This article takes a look at the 15 best states to retire on social security. If you wish to skip our detailed analysis on finding the best retirement state, you may go to the 5 Best States to Retire on Social Security.
On Finding the Best Retirement State
As 2023 comes to a wrap, it’s only become evident that many Americans have been pushed out of the housing market. Not surprisingly, a 35% are now harboring a subtle desire for a market crash to level the playing field. Lending Tree, an online lending marketplace, notes in their survey that people in the USA aren’t very optimistic about the housing situation of their country. Inventory crunches and 20-year highs in mortgages are the obvious culprits, with 11% of people giving up on the idea of buying a home. Home-owners who have a locked-in low rate seem stuck all the more. A whopping 50% state that their low mortgage rates are keeping them in their current homes.
For many of these Americans, a housing crash appears to be the only viable means to affording a home. However, Zillow Group, Inc. (NASDAQ:Z) predicts that home buyers will have more 'breathing space' and 'options' in 2024. One important demographic interested in the housing market is seniors, especially those looking for a move in their retirement years. According to the National Association of Realtors, older buyers are the most dominant group in the US housing market. Data for 2023 reveals that the median age for a repeat buyer, someone who has already bought a home previously, is 58.
Even though the overall housing market is tight, many retirees making a move are doing so in search of cheaper housing. Hire a Helper notes that almost 234,000 Americans retired to a different state in 2022, up 4% from the previous year. Nearly 12% of all migrating retirees relocated to Florida, the Sunshine State. U-Haul Holding Company (NYSE:UHAL), a national truck rental company, confirms this analysis, stating that the state was the second-most popular destination for its customers, after Texas.
According to U-Haul Holding Company (NYSE:UHAL), popular cities aren’t the ones gaining traction. Instead, Clermont, Ocala, and The Villages are being preferred by people who are moving.
"A lot of that has to do with the small-town feel, everything being extremely close to getting to, and the availability of medical services.”
-Ed Hatcher, a vice president with U-Haul Holding Company (NYSE:UHAL).
Florida may be one of the best states to retire, but the worst state to retire has got to be Oregon. AARP notes that nearly 10% of all retiree moves have been from this state.
“With people looking to move and save money, I think Oregon does make sense as an exit point.”
- Miranda Marquit, chief data analyst at Hire A Helper.
So what is the number one state to retire anyway? For starters, it can be one where the cost of living is the cheapest. It's even better if the tax policies are retirement-friendly, the healthcare is moderate, the climate is ideal, and crime rates are low. Nevertheless, choosing the ideal state for retirement extends beyond the retirement years. Prior to retirement, individuals should gravitate towards states that offer good jobs and even above-average median household incomes. This strategic approach increases the likelihood of securing a more substantial payout during retirement. The Motley Fool reports thatConnecticut pays the highest social security benefits in the country. The average monthly social security payout in the state is $2,020.41 per month.
Retirees can also consider moving to states that don’t tax social security income. Some of these states include Alaska, Florida, New Hampshire, and South Dakota. Combine this characteristic with tax-friendly policies, and retirees can discover some of the best states to retire on social security.
15 Best States to Retire On Social Security
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Methodology
To compile the list of best states to retire on social security, we began by listing out all states. Next, we assessed their cost of living indexes, health index, crime rates, and tax-friendliness, rating them on a scale of 2 to 5. A rating of 2 indicates a 'not tax-friendly' status, 3 denotes moderate tax-friendliness, 4 signifies tax-friendliness, and 5 represents high tax-friendliness.
The cost of living and health index has been sourced from the Missouri Economic Research and Information Center (MERIC). For perspective, a cost of living index of 98 means the the cost of living in the state is 2% below the national average. Crime rates have been sourced from FBI Crime Data Explorer. Smart Assetwas used to gauge the tax friendliness of each state.
Subsequently, we computed the weighted average rankings for each state, allotting 50% weight to the cost of living index and equal weight to the remaining factors. The rankings are presented in descending order, from the lowest to the highest. For places with same rankings, tie-breaking has been done on the basis of cost of living index, with lower cost of living index being ranked higher on our list.
Here are the best states to retire on social security:
15. Kentucky
Insider Monkey Rank: 5.3
Cost of Living Index: 93.2
Health Index: 88.4
Tax Friendliness: Tax-friendly
Crime Rate: 259.1 per 100k
One of the best states to retire on social security is Kentucky. Retirees can live on social security in many areas of Kentucky, considering its cost of living is 6.8% lower than the US average. The state is quite tax-friendly too, exempting all social security benefits from taxation. Other types of retirement income are provided significant deductions as well. Sales and property taxes in Kentucky are low. Moreover, several types of items such as prescription drugs and prosthetic devices can be purchased tax-free. Kentucky stands at the 41st position in crime rate rankings, benefiting from robust law enforcement operations and community-based prevention programs.
14. Alabama
Insider Monkey Rank: 5.25
Cost of Living Index: 88.2
Health Index: 85.8
Tax Friendliness: Tax-friendly
Crime Rate: 453.6 per 100k
Another state to make it to our list is Alabama. The state boasts a cost of living that is 11.8% below the US average, providing seniors with the opportunity to significantly extend their retirement savings. Alabama is one of the many states that don’t tax social security. However, some types of retirement income are taxed as regular income. Property taxes are also some of the lowest in the country. H&R Block, Inc. (NYSE:HRB) notes that the median effective real property tax rate in the state is 3.33 (or $3.33 per $1,000 of real property value). Sales taxes are some of the highest here.
13. Ohio
Insider Monkey Rank: 5.1
Cost of Living Index: 92.2
Health Index: 101.2
Tax Friendliness: Moderately Tax-friendly
Crime Rate: 308.8 per 100k
Ohio offers retirees an opportunity to maximize their retirement savings, with living costs that are 7.8% lower than the US average. The state fully exempts social security retirement benefits. However, certain income from retirement accounts or pensions is taxed as regular income in the state, with credits available. Property and sale taxes are higher than the US average. The state ranks at 34th in violent crime rate, with various initiatives being implemented to combat crime.
12. Louisiana
Insider Monkey Rank: 5.1
Cost of Living Index: 90.7
Health Index: 99.3
Tax Friendliness: Tax-friendly
Crime Rate: 639.4 per 100k
Louisiana makes it to our list of best states to retire on social security for retirees because of its low cost of living and tax-friendliness. Living costs in the state are 9.3% lower than the US average. Social security benefits and income from public pensions are not taxed in the state. However, other forms of retirement income and private pension incomes are taxed after a deduction of $4,500 (for tax payers 65 or older). The state also enjoys having the fifth-lowest effective property taxes in the country at 0.55%. The average total sales tax rate is very high at 9.529%.
11. South Dakota
Insider Monkey Rank: 4.95
Cost of Living Index: 91.8
Health Index: 99.6
Tax Friendliness: Very Tax-friendly
Crime Rate: 501.4 per 100k
South Dakota can be one of the most tax-friendly states to live in. Since there is no state income tax, all types of retirement income, pensions, and social security are received by seniors tax-free. Not only is South Dakota one of the best states to collect social security, but is also a decent place to live for healthcare. Sales taxes are also some of the lowest in the nation. However, property taxes are some of the highest. Under the Homestead Exemption Program, seniors over the age of 70 having an income below a certain level can delay payment of property tax until their home is sold.
10. Kansas
Insider Monkey Rank: 4.95
Cost of Living Index: 87.4
Health Index: 97.9
Tax Friendliness: Moderately Tax-friendly
Crime Rate: 425 per 100k
One of the best states to retire in financially is Kansas. Living costs in the state are 12.6% lower than the US average. Zillow Group, Inc. (NASDAQ:Z) notes that the median rent for all bedrooms and property types in Kansas is $1,200; which is 39% lower than the national median. The state is also moderately tax-friendly. Seniors with an adjusted gross income of $75,000 or less are exempt from taxation on their social security. Other types of retirement income are taxed except public pension income.
9. Virginia
Insider Monkey Rank: 4.9
Cost of Living Index: 101.4
Health Index: 101.8
Tax Friendliness: Tax-friendly
Crime Rate: 208 per 100k
Virginia is known for its strong healthcare system, affordable living costs, and tax-friendly policies. The state does not tax Social Security retirement benefits. The crime rate is one of the lowest in the country, and the cost of living is 1.4% higher than the US average. Many places within Virginia are cheap, allowing retirees to stretch their retirement incomes.
8. Idaho
Insider Monkey Rank: 4.85
Cost of Living Index: 99
Health Index: 100.5
Tax Friendliness: Tax-friendly
Crime Rate: 242.6 per 100k
Idaho is revered as one of the best states to retire on social security for taxes. In this state, social security benefits are not taxed at the state level. Other types of retirement income are taxed at rates ranging from 0.00% to 6.00%. Property and sales tax rates are also low. Retirees love this state for its picturesque scenery, affordable cost of living, and skiing opportunities. Crime rates are lower than the US average owing to its strong community values.
7. North Dakota
Insider Monkey Rank: 4.85
Cost of Living Index: 94.3
Health Index: 112.1
Tax Friendliness: Moderately Tax-friendly
Crime Rate: 329 per 100k
Many retirees prefer retiring in North Dakota as it is one of the best states to retire on a fixed income. The cost of living in the state is 5.7% lower than the US average. The state offers 47 licensed and certified general acute care hospitals, and the state of healthcare is above average. North Dakota is also reasonably tax-friendly, and retirees don’t have to pay social security taxes here. However, private retirement account income is taxable here. Zillow Group, Inc. (NASDAQ:Z) notes that the median rent for all property types in the state is $1,000.
6. Oklahoma
Insider Monkey Rank: 4.7
Cost of Living Index: 86.8
Health Index: 92.6
Tax Friendliness: Tax-friendly
Crime Rate: 458.6 per 100k
Retirees enjoy some of the friendliest tax policies and one of the lowest cost of living in Oklahoma. For this reason, it is safe to say that it is one of the best states to retire in for taxes and cost of living. Social security benefits are exempt from taxation at the state level, and other types of retirement income are also provided a deduction of $10,000. Property taxes in the state are low, but sales taxes are high.