How Much Does It Cost To Retire In the US?

As they approach retirement, many U.S. residents consider moving somewhere new.

According to a 2022 U.S. Census report, between 2015 and 2019, 622,200 people ages 65 and older moved states. In search of cheaper health care, greater tax breaks, or more temperate weather, retirees in the U.S. are willing to move in order to be more comfortable during retirement. But how much does it really cost to retire in the U.S.? 

Compiling data from the Council for Community and Economic Research (C2ER), U.S. Census Bureau, and U.S. Bureau of Economic Analysis, Investopedia created the Investopedia Retirement Index. It evaluates the cost of living, tax burdens, and proportions of people age 65 and older in each state. Through this index, Investopedia uncovered the states that have the lowest taxes and costs of living, and the highest proportion of people age 65 and older, helping you make an informed decision about where you should really retire in the U.S.

Key Takeaways

  • States offer different costs of living, tax burdens, and average resident ages, so these three components are important considerations when deciding where to retire. 
  • According to the Investopedia Retirement Index, Tennessee is the most highly recommended state for retirement, followed by Florida and then Wyoming. 
  • According to the Investopedia Retirement Index, Washington, D.C. is the least recommended state for retirees. 
  • While considering retirement destinations, keep in mind that retiring abroad is another option that may best fit your personal and financial goals.  

Most Cost Effective US States for Retirement

The following states, in order, are the best states for retirement within the U.S., based on our money-focused index:

  1. Tennessee
  2. Florida
  3. Wyoming
  4. South Dakota & Missouri (same score on the Retirement Index)
  5. Alabama 

These locations in the U.S., in order, rank lowest in the featured factors: 

  1. Washington D.C. 
  2. Hawaii 
  3. ​​California

US Retirement Costs

In the U.S., the financial burden of retirement is growing. In recent years, inflation has increased rapidly, more older-adults have carried mortgage debt into retirement, and health care costs have risen, among other factors. As a result, the cost of living, tax burden, and age proportions of an area have become more and more important, especially for those looking to move in their retirement years. Here, we break down these factors and how they impact where individuals choose to live in retirement.

When reviewing this data and information, note that the state-specific index scores range from 83.4 to 138.9, from most to least cost-effective—the lower the score, the better. States with scores below 100 are considered more cost-effective than average, and all scores above 100 are considered less cost-effective than average. 

When reviewing this data and information, please be aware of the following: The state-specific index scores range from 83.4 to 138.9, from most to least cost-effective. Therefore, the lower the score the better.

Cost of Living

In the Investopedia Retirement Index, cost of living evaluations include the following: 

  • Food
  • Housing
  • Utilities
  • Transportation
  • Health care
  • Miscellaneous goods and services (such as the cost of a haircut in the area)

Although the index does not include the quality nor quantity of each component, these expected costs can help you project how much you will need to budget during retirement to ensure that you don’t outlive your retirement savings

Health care costs are an important element of cost of living, especially for retirees. Older adults—defined as individuals 65 or older, according to the National Institutes of Health—account for over 25% of doctor visits and over 35% of hospital stays, despite only making up 17% of the total U.S. population. Moreover, in 2022, a recorded one in four adults over the age of 65 had to cut back on another basic need, such as food, clothing, and utilities, to accommodate health care costs.

Overall, Mississippi has the lowest average cost of living—82% of the average cost of living across the whole of the U.S. Meanwhile, Washington, D.C.’s average cost of living was 149% of the national average and Hawaii’s was 139%. 

Tax Burden

When planning for retirement and deciding where to live, taxes are another state-variable factor that can take a major toll on your retirement savings.

Income tax is especially relevant to retirement planning, as it can affect withdrawals and distributions from tax-deferred retirement plans, such as traditional 401(k)s, 403(b)s, traditional IRAs, and pension plans. 

There are seven U.S. states which do not have income tax: Texas, Montana, South Dakota, Florida, Wyoming, Alaska, and Washington.

In addition to income tax, Investopedia included property tax and sales tax when determining the whole impact of tax within the retirement index. 

Alaska has the lowest tax burden of any U.S. state by far, with its taxes being 56% of the national average. New Hampshire has the second lowest score, with only 64% of the national average tax burden. The highest taxes can be found in New York and Hawaii, where they are 137% and 135% of the U.S. average, respectively.

Resident Age

Resident age is another important factor when deciding where to live, as one’s personal preference of who they surround themselves with in retirement can vary. 

Many older adults in the U.S. have an increased risk for loneliness and social isolation due to high rates of solo-living, loss of friends and family, and chronic illness. Where an individual lives can have an impact: Depression is shown to affect about 1% to 5% of older adults living in general communities, while it is shown to affect 13.5% of older adults who require home health care, and 11.5% of older adults who are hospitalized.

Maine, Florida, and West Virginia have the highest proportions of residents over the age of 65.

  • 20.7% of people in Maine are over age 65
  • 20.4% of people in Florida are over age 65
  • 19.9% of people in West Virginia are over age 65

Meanwhile, Utah is the state with the smallest proportion of residents over age 65, only 11.1%.  

More About The Top States

Tennessee

Considering tax burden, resident age, and cost of living, Tennessee is the top state to retire with a score of 83.4 on the Investopedia Retirement Index. Tennessee’s taxes are 69% of the national average, while cost of living is 86% of the national average. Plus, the state has more people 65 and older than the national average.

Florida

Florida is the second best state to retire in, with an index score of 83.6, largely thanks to below-average tax burdens. The cost of living in Florida is on par with the national average, and it has 22% more people over the age of 65 than the national average.

One of Florida’s biggest retirement perks is its homestead exemption. If you buy a residence in Florida, up to $50,000 of your home’s value may be tax exempt.

The state also receives the most retirees of any state, with a net increase in 53,150 residents over the age of 65 flocking there between 2015 and 2019, according to the latest U.S. Census Bureau data.

Wyoming

Wyoming is the third best state to retire in, based on our index, with a score of 87.7. While Wyoming’s cost of living is only 2% less than the national average and the state has only 4% more residents age 65 and older than the national average, when it comes to taxes, it wins: The state does not have any income tax, and it has only 65% of the national average tax burden.

South Dakota & Missouri

South Dakota and Missouri are two of the best U.S. states to retire in, and both have a tied Investopedia Retirement Index score of 87.8. 

While famous for Mount Rushmore, South Dakota also features a cost of living that is 7% below the national average, a tax burden of 26% below the national average, and a proportion of residents age 65 and over that is 4% above the national average. 

According to the Investopedia Retirement Index, Missouri’s cost of living is 16% lower than the national average, its tax burden is 11% lower than the national average, and the proportion of people age 65 and older is 5% greater than the national average.

Alabama

Alabama is one of the best places to retire in the U.S., with an Investopedia Retirement Index score of 88. Alabama’s cost of living is 13% below the national average, its tax burden is 14% less than the national average, and the proportion of people ages 65 and over is 5% greater than the national average. 

Alabama notably has the lowest property tax of any contiguous U.S. state at 0.40%, making it a target retirement destination for people wanting to move for retirement.

Retiring in the US vs. Retiring Abroad

While many may find it more convenient to live in the U.S. during retirement, some retirees have started living abroad. Living abroad can provide cheaper housing, more convenient health care, and a change of pace in lifestyle than living in the U.S. 

When deciding whether or not to live abroad, many retirees consider visa requirements, residency establishment, taxes and Social Security, personal health care needs, and proximity to family and friends, among other factors. Regardless of whether you decide to live abroad, move states, or stay put in your retirement, make sure to evaluate your personal needs and preferences, in order to determine what place makes the most sense for you.

Frequently Asked Questions (FAQs)

What Factors Should I Consider When Choosing a Place to Retire?

Common concerns for people choosing places to retire include cost of living, taxes, and the resident age because these factors could significantly affect your daily comforts, retirement income, and ability to find community. The Investopedia Retirement Index combines these three factors together, and through this process, Tennessee, Florida, and Wyoming emerge as some of the best states to retire in the U.S. That being said, different people have different lifestyles, communities, and values, so the factors you consider and their relative importance will be unique to you.

Where Is the Cheapest Place to Live During Retirement?

According to the Council for Community and Economic Research’s (C2ER) cost of living index, Mississippi has the lowest cost of living, only 82% of the average cost of living in the U.S.. However, in terms of major taxes (sales tax, property tax, and income tax), Alaska has the lowest taxes of any U.S. state, only 56% of the national average. However, if you account for cost of living and tax burden in equal measure, Tennessee is the cheapest state overall, only 77.6% of the national average cost of living and tax burden combined. Wyoming and then Florida have the next lowest combined cost of living and tax burden, 81.6% and 81.7% of the national average respectively. 

What US State Has the Lowest Income Tax?

There are seven U.S. states which do not have income tax: Texas, Montana, South Dakota, Florida, Wyoming, Alaska, and Washington. Income tax is an important consideration in retirement planning because it can affect withdrawals and distributions from tax-deferred retirement plans, such as traditional 401(k)s, 403(b)s, traditional IRAs, and pension plans. However it is not the only tax consideration when retirement planning, as proprietary tax and sales tax are also important.

The Bottom Line

More and more U.S. residents are moving states to settle for retirement, driven by many crucial factors, including the cost of living, tax burden, and resident age. All have significant impacts on your financial, social, and physical well-being.

While the results of the Investopedia Retirement Index can be a helpful guide, it’s important to do your own research when deciding where to retire. Regardless of where you decide to live in retirement, make sure to evaluate your personal needs, wants, and financial situation, as well as do some preliminary research when making the decision.

Methodology

Note: Our index is driven by state-wide averages, and the precision of the averages will vary when compared to specific areas in the state. For example, urban areas often have higher costs of living and taxes than state averages, whereas rural areas often have lower financial burdens.

For the Investopedia Retirement Index, cost of living accounts for 50% of the index, tax burden accounts for 30%, and resident age accounts for 20%. A score of 100 on the Investopedia Retirement Index represents the national average across these three factors in the ratios we selected, and the index scores of all 50 states range from 83.4 to 138.9, from best to worst. 

Cost of living data was sourced from The Council for Community and Economic Research’s 2022 Cost of Living Index by State. Property, income, and sales tax data were calculated as the proportion of property, sales and gross receipts, and individual income taxes of each state’s personal income. Tax data were sourced from the United States Census Bureau’s 2021 State & Local Government Finance Historical Datasets and Tables. Personal income data was sourced from the Bureau of Economic Analysis’s Gross Domestic Product and Personal Income by State from 2021.

Resident age data were sourced from the United States Census Bureau’s American Community Survey 5-year Estimates from 2021.

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