Many retirees dream of moving to a new state to enjoy better weather, be closer to family, or downsize their homes. However, choosing a retirement destination involves more than climate and lifestyle. State and local tax policies play a major role in how far your retirement income will stretch.
From property taxes to estate taxes and even how Social Security is taxed, these policies can significantly impact your budget. What looks like an affordable move on the surface may become a financial drain if key tax considerations are overlooked.
Property Taxes: A Long-Term Cost
Property taxes vary widely depending on local millage rates, home values and exemptions for seniors. Some states, such as New Jersey and Illinois, consistently rank among the highest in property tax rates. Others, such as Florida and South Carolina, offer property tax breaks for retirees or limit the rate at which property tax assessments can increase.
If you’re buying a retirement home, evaluate not just the sales price but the annual property tax bill. Over time, this recurring cost can erode retirement savings if it’s not accounted for in your budget.
States with homestead exemptions or “circuit breaker” programs can help lower the burden for older homeowners. However, eligibility rules vary. Research your target county, not just the state, to understand how your home will be taxed.
Sales Taxes: Everyday Expenses Add Up
Sales tax might not seem like a big deal—until you start spending most of your time in a state with one of the highest rates in the country. Combine state, county, and city taxes, and you may be paying over 9% on everyday purchases in places like Tennessee or Louisiana.
On the other hand, states like Oregon, Delaware, and New Hampshire have no state sales tax. If you’re on a fixed income, shopping for household essentials or large purchases in a high-tax area can add up quickly over time.
Sales taxes on groceries, prescriptions and utilities also vary. Some states exempt these categories to ease the burden on seniors, while others do not.
Estate and Inheritance Taxes
Fewer states impose estate or inheritance taxes today. However, those that do can create significant costs for your heirs. States like Massachusetts and Oregon have estate tax thresholds well below the federal exemption, meaning relatively modest estates may still be taxed.
Other states tax beneficiaries directly, depending on their relationship to the deceased. Children may be exempt, but nieces, nephews, or friends might owe substantial sums.
Even if you’re not worried about taxes now, consider how your assets will be passed down. Estate planning attorneys can help you create a strategy that minimizes tax exposure and keeps more money in your family’s hands.
Income Taxes on Retirement Benefits
Some states tax Social Security, pensions and withdrawals from retirement accounts. Others exempt some or all these sources. For example:
- States like Florida and Texas have no state income tax at all
- Others, like Colorado or New Mexico, may tax Social Security or IRA withdrawals with limits or exemptions
- Pennsylvania exempts most retirement income, including pensions and 401(k)s
Understanding how your income will be taxed in your new home state helps you budget more accurately and avoid surprises.
Make the Move with a Plan
Before relocating in retirement, it’s wise to consult with both a financial advisor and an elder law or estate planning attorney. Together, they can evaluate how state-specific laws affect your income, property and estate.
This comprehensive planning ensures that a move improves your quality of life—and doesn’t create new financial headaches.
Key Takeaways
- Property taxes vary widely: What you save on a mortgage may be offset by high annual tax bills.
- Sales tax affects everyday spending: Groceries, utilities and personal items may be taxed differently across states.
- Estate and inheritance taxes still apply in some states: Your heirs could face unexpected costs if you don’t plan.
- Retirement income may be taxed: Some states tax Social Security or pensions, reducing your monthly income.
- Professional guidance protects your finances: A lawyer or advisor can help assess all tax impacts before you move.
Reference: The Wall Street Journal (April 9, 2025) “Retirees Who Move to Lower-Tax States May Not Save as Much as They Think”
