Generally, states without any income taxes may seem like the first choice to reduce your tax burden. These states are:
Consider this list of 22 retirement friendly states based on several key financial factors:
The table below outlines which states tax retirement income and includes how military retirement income is taxed as well. These assume that you, as the retiree, are making qualified withdrawals instead of early withdrawals which would have penalties.
Which states are the most ideal to retire in? Which are the worst states to retire in? See the table below and follow this simple key:
Alabama
Social Security income is not taxed; other retirement income is taxed as regular income ranging from 2% to 5%. AL has state taxes ranging from 4% - 7.5% and property taxes that are some of the lowest in the country at 0.4% - they also offer a homestead exemption for seniors age 65 and older which may cover up to 100% of state property taxes.
Military retirement pay is fully tax exempt.
Alaska
No state income taxes; there is no state sales tax except for cities which may impose one of up to $1.75. AK has average property taxes of around 1.2% and some cities offer a homestead exemption for seniors age 65 and older (note: the state does not have a statewide exemption).
Military retirement pay is fully tax exempt.
Arizona
Social Security income is not taxed, but other retirement income is taxed partially or fully as regular income; pension income can be eligible for a deduction. AZ has moderate to high sales tax from 5% - 8.4%, but a low property tax rate of 0.62% for which they offer the AZ property valuation freeze for low-to-moderate income earners; low-income seniors age 70 and older may be able to deter all of their property taxes.
Military retirement pay is fully exempt as of 2021; previously, this was up to $3,500.
Arkansas
Social Security income is not taxed; other retirement income is partially taxed as there is a deduction available to reduce taxes on retirement income of up to $6,000 for seniors age 59.5 and older. AR has high sales tax from 6.5% to 9.5%, but low property taxes at around 0.6$, for which they offer a homestead exemption or credit of up to $375.
Military retirement pay is fully tax exempt.
California
Social Security income is not taxable, but retirement and pension income is fully taxed at some of the highest rates in the country. CA also has some of the highest costs of living for its residents which affects seniors greatly. CA has a sales tax rate of 7.3% - 8.8% and property taxes around 0.73% with a homeowners' exemption which reduces this.
No special exemption for military retirement pay.
Colorado
Social Security and retirement income are taxed, but there are generous exemptions to reduce the tax burden. Generally, CO retirees age 65 and older can deduct around $24,000 per year on all retirement income or $20,000 for those ages 55-64. CO has a sales tax rate ranging from 2.9% to 7.7%, but they has some of the lowest property taxes in the country at around 0.5%. For this, they offer a senior property tax exemption for those over 65 of 50% of the first $200,000 of the home's value.
Military retirees age 65 and older can exempt up to $24,000 of military retirement pay; those from 55-64 can exempt up to $20,000.
Connecticut
Social Security income is taxed, but only for seniors making $75,000 or more ($100,000 for married seniors); all other retirement income is taxed as regular income. CT has average sales tax of around 6.3% and high property taxes of around 1.7% - for this, they offer the CT property tax circuit breaker for seniors that may be worth up to $1,250.
Military retirement pay is fully tax exempt.
Delaware
Social Security income is not taxed; other retirement income is partially taxed as there is a deduction available to reduce taxes on retirement income; this is a deduction of $2,000 per person under 60 years old and $12,500 for those 60 or older. DE has no sales tax and low property taxes of around 0.56% for which they offer the DE senior school property tax credit for seniors age 65 older which covers 50% of school property taxes up to $400 total.
Military retirees age 60 and older can exempt up to $12,500 of military retirement pay; those under 60 can exempt up to $2,000.
Florida
No state income taxes; FL has average sales taxes of around 6% and average property taxes of just under 1% - the state has a homestead exemption for $25,000 and up to $50,000 for some seniors.
Military retirement pay is fully tax exempt.
Georgia
Social Security income is not taxed; other retirement income is partially taxed as there is a deduction of $65,000 for retirement income earned by those age 65 and older or $35,000 for those ages 62 - 64. GA has low sales taxes of %4.9% - 7.3% and low property taxes of under 1% - the state has a homestead exemption for homeowners which may be doubled for seniors age 65 and older.
No special exemption for military retirement pay; however, retirement for GA taxpayers older than 62 can exempt some or all of their retirement income.
Hawaii
Social Security income is not taxed; public pensions are tax-exempt, but all others retirement income is fully taxable and not eligible for any deductions. HI has low to no sales tax and the lowest property tax rate in the country at 0.28%, plus they offer a home exemption of $100,000 and $140,000 for seniors age 65 and older.
Military retirement pay is fully tax exempt.
Idaho
Social Security income is not taxed; all other retirement income is fully taxable as regular income, but public pensions may be eligible for a deduction for taxpayers over 65 years of age or those age 62 and disabled. ID has fair sales taxes of around 6% and fairly low property taxes under 1% for which they offer the ID property tax reduction or circuit breaker. This is for seniors age 65 and older with low-to-moderate income for up to $1,500.
Military retirees age 65 and older can generally exempt up to around $30,000 of military retirement pay; those married can exempt up to around $40,000; these also apply for the disabled of age 62 or older.
Illinois
Social Security income is fully deductible as well as pensions and income from retirement accounts. IL has moderate-to-high sales taxes and property taxes: around 9% and over 2%, respectively. The state offers a homestead exemption of up to $6,000; for seniors age 65 and older, there is an additional exemption of up to $5,000.
Military retirement pay is fully tax exempt.
Indiana
Social Security income is not taxed; other retirement income is taxed as regular income. IN has fairly high sales taxes around 7% and an average property tax rate under 1% - the state offers the Over 65 Deduction for low income homeowning seniors as well as a homestead deduction.
Military retirement pay is fully exempt as of 2022; previously, this was up to $6,250.
Iowa
Social Security income is not taxed; other retirement income is partially taxed or there is a deduction available to reduce taxes on retirement income of $5,000 for those 55 and older. IW has an average sales tax rate of around 6% and an average property tax rate of around 1.5% for which they offer a homestead credit.
Military retirement pay is fully tax exempt.
Kansas
Social Security is fully exempt for seniors with income of $75,000 or less, therefore it is taxable for those earned more than $75,000; public pensions are fully exempt, but other retirement income is taxable as regular income. KS has higher sales taxes from 6.5% - almost 9% with property taxes of around 1.3%. There is a state homestead refund for homeowners age 55 and older of up to $700; there is an additional refund for those age 65 and older.
Military retirement pay is fully tax exempt.
Kentucky
Social Security income is not taxed; other retirement income is partially taxed for an exemption of up to $31,110 per person. KY has an average sales tax rate of around 6% and property taxes just under 1% with a homestead exemption for seniors age 65 and older of around $40,500.
Military pensions are fully tax exempt if retired before 1997; otherwise, up to $31,110 is tax exempt.
Louisiana
Social Security income is not taxed; other retirement income is partially taxed as there is a deduction available to reduce taxes on retirement income for those age 65 and older of $6,000 or $12,000 for joint filers. LA has a low sales tax rate of around 4.5% and low property taxes of around 0.5% with a homestead exemption of $7,500; seniors age 65 and older can also claim an assessment freeze if they have low income.
Military retirement pay is fully tax exempt.
Maine
Social Security income is not taxed; other retirement income is partially taxed as there is a deduction available to reduce taxes on retirement income of up to $10,000. This may be reduced or eliminated if you also collect Social Security income. ME has an average sales tax rate of 5.5% with average property taxes of 1.3% with a homestead exemption worth up to $25,000.
Military retirement pay is fully tax exempt; senior veterans age 62 and older can claim the veteran exemption of $6,200 for property taxes.
Maryland
Social Security income is not taxed; other retirement income is fully taxed, but there is a deduction available to reduce taxes on retirement income of $34,300 which may be reduced if the retiree is also collecting Social Security. MD has average sales taxes of 6% and average property taxes of around 1% with a homestead tax credit.
Military retirees age 55 and older can exempt up to $15,000 of military retirement pay; those under 55 can exempt up to $5,000.
Massachusetts
Social Security income is fully exempt, but any other retirement income is fully taxable. MA has a sales tax rate of 6.25% and property taxes of 1.2%, though there is the MA Circuit Breaker Credit for seniors which may refund some or all property taxes paid. The state also offers relief for renters.
Military retirement pay is fully tax exempt.
Michigan
Social Security income is not taxed; other retirement income is fully taxed, but there is a deduction available to reduce taxes on retirement income of around $54,000 ($108,000 for joint filers) for those 75 and older; for those ages 69 - 74, this is about $20,000 ($40,000 for married couples). MI has average sales taxes of 6% and moderate-to-high property taxes, though they offer the homestead property tax credit for homeowners.
Military retirement pay is fully tax exempt.
Minnesota
Social Security income is taxed if it is included in your federal adjusted gross income; all other retirement income is fully taxable, but retirees 65 and older can exempt $9,600 or $12,000 for married filers for incomes under around $33,700 or $42,000 for joint filers. MN has high sales taxes of almost 7% and average property taxes around 1%. The MN senior citizens property tax deferral program offers tax relief for seniors age 65 and older with low-to-moderate income.
Military retirement pay is fully tax exempt.
Mississippi
Social Security and most retirement income and pensions are all exempt from any state taxes. MS sales taxes are fairly high around 7% with property taxes of around 1% for which they offer the homestead exemption for the elderly. This exemption is for all homeowners, but is worth more for seniors age 65 and older who can exempt the first $7,500 in home value.
Military retirement pay is fully tax exempt.
Missouri
Social Security income is fully exempt for seniors earning under $85,000 or $100,000 if filing jointly; other retirement income is fully taxed but may be eligible for an exemption of $6,000 for income under $25,000 ($12,000 for income under $32,000 if filing jointly). MO has average sales taxes of around 4.2% and property taxes around 1%, but the state offers a property tax credit for seniors under certain income limits.
Military retirement pay is fully tax exempt.
Montana
Social Security income is fully exempt for seniors earning less than $25,000 ($32,000 if married); for those earning more, it may be partially exempt. Other retirement income is fully taxable with an exemption of around $,400 available for those earned under around $40,000. MT has no sales tax, but has property taxes under 1% and offers the elderly homeowner tax credit for seniors age 62 and older.
No special exemption for military retirement pay.
Nebraska
Social Security income is fully taxable if it is taxed at the federal level; all other retirement income is fully taxable as regular income. NE has sales taxes around 7% and fairly high property taxes of around 1.6%, though the state offers the homestead exemption for seniors with low-to-moderate income.
Military retirement pay is fully exempt as of 2022; previously, pay was taxed at a variable rate.
Nevada
There are no state income taxes; NV has fairly high sales taxes of around 7% and property taxes under 1%.
Military retirement pay is fully tax exempt; there is a disabled veteran's exemption for property taxes plus an additional exemption for those who are legally blind.
New Hampshire
There are no state income taxes; NH has no sales taxes, but has some of the highest property taxes in the country at around 2%.
Military retirement pay is fully tax exempt.
New Jersey
Social Security income is not taxed; other retirement income is partially taxed as there is a deduction available to reduce taxes on retirement income from $75,000 ($100,000 for joint filers); this amount is reduced for retirees earning more. NJ has average sales taxes around 6.6% and high property taxes close to 2% for which they offer a homestead exemption that is a rebate program paid to seniors age 65 and older.
Military retirement pay is fully tax exempt.
New Mexico
Social Security income is taxable, but there is a deduction of $2,500 for those under age 65 and $8,000 for those 65 and older making under certain income limits. This is applied to all retirement income. NM has average sales taxes of around 5% and a fairly low property tax rate of around 0.8%. The state offers a 65 or older value freeze which allows low-income seniors to freeze their home's assessed value.
Military retirement pay is tax exempt for low-income NM taxpayers up to $8,000; it is partially exempt for most NM residents with income under around $30,000 per year (around $50,000 for married taxpayers).
New York
Social Security income is not taxed; other retirement income is partially taxed as there is a deduction available to reduce taxes on retirement income of $20,000. NY has high sales taxes of around 8.5% and high property taxes of around 1.7%; the NY STAR program can provide some relief for homeowners.
Military retirement pay is fully tax exempt.
North Carolina
Social Security income is not taxed; all other retirement income is taxed as regular income and offers no deductions aside from a generous standard deduction of around $10,750 for singles, $21,500 for couples, and $16,125 for heads of household. NC has moderate-to-high sales taxes around 7% and low property taxes under 0.8% with a state low-income homestead exclusion for seniors.
Military retirement pay is fully tax exempt if the retiree served for five or more years as of August 12, 1989. Otherwise, the pension is exempt up to $4,000.
North Dakota
Social Security income is no longer taxed as of 2021; all other retirement income is taxed as regular income. ND has sales taxes of 5% with an average of 7% due to city/local taxes; property taxes are moderate at around 1.4%, but the state offers a homestead credit for seniors with low-to-moderate income.
Military retirement pay is fully tax exempt.
Ohio
Social Security income is not taxed; all other retirement income is taxed as regular income, but there is a credit of $200 for certain residents and an additional $50 credit for seniors. OH has an average sales tax rate of around 7% and high property taxes of around 1.5% with a homestead exemption for seniors age 65 and older with lower income.
Military retirement pay is fully tax exempt.
Oklahoma
Social Security income is not taxed; other retirement income is partially taxed as there is a deduction available to reduce taxes on retirement income of up to $10,000. OK has sales taxes which can range from 4.5% to up to 9% with property taxes of under 0.8%. The state offers a senior valuation freeze for seniors age 65 and older.
Military retirement pay is exempt up to $10,000 or 75% of their total retirement income - whichever is greater.
Oregon
Social Security income is not taxed; retirement income is fully taxed as regular income and there are no deductions available, but low-income seniors with pension income may be able to claim a credit. OR has no sales taxes and property taxes are under 1%. OR offers the Property Tax Deferral for Disabled and Seniors Citizens for those 62 and older making low-to-moderate income.
Military retirement pay is fully tax exempt for service before October 1, 1991; there is no special exemption for military retirement pay for service after this date. A portion may be partially exempt for services performed before and after this date.
Pennsylvania
Social Security income is not taxed; retirement income from all sources is generally exempt from taxes for those ages 60 plus. PA has average sales taxes of around 6% and high property taxes of 1.5%, but there is a state property tax/rent rebate credit for seniors with earned low income.
Military retirement pay is fully tax exempt.
Rhode Island
Social Security income is not taxed if the retiree is of full retirement age (generally 66 years or older) and earns under around $90,000 ($111,200 for couples); other retirement income is partially taxed as there is a deduction available to reduce taxes on retirement income of $15,000. RI has an average sales tax rate of 7% and high property taxes at 1.5%, though the state offers a property tax relief credit for seniors with low-to-moderate income.
Military retirees age 65 and older who also receive a federal taxable pension or annuity and make under around $87,000 annually (around $109,000 for married) can exempt up to $15,000 of military retirement pay; those who do not meet all these criteria pay regular state taxes on this income.
South Carolina
Social Security income is not taxed; other retirement income is partially taxed as there is a deduction available to reduce taxes on retirement income of $3,000 for those under 65 years old and $15,000 for those 65 and older. SC has a sales tax rate ranging from 6% to 9% and low property taxes of just 0.5% with a homestead exemption on the first $50,000 of the home's fair market value.
Military retirement pay is fully tax exempt as of 2022.
South Dakota
There are no state income taxes; SD has an average sales tax of around 4.5% and average property taxes of 1.3%, though the state offers a homestead exemption for low-income seniors over age 70.
Military retirement pay is fully tax exempt.
Tennessee
There are no state income taxes; TN has a high sales tax rate ranging from 7% to 9.5% with low property taxes of 0.6%; the state offers a property tax relief program for elderly and disabled homeowners with low-to-moderate income.
Military retirement pay is fully tax exempt.
Texas
There are no state income taxes; TX has a high sales tax rate of 6.2$ - 8.2% with moderate-to-high property taxes of 1.7%; the state offers a homestead exemption for seniors age 65 and older with low income.
Military retirement pay is fully tax exempt.
Utah
Social Security income is taxed as regular income as is retirement income; pension income can be offset by a tax credit for low-to-moderate income earners. UT has sales taxes of around 7% and low property taxes of around 0.6%, but the state offers the property tax circuit breaker available for seniors making low income.
No special exemption for military retirement pay; however, military retirees age 65 and older may be able to claim a retirement credit of up to $450.
Vermont
Social Security income is taxed only if it is taxed on the federal level, but the state offers an exemption for those making under $55,000 per year - for those under $45,000, Social Security is fully exempt. Other retirement income is taxed as regular income with no deductions. VT has an average sales tax rate of 6% with high property taxes of close to 2%, but the state offers a property tax credit for all residents.
No special exemption for military retirement pay.
Virginia
Social Security income is not taxed; other retirement income is partially taxed as there is a deduction available to reduce taxes on retirement income of up to $12,000. VA has an average sales tax rate of 6% and property taxes under 1%, but some counties and cities offer some form of property tax relief to seniors.
No special exemption for military retirement pay.
Washington
There are no state income taxes; WA has a high sales tax rate ranging from 6.5% to 9.3$ with property taxes under 1%, but the state offers a property tax exemption for seniors.
Military retirement pay is fully tax exempt.
Washington D.C.
Social Security income is not taxed; other retirement income is partially taxed as there is a deduction available to reduce taxes on retirement income of up to $3,000. D.C. has an average sales tax rate of 6% and low property taxes of around 0.6%, though property itself is highly priced. The state offers a 50% exemption for seniors age 65 older and/or the disabled who own a home within D.C.
No special exemption for military retirement pay.
West Virginia
Social Security income is partially taxed based on how much is taxed on the federal return; other retirement income is taxed as regular income, but there is a deduction for those 65 and older of $8,000. WV has average sales taxes of 6% and low property taxes around 0.6% with a homestead exemption for seniors.
Military retirement pay is fully tax exempt as of 2018; previously, it was exempt up to $20,000.
Wisconsin
Social Security income is not taxed; other retirement income is partially taxed as there is a deduction available to reduce taxes on retirement income of $5,000 for low-income seniors. WI has an average sales tax rate of 5.4% and high property taxes of around 1.7%, though they offer a homestead credit for low-income residents.
Military retirement pay is fully tax exempt.
Wyoming
There are no state income taxes; WY has an average sales tax rate of 5.4% and low property taxes of around 0.6%.
Military retirement pay is fully tax exempt.