Being close to the people and activities that you love will make a massive difference in your enjoyment. Image: spatuletail/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, with Sun Belt states continuing to grow in popularity through 2025.
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 weather preferences and family distribution vary, 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?
U.S. citizens pay U.S. federal tax on worldwide income even when living overseas. The Foreign Earned Income Exclusion helps with earned wages, not pensions/TSP/annuity income. Many retirees can avoid state income tax if they truly break domicile (no state residency ties). Talk to a tax pro before you move.
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. One thing you can do is price the exact metro areas you’re considering – not just the state, because the difference could be in the thousands per year.
A clean, comparable metric is BEA Regional Price Parities (RPP): recent data places California, NJ, Hawaii among the highest price levels, and Arkansas, Mississippi, South Dakota among the lowest.
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.
2025 Retiree Migration – Where are People Going?
Move data continues to show Sun Belt momentum. U-Haul’s 2024 index ranked South Carolina #1 for net one-way moves, followed by Texas, North Carolina, Florida, Tennessee; United Van Lines’ study also shows strong inbound to SC, NC, DE, WV and others.
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. Watch property insurance in coastal counties.
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. Property taxes can bite.
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, endless trails and wide open expanses.
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; Social Security is not taxed. Weather is a consideration – Hurricane Helene ravaged Asheville in 2024 and nearby communities that have become popular retirement destinations. Obviously coastal areas are exposed to hurricanes and flooding as well.
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 (no income tax means higher costs in other areas), but the tax savings balance out. In addition, this is one of the most beautiful states in the country, offering lush green forests, towering mountains, and a temperate climate.
(Honorable mentions you’ll hear about: South Carolina for combined affordability and lifestyle; Arizona for sun and health-care access.)
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. There’s no correct answer it’s just about finding the right fit for yourself.
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.
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