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By Dan Kadlec
April 6, 2017
City Park Golf Course, Denver, Colorado
City Park Golf Course, Denver, Colorado
John Kieffer—Getty Images

Retirees have many good reasons to change where they live: climate, health care facilities, hobbies, crime rate, proximity to family. Cost of living is another big consideration—and on that front, state and local taxes may be a big component. [Bankrate.com recently offered up its overall ranking of the best and worst states for retirees.]

States have very different tax structures. If you move for lifestyle reasons—say, to California—you might be rudely surprised by the state’s average effective tax rate of more than 13%. You can get similar weather, if not views, in Nevada or Florida, where the comparable state tax rate is less than 8%.

These are averages, reported in J.P. Morgan Asset Management’s annual retirement guide. The figures include income, sales, and property tax for a hypothetical retired couple. Your own rate will depend on many factors, including your sources of retirement income and the specific region in which you settle.

Notes: Analysis of overall effective state tax rate for a retired married couple with $80,000 in retirement-plan distributions, $42,000 in Social Security, and property tax based on 2.5x median home value by state.
Source: J.P. Morgan Asset Management

Different states treat income from Social Security, assets, earnings and pensions differently. For example, 13 states including Colorado, Connecticut, and New Mexico tax Social Security benefits, according to the J.P. Morgan report. Five states, including Oregon, Alaska, and New Hampshire, have no sales tax. Nevada, South Dakota, and Wyoming, among others, have no income tax.

Within a state, the city you choose may also makes a big difference. New York City, for example, levies an additional 3% to 4% on taxable income above and beyond the state levy. So it pays to give local tax treatment some thought before you pack up.

In general, the most tax-friendly states for retirees are, in order, Alaska, Delaware, Georgia, Nevada, and Wyoming, according to the J.P. Morgan report. The least tax-friendly states, in order, are New Jersey, Connecticut, New York, Massachusetts, and Vermont. Property taxes tend to be especially burdensome in the least tax-friendly states.

This is based on estimates for a retired couple filing jointly with annual retirement-plan distributions of $80,000 and annual combined Social Security benefits of $42,000. It also assumes property tax based on a home valued at 2.5 times the median in the state.

The average Social Security beneficiary gets 33% of total income from Social Security, 32% from earned income, 21% from pensions, and 10% from assets. Your own mix may be considerably different, which is why there are no easy answers to which state you will do best in, from a tax point of view. But it is worth looking into–and remember that taxes are just one part of the equation.

Advertiser Disclosure

The purpose of this disclosure is to explain how we make money without charging you for our content.

Our mission is to help people at any stage of life make smart financial decisions through research, reporting, reviews, recommendations, and tools.

Earning your trust is essential to our success, and we believe transparency is critical to creating that trust. To that end, you should know that many or all of the companies featured here are partners who advertise with us.

Our content is free because our partners pay us a referral fee if you click on links or call any of the phone numbers on our site. If you choose to interact with the content on our site, we will likely receive compensation. If you don't, we will not be compensated. Ultimately the choice is yours.

Opinions are our own and our editors and staff writers are instructed to maintain editorial integrity, but compensation along with in-depth research will determine where, how, and in what order they appear on the page.

To find out more about our editorial process and how we make money, click here.

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