Being close to the people and activities that you love will make a massive difference in your enjoyment. Image: Alexander Lukatskiy/Shutterstock.com
Updated: Retirement is a significant milestone that often comes with the freedom to relocate and enjoy a new chapter of life.
But choosing the right location can make or break a great retirement as it impacts how far your money goes, who you spend time with, and what experiences you can enjoy.
And certain states tend to be hot spots for federal retirees.
The Big Three
There are three things that most people care about when picking a retirement location:
● Taxes
● Cost of Living
● Weather/Family/Friends/Activities Nearby
The holy grail would be to find a cheap low-tax (or no-tax) state with great weather that is near your friends and family.
But since I don’t know what weather you prefer or where your kids/family live, this article will focus on the states that are most popular for retirees because of the cost of living and taxes.
Thinking about retiring abroad? We’ll discuss that below as well.
1) Taxes all around
Every State has some sort of taxes: income, sales, and/or property taxes. Some states have all three and some only have one type of taxes.
Note: Even if a state does not have state income taxes you will still be subject to federal taxes no matter where you live (even abroad).
Since no state will exempt you from Federal income tax, these are the types of taxes that will vary based on your location:
● Sales Taxes
● Property Taxes
● State Income Taxes
Sales Taxes
Most states have a sales tax and most cities have a sales tax on top of that.
Here is a chart that shows the state sales tax combined with the average local sales tax in that state:
Source: taxfoundation.org
Note: Sales taxes do change overtime but this will give you an idea of what states tend to be on the higher or lower end.
Property Taxes
Property taxes can be levied by states, counties, and/or cities. Here is a map that shows average property taxes in all 50 states.
taxfoundation.org
State Income Tax
You’ll have to pay federal income tax no matter what state you move to in retirement.
However, there are 9 states that don’t have a state income tax:
Alaska, Florida, Nevada, South Dakota, Tennessee, Texas, Washington, Wyoming
And there are an additional 4 states that have a state income tax but don’t tax retirement income:
Illinois, Iowa, Mississippi, Pennsylvania
More on these states below…
Retiring Abroad
If you move to a different country in retirement then you still have to pay federal income taxes.
However, if you aren’t a resident of a U.S. state then you can often avoid paying state taxes.
2) Cost of Living
How far your federal retirement income takes you largely depends on where you live in retirement as some locations are much more expensive than others.
Retiring in Hawaii is very different from retiring to rural Oklahoma where your money will probably go twice as far.
One of the biggest places we see the differences is in housing costs. You’ll want to make sure your desired retirement location matches up with your budget.
3) People/Experiences
Do you want to be close to your kids or a healthy distance away? Do you want to be in a retirement community with others in your situation or do you want to play pickleball everyday?
Being close to the people/activities that you love will make a massive difference in your enjoyment and well being throughout your retirement.
Pick a State. Any State.
Every location has pros and cons and there is certainly a ton of variation between different cities within a single state.
However, here are 11 states that are retirement hot spots for federal retirees, and a reminder about their tax context.
Florida
Known as the Sunshine State, Florida has long been a haven for retirees – mainly because of the abundance of sunshine, great beaches, golf courses, and plenty of things to do. Not only does this state have fantastic weather, but it also has lower housing costs than the average city, no state income tax, and no tax on pensions, allowing you to stretch your retirement savings further.
Georgia
Because it doesn’t tax Social Security income or have an inheritance or estate tax, Georgia is another tax-friendly state, making this one of the most popular retirement destinations. With great weather, a lush green landscape, and a mix of metropolitan cities and beautiful countryside, Georgia is an excellent choice for retirees.
Texas
Texas won’t tax your Thrift Savings Plan (TSP), your pension, your 401k, or other income as the state doesn’t have a state income tax at all. Plus, there’s no shortage of areas to choose from, whether you’re considering Dallas, Austin, San Antonio, or the Gulf Coast.
Wyoming
Just like Texas, Wyoming doesn’t have any state income tax, pension tax, 401k tax, or a TSP tax, so your retirement income can go further during your golden years. This is also an excellent location for nature enthusiasts – Wyoming is home to Yellowstone National Park, Grand Teton National Park, and seemingly endless hiking trails.
North Carolina
North Carolina is one of the most popular retirement destinations, and for good reason! Beautiful scenery and attractions abound in North Carolina, whether you live on the west side of the state near the Smoky Mountains, or the east side on the Atlantic coast. Not to mention, North Carolina offers tax breaks for seniors – you can exempt up to $35,000 of your retirement income from state taxes if you are over 65.
Alaska
Although Alaska may not have the best weather, it is one of the most tax-friendly states for retirees; you won’t have to worry about state taxes on your 401k, state income, Social Security, TSP, or pension. If you love rugged natural beauty, national parks, outdoor recreation, and cooler weather, Alaska can be a great place to live during retirement.
South Dakota
South Dakota is another tax-friendly retirement destination – there’s no taxes on your 401k, TSP, state income, or pension. Additionally, the cost of living is unbeatable! Retirees in South Dakota enjoy a simple and quiet lifestyle with plenty of outdoor activities.
Tennessee
Tennessee is another state that is both tax-friendly and affordable for federal retirees. Whether you’re enjoying live music in Nashville, barbecue in Memphis, or the beauty of Great Smoky Mountains National Park, there are plenty of things to do for retirees in Tennessee.
Pennsylvania
While the cost of living in Pennsylvania might be a little higher than average, living here has numerous tax benefits, ranging from no taxes on your Social Security or pension to a tax-free 401k. Many retirees enjoy easy access to nature and beautiful Northeastern weather while also having quick access to metropolitan areas like Philadelphia or Pittsburgh.
Nevada
Not only does Nevada have numerous state parks, desert hiking trails, sunny weather, and of course, the Las Vegas Strip, but it is also extremely tax-friendly for seniors. If you move here for retirement, you won’t have to worry about paying taxes on your Social Security benefits, 401k, TSP, or pension.
Washington
Many federal employees flock to the Pacific Northwest during retirement, and it’s no surprise why. Washington won’t tax your Social Security income, pension, TSP income, or 401k. The cost of living is a bit higher, but the tax savings make it much more reasonable. In addition, this is one of the most beautiful states in the country, offering lush green forests, towering mountains, and a temperate climate.
Final Thoughts
Finding a location with a low cost of living and no state income tax is wonderful but far from everything.
You only get one retirement and the go-go (healthy) retirement years don’t last forever.
A great retirement is always finding the right balance between your values and your pocket book.
Good luck and happy planning!
Dallen Haws is a Financial Advisor who is dedicated to helping federal employees live their best life and plan an incredible retirement. He hosts a podcast and YouTube channel all about federal benefits and retirement. You can learn more about him at Haws Federal Advisors.
Ruling on CFPB Job Cuts Could Affect Challenges to Other RIFs and Reorgs
Agencies Begin Denying Union Contracts, More to Come
‘Only High Performers’ Should Receive Awards, Agencies Told
What to Know About the New Federal Application Process
OPM Limits Length of Paid Leave in Reorgs—Starting Next Year
See also
Attorney Schnitzer: How to Challenge a Federal Reduction in Force (RIF) in 2025
Alternative Federal Retirement Options; With Chart
Primer: Early out, buyout, reduction in force (RIF)
Retention Standing, ‘Bump and Retreat’ and More: Report Outlines RIF Process