Avoid Retiring in These 5 Costly States

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Choosing the right place to retire involves evaluating various factors, notably the cost of living and tax burdens. With myriad options, it’s crucial to understand why certain states might not be the best fit for retirees.

If you’re contemplating your retirement destination — and perhaps more importantly, where not to retire — we’ve got you covered. Here are five states retirees should avoid due to high taxes and cost of living.

California

• Typical annual cost of a comfortable retirement: $100,965

California imposes a high state income tax of 12.3%, which impacts retirement income, excluding Social Security. Additionally, property taxes can vary significantly, affecting newcomers. Buying property in areas like San Diego can be particularly daunting due to soaring costs.

“San Diego is appealing for its weather, but not for its affordability,” says Seamus Nally, CEO of TurboTenant. “It’s one of the most expensive cities for both rent and purchases, compounded by California’s high taxes.” California’s overall cost of living index is 143, second in the nation.

Massachusetts

• Typical annual cost of a comfortable retirement: $103,422

Massachusetts is the fourth most expensive state in the U.S., with a cost of living index of 139.9. Housing and utilities, in particular, are significantly above the national average, making it challenging for many retirees.

According to Zack Ellison CFA, CAIA, founder of A.R.I., retirement here can deplete your savings faster than the seasonal changes you enjoy. The state charges a 5% individual income tax, and property taxes range from 1% to 2%, depending on the locality.

New Jersey

• Typical annual cost of a comfortable retirement: $80,728

New Jersey ranks 45th in terms of the overall cost of living, making healthcare and other essentials costly. The state imposes a graduated income tax ranging from 1.4% to 10.75%, and its property tax rate is a steep 2.08%.

Connecticut

• Typical annual cost of a comfortable retirement: $82,680

With a lower cost of living index of 110.7, Connecticut is relatively less expensive than other states on this list. However, it still taxes Social Security benefits by up to 50% and has a significant property tax rate of 1.96%.

New York

• Typical annual cost of a comfortable retirement: $91,497

New York’s overall cost of living index is 123.5, and housing costs are notably higher, except for utilities. Taxes are also a concern, with state taxes on pensions being exempt but other incomes taxed between 4% and 10.9%. The average property tax rate stands at 1.4%.

“Even areas far from Manhattan might not be affordable due to the high taxes,” notes Nally.

Key Considerations When Choosing a Retiree-Friendly State

“Balancing quality of life, cost of living, and taxes is crucial when choosing a retirement location,” advises Ellison. States without state income tax or those offering retirement income tax breaks like Florida, Texas, and Tennessee could be wise choices.

Other taxes to consider might include:

• Property taxes
• Local/state sales tax
• Estate tax
• Inheritance tax

“Focus on states that offer the best value without compromising on the lifestyle you desire,” he suggests. Whether it’s the beaches of Florida or the expanse of Texas, make sure your chosen location aligns with your budget and life goals.

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