Retirement Retirement Planning

The Truth About 'Tax-Friendly' Retirement States - And How Much They Could Really Save You

These expenses matter when choosing a retirement location.

By Chris Lewis, CEPF , Edited by Laura Hohenstein

Updated June 2, 2026

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If you're living on a limited income in retirement and you're considering moving to a tax-friendly state, it's important to know what that phrase actually means. While, at first glance, a state that doesn't have an income tax may seem like the place to move, especially if you don't feel on track for retirement, there are more financial considerations than that.

For example, retirees can also consider how the state taxes Social Security withdrawals and whether the state offers property tax benefits for seniors. Here is more information on what to look for when deciding whether to move to a new state for retirement.

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"No income tax" states may not be the best option

No-income-tax states get a lot of attention, and many retirees assume that moving to one of them will be the best financial option, but there is a bigger picture to consider.

For example, even if a retiree saves money on their income taxes, the state may have higher property taxes, sales taxes, housing costs, and homeowners insurance. That's not to say a state with no income tax isn't a good place to move. It's just only one part of the entire financial picture.

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The total cost of some taxes in retirement can be staggering

State taxes can cost retirees between $5,000 and $20,000 more per year, depending on their income and where they live. That means that, on the higher end, that could equal up to $500,000 in additional costs over a 25-year retirement period.

Another consideration is how a state taxes estates. If you're a retiree with a substantial estate, where you live could dramatically impact how much your estate is taxed. For example, Washington has one of the highest estate taxes in the country at 35% if your estate is valued at above $9 million.

Eight states still tax Social Security benefits as of 2025

For retirees who rely solely on Social Security income, there are still eight states that tax Social Security benefits. These states include Colorado, Connecticut, Minnesota, Montana, New Mexico, Rhode Island, Utah, and Vermont.

Keep in mind that some of these states have income thresholds or partial exemptions. So, retirees with lower incomes may be exempt, while higher-income retirees with multiple sources of income may not. Retirees need to do their research and check whether or not their income qualifies for some of these benefits.

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High property tax bills can silently erode your nest egg

As mentioned, property tax bills are also an important consideration when deciding where to live. The Center on Budget and Policy Priorities explains that some states without income taxes typically have higher property and sales taxes. This may offset the advantages for retirees.

Many states offer reduced property taxes for seniors, but they often come with specific requirements. When determining whether or not to move to a state, make sure to look at property tax laws to find out whether or not you may qualify for a reduced rate.

States that are surprisingly competitive for retirees

Even though some states may charge income taxes, the cost of living in those areas may be lower, making them worth considering for retirees.

For example, Illinois taxes wages but provides some exemptions for retirement income. Additionally, parts of Illinois offer affordable housing that may appeal to those living on a fixed retirement income.

Run the numbers to determine the best state for you

Ultimately, retirees need to run their own numbers and consider their income sources. Some retirees rely solely on Social Security for retirement income, while others have pensions and retirement plans.

Whether a state will be a good fit for retirees depends on their total income, whether they meet exemption thresholds, and the overall affordability of the cost of living there.

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Other factors to consider for retirement living

Of course, while finances are important, there are other factors to consider for retirement living beyond taxes. For example, many retirees want to live close to family. Others may have specific health care needs that require them to live near hospitals or rehabilitation centers.

The climate also matters. For example, some retirees prefer having four seasons, while others want year-round sunshine. Whatever your goals are, take the time to research several states and fully consider all of your options before choosing to move to a new area for your golden years.

Bottom line

Moving to a new state can help retirees enjoy a stress-free retirement, especially if that state offers specific financial benefits for seniors, such as no income tax or no tax on Social Security benefits.

Taking the time to research options and consider their lifestyle goals can help retirees narrow down the best place to live for their specific needs.

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