income for 65+ households: $40,011

Average health care costs for a retired couple: About average at $423,978

Tax rating for retirees: Least Tax Friendly

Wisconsin seniors suffer the lowest average household income in the nation. And yet, the living costs are only a bit below average, and a 65-year-old couple actually faces slightly higher-than-average health care costs in retirement. And taxes only make the situation worse: Social Security benefits are exempt from state taxes, but most other retirement income is subject to taxation (though there are some breaks for low-income residents).

South Dakota

Overall retirement ranking: #1

Population: 851,058

Share of population 65+: 15.2%

Cost of living: 4% below the U.S. average

Average income for 65+ households: $43,712

Average health care costs for a retired couple: Below average at $415,297

Tax rating for retirees: Most Tax Friendly

The Mount Rushmore State might not be the first place that comes to mind when you dream of where to retire, but it's first place on our list. Affordability is the main factor pushing it to the top spot. In addition to low living expenses, including for health care, South Dakota is one the 10 Best States for Taxes on Retirees. And you can be confident it'll stay that way. The state ranks third in the country for fiscal soundness, according to a recent report from George Mason University's Mercatus Center, which indicates high confidence that it can keep up with short-term expenses and long-term financial obligations.

New Mexico

Overall retirement ranking: #39

Population: 2.1 million

Share of population 65+: 15.3%

Cost of living: 5% below U.S. average

Average income for 65+ households: $46,836

Average health care costs for a retired couple: Below average at $380,164

Tax rating for retirees: Least Tax Friendly

The Land of Enchantment is not such a magical place for retirees. The tax breaks, for one thing, leave something to be desired: Social Security benefits are subject to tax by the state, as are retirement account distributions and pension payouts, though low-income seniors may qualify for a retirement-income exemption of up to $8,000. Unfortunately, plenty of people may be able to take advantage of that break, after all. The poverty rate for people 65 and older is 11.9%, the third highest in the country.

North Carolina

Overall retirement ranking: #28

Population: 9.9 million

Share of population 65+: 14.7%

Cost of living: 5% below average

Average income for 65+ households: $43,616

Average health care costs for a retired couple: Below average at $406,849

Tax rating for retirees: Not Tax Friendly

Its weather is mild, as is its financial attractiveness as a retirement destination. The Tar Heel State offers below-average costs across most metro areas, with the Kill Devil Hills micro area (part of the Outer Banks) being one pricey exception, according to the Council for Community and Economic Research. But income levels are typically lower, too. And though Social Security benefits are still not taxable, other breaks for retirees have been eliminated, leaving most other retirement income taxable at the current flat rate of 5.49%.

Idaho

Overall retirement ranking: #11

Population: 1.6 million

Share of population 65+: 14.3%

Cost of living: 5% below the U.S. average

Average income for 65+ households: $40,248

Average health care costs for a retired couple: Below average at $407,942

Tax rating for retirees: Mixed

Put your potato jokes away, people. Idaho has some serious advantages to offer your retirement. The state's affordability, for one thing, makes it easy to stretch your retirement savings. And while the tax picture for retirees is mixed--there's a statewide sales tax of 6% and a state income tax that can go as high as 7.4%--Social Security benefits are not subject to state taxes. Idaho also is one of the states that doesn't have an inheritance or estate tax.

South Carolina

Overall retirement ranking: #12

Population: 4.8 million

Share of population 65+: 15.8%

Cost of living: 7% below the U.S. average

Average income for 65+ households: $43,340

Average health care costs for a retired couple: Below average at $408,343

Tax rating for retirees: Tax Friendly

If the mild weather and southern charm of the Palmetto State aren't enough of a retirement draw, surely the affordability can tempt you. On top of below-average living costs, the tax situation goes easy on a fixed income, too. South Carolina doesn't tax Social Security benefits and offers generous exemptions on other types of retirement income. It also does not levy an inheritance or estate tax. Property taxes tend to be very low.

Georgia

Overall retirement ranking: #3

Population: 10.1 million

Share of population 65+: 12.3%

Cost of living: 7% below the U.S. average

Average income for 65+ households: $50,607

Average health care costs for a retired couple: Below average at $404,460

Tax rating for retirees: Most Tax Friendly

Warm weather and low living costs make Georgia just peachy for a happy retirement destination. Health care expenses are particularly affordable for retirees, with the sixth lowest average costs for a retired couple in the country. Plus, Georgia's favorable tax situation makes it one of the 10 Best States for Taxes on Retirees.

Louisiana

Overall retirement ranking: #42

Population: 4.6 million

Share of population 65+: 13.6%

Cost of living: 10% below U.S. average

Average income for 65+ households: $50,744

Average health care costs for a retired couple: Above average at $432,292

Tax rating for retirees: Tax Friendly

The living costs are low in Louisiana, but so are the incomes. And health care costs still prove to be pricey with a 65-year-old couple in the state expected to pay 2.1% more than the average American couple of the same age. One driver of those high costs may be the local population's poor health. Indeed, Louisiana had the fourth lowest senior health score, according to the United Health Foundation, in part due to high rates of obesity, smoking and mental distress, as well as low availability of geriatricians and quality nursing homes. The poverty rate for people age 65 and older is also remarkably high at 12.9%, behind only Mississippi for the highest in the U.S.

Texas

Overall retirement ranking: #24

Population: 27.0 million

Share of population 65+: 11.5%

Cost of living: 10% below U.S. average

Average income for 65+ households: $55,383

Average health care costs for a retired couple: Above average at $430,561

Tax rating for retirees: Tax Friendly

Living expenses in the Lone Star state are typically low, but health care costs are an exception. In fact, the amount a 65-year-old retired couple can expect to pay for these costs is 1.7% more than the U.S. average. On the bright side, incomes are also relatively high and go untaxed by the state. Still, not everyone can afford Texas: The state has a poverty rate of 10.8% for seniors, the sixth highest in the U.S.

Missouri

Overall retirement ranking: #20

Population: 6.1 million

Share of population 65+: 15.4%

Cost of living: 10% below U.S. average

Average income for 65+ households: $43,540

Average health care costs for a retired couple: Below average at $408,746

Tax rating for retirees: Mixed

The Show Me State has little to tell in the way of retirement advantages. The low living costs go hand in hand with relatively low household incomes. And the tax situation is moderate: If your adjusted gross income is less than $85,000 for single filers ($100,000 for couples filing jointly), your Social Security benefits are not taxed and you can deduct a portion of your public retirement benefits. But distributions from individual retirement accounts, 401(k)s and other employer retirement plans are taxable at ordinary income tax levels, which hits the top rate of 6% on more than just $9,000 of taxable income.

And one notable downside: Missouri ranks low at 42nd in the nation for senior health with a high percentage of low-care nursing home residents and a high prevalence of smoking, according to the United Health Foundation.

Michigan

Overall retirement ranking: #35

Population: 9.9 million

Share of population 65+: 15.4%

Cost of living: 12% below U.S. average

Average income for 65+ households: $44,397

Average health care costs for a retired couple: About average at $423,608

Tax rating for retirees: Not Tax Friendly

The Great Lakes State can make for a decent retirement destination. It offers some of the lowest living costs in the country and maintains a low poverty rate among seniors at 8.1%, compared with 9.3% for the U.S. The tax situation, though, is not so great--and a bit complicated. Social Security benefits are not currently taxed, but starting in 2020, taxpayers turning 67 will have to choose between deducting Social Security income or $20,000 of all income sources for single filers ($40,000 for couples).

Nebraska

Overall retirement ranking: #21

Population: 1.9 million

Share of population 65+: 14.4%

Cost of living: 12% below U.S. average

Average income for 65+ households: $45,215

Average health care costs for a retired couple: Below average at $418,079

Tax rating for retirees: Least Tax Friendly

The Cornhusker State collects its fair share of taxes from resident retirees--perhaps more than its fair share. Most forms of retirement income are taxable at ordinary income rates, though Social Security benefits are exempt for joint filers with an adjusted gross income of $58,000 or less or $43,000 for single filers. It seems like the state could afford to be more generous: Its fiscal health ranks sixth in the U.S., according to the Mercatus Center at the George Mason University.

Ohio

Overall retirement ranking: #19

Population: 11.6 million

Share of population 65+: 15.5%

Cost of living: 12% below U.S. average

Average income for 65+ households: $42,667

Average health care costs for a retired couple: Below average at $417,912

Tax rating for retirees: Mixed

Ohio's status as a destination for retirees matches its geographic location: in the middle. Its living costs are well below average, but so is its average household income. Even the tax situation is just fine: Social Security benefits are not taxed, and retirees living in the Buckeye State can claim a tax credit of up to $200 on other retirement income.

Iowa

Overall retirement ranking: #13

Population: 3.1 million

Share of population 65+: 15.8%

Cost of living: 12% below U.S. average

Average income for 65+ households: $41,194

Average health care costs for a retired couple: Below average at $399,991

Tax rating for retirees: Not Tax Friendly

Low living costs are the big advantage for retirees in the Hawkeye State. Health care costs are especially affordable, at 5.6% below the U.S. average, based on what a 65-year-old retired couple can expect to pay for the rest of their lives. That should help the below-average household income for seniors stretch further. But the tax situation may be burdensome: While Social Security benefits are untaxed, some retirement income may get hit by the high top rate of 8.98%. On the plus side, people age 55 or older can exclude up to $6,000 if single ($12,000 for joint filers) of taxable retirement income.

Tennessee

Overall retirement ranking: #5

Population: 6.5 million

Share of population 65+: 15.0%

Cost of living: 12% below the U.S. average

Average income for 65+ households: $47,891

Average health care costs for a retired couple: Below average at $411,617

Tax rating for retirees: Tax Friendly

The Volunteer State is a good choice for budget-conscious retirees. According to data from the Council for Community and Economic Research, every major metro area offers below-average living costs in almost every category of expenses, including health care--among the biggest financial concerns for aging Americans. Plus, Tennessee does not levy state income taxes, so your retirement income can stretch even further. And being economically healthy, Tennessee should have no issues maintaining its tax-friendliness; it ranks eighth of all states for fiscal soundness, according to a recent report from the Mercatus Center.

Alabama

Overall retirement ranking: #6

Population: 4.8 million

Share of population 65+: 15.3%

Cost of living: 13% below the U.S. average

Average income for 65+ households: $44,934

Average health care costs for a retired couple: Below average at $404,922

Tax rating for retirees: Tax Friendly

Retirees are sure to love the Heart of Dixie. You can get many of Florida's retirement attractions--warm weather, nice beaches and plenty of golf--all at a lower price. The low living costs extend to health care, for which retirees can expect to spend 4.4% less than the average retired American couple. Taxes are easy on the budget, too, with income tax rates ranging from just 2% to 5%, and Social Security benefits being exempt.

Kentucky

Overall retirement ranking: #34

Population: 4.4 million

Share of population 65+: 14.8%

Cost of living: 14% below the U.S. average

Average income for 65+ households: $42,666

Average health care costs for a retired couple: About average at $420,375

Tax rating for retirees: Most Tax Friendly

Kentucky ranks as the second-worst state in the country in terms of senior health, according to the United Health Foundation. Among its challenges are a high rate of smoking, physical inactivity and poverty, as well as a low number of quality nursing homes.

On the plus side, the Bluegrass State offers low living costs, as well as a number of tax breaks for retirees. Social Security benefits, as well as up to $41,110 of other retirement income, are exempt from state taxes. However, with a low ranking of 47th in the country for fiscal soundness, those tax benefits may not be very secure.

Kansas

Overall retirement ranking: #30

Population: 2.9 million

Share of population 65+: 14.3%

Cost of living: 14% below average

Average income for 65+ households: $49,392

Average health care costs for a retired couple: Below average at $412,773

Tax rating for retirees: Least Tax Friendly

Retirees might rather be in Oz. Among Kiplinger's least-tax-friendly states for retirees, Kansas is raising tax rates to try and tackle its increasing budget deficit. Its fiscal health earns it a 32nd ranking, according to a recent report from the Mercatus Center at the George Mason University. For 2018, income tax rates range from 3.1% to 5.7%--and that applies to most retirement income, including Social Security benefits (unless your adjusted gross income is $75,000 or less). Still, the affordable living costs might be enough to convince you that there's no place like home in Kansas.

Indiana

Overall retirement ranking: #38

Population: 6.6 million

Share of population 65+: 14.3%

Cost of living: 15% below the U.S. average

Average income for 65+ households: $42,303

Average health care costs for a retired couple: About average at $425,365

Tax rating for retirees: Least Tax Friendly

With its below-average living expenses, Indiana might seem like a winner for retirees. But when you consider the well-below-average household income--at 21.4% below average, to be exact--the older residents of the Hoosier State start looking more like underdogs. And the tax situation doesn't help: Most retirement income other than Social Security benefits is taxable at ordinary rates.

Mississippi

Overall retirement ranking: #29

Population: 3.0 million

Share of population 65+: 14.3%

Cost of living: 15% below U.S. average

Average income for 65+ households: $44,100

Average health care costs for a retired couple: About average at $423,267

Tax rating for retirees: Most Tax Friendly

Low costs and generous tax breaks make the Magnolia State a sweet deal for retirees. Social Security and other qualified retirement income--including distributions from IRAs, 401(k)s and other plans--are not taxed, and property taxes are among the lowest in the country. But on the sour side, Mississippi ranks dead last when it comes to senior health, according to the United Health Foundation. It also suffers the worst poverty rate in the country among people age 65 and older at a whopping 13.4%; the U.S., 9.3%.

Oklahoma

Overall retirement ranking: #26

Population: 3.9 million

Share of population 65+: 14.5%

Cost of living: 16% below U.S. average

Average income for 65+ households: $46,848

Average health care costs for a retired couple: About average at $420,195

Tax rating for retirees: Not Tax Friendly

The Sooner State is a middle-of-the-road retirement destination. Household incomes are relatively low, but so are overall living costs. The tax situation helps somewhat: Social Security benefits are not taxed, and you can exclude up to $10,000 per person of other retirement income. On the downside, Oklahoma is the third-worst state in terms of senior health, according to the United Health Foundation's rankings, which took into account quality of health care facilities, physical behaviors of resident seniors and a host of other health-related criteria. Problem areas for Oklahoma include: high levels of physical inactivity and smoking among seniors, as well as low availability of geriatricians and quality nursing homes.

West Virginia

Overall retirement ranking: #37

Population: 1.8 million

Share of population 65+: 17.8%

Cost of living: 17% below U.S. average

Average income for 65+ households: $40,109

Average health care costs for a retired couple: Below average at $404,606

Tax rating for retirees: Not Tax Friendly

Despite its below-average living costs, the Mountain State offers some rocky terrain for retirees. Retirement income, including Social Security, is taxed to the same extent as it is on your federal form--though the first $8,000 is exempt. And given the state's fiscal health, its tax situation is unlikely to get friendlier: According to a recent report from the Mercatus Center at George Mason University, West Virginia ranks as the ninth-worst state in terms of fiscal soundness.

The state also scores poorly for the health of its 65-and-over population, ranking 45th in the country, according to the United Health Foundation. While 64.6% of older adults nationwide are considered able-bodied, only 56.6% of those in West Virginia can say the same--the worst in the U.S.

Arkansas

Overall retirement ranking: #23

Population: 3.0 million

Share of population 65+: 15.7%

Cost of living: 17% below U.S. average

Average income for 65+ households: $42,482

Average health care costs for a retired couple: Below average at $398,395

Tax rating for retirees: Not Tax Friendly

The Natural State offers extraordinarily low costs. Indeed, it's tied with West Virginia for lowest overall living costs in the country, and its average health care costs for a retired couple are the third cheapest in the U.S. State taxes aren't quite as generous: Social Security benefits and up to $6,000 of other retirement income are exempt, but above that, your top income rate could hit 6.9%, if your income exceeds $75,000. Glass half full (not really): Most retired residents are unlikely to reach that high bracket. In fact, the average household income for people age 65 and older in Arkansas is 21% below the U.S. average. The poverty rate for seniors is 10.5%, the eighth highest in the country.

How We Ranked Every State for Retirement

To rank all 50 states for retirement, we weighed a number of factors:

  • Taxes on retirees, based on Kiplinger's Retiree Tax Map, which divides states into five categories: Most Tax Friendly, Tax Friendly, Mixed, Not Tax Friendly and Least Tax Friendly.
  • Cost-of-living for each state, with data provided by Sperling's Best Places, includes overall costs--across all age groups--for housing, food and groceries, transportation, utilities, health care and miscellaneous expenses.
  • Average health care costs in retirement are from HealthView Services and include Medicare, supplemental insurance, dental insurance and out-of-pocket costs for a 65-year-old couple who are both retired and are expected to live to 87 (husband) and 89 (wife).
  • Rankings of each state's economic health are provided by the Mercatus Center at George Mason University and are based on various factors including state governments' revenue sources, debts, budgets and abilities to fund pensions, health-care benefits and other services.
  • Rankings of the health of each state's population of residents 65 and over are from the United Health Foundation and are based on 34 factors ranging from residents' bad habits (smoking and excessive drinking) to the quality of hospital and nursing home care available in the state.
  • Household incomes and poverty rates are from the U.S. Census Bureau.
  • Population data, including the percentage of the population that is age 65 and older, is also provided by the Census Bureau. They are highlighted in these rankings for the benefit of readers, but were not factors in our methodology for ranking the states.

Comment by clicking here.

Stacy Rapacon is an editor at Kiplinger.

Columnists

Toons

Lifestyles