Many Americans prefer to relocate to a more relaxing destination when they retire. However, choosing the ideal destination is not always easy. They have to consider their lifestyle and finances. This article examines 12 states that may pose financial challenges for retirees, providing valuable insights to help you plan wisely and avoid unexpected financial hardship.
New York
New York is a mixed bag for retirees. While it offers an active lifestyle and the Age-friendly New York City initiative, the overwhelmingly high cost of living poses a huge financial burden. Housing costs in New York exceed the national average by 75%. Healthcare expenses are also high, running 7% higher than the average across the United States.
New York’s income tax rates can reach 10.9%, and Social Security benefits receive only partial exemptions, which affects retirement budgets. The general cost of living is 26% greater than the national average. Necessities like groceries and clothing are also more expensive.
Connecticut
Connecticut, the Nutmeg State, draws retirees with its picturesque landscapes, charming small towns, and rich cultural heritage. However, the state has one of the highest costs of living in the U.S., with housing prices and healthcare expenses far above national averages.
Social Security benefits are taxed up to 25% for incomes exceeding thresholds ($75,000 for single filers and $100,000 for married filers). The income tax rates in Connecticut range from 2% to 6.99%, which is higher than the national average.
Additionally, homeowners face the third-highest effective property tax rates in the country, at 1.92%, compared to the national average of 0.98%. These factors, combined with the 6.35% sales tax, make Connecticut an expensive and financially challenging option for retirees.
California
California is a popular tourist destination due to its varied culture and endless entertainment opportunities, but it may not be the best place to retire. In most California cities, the cost of living is extraordinarily high. The median home cost in California is $733,500, which is double the national median home cost.
Gas is another commodity that costs more in California than the national average. California also charges the highest income tax in the country, with some people paying as much as 13.3% of their earnings to the state.
Californians also face a wide range of natural disasters, like earthquakes and wildfires. In addition to the potential risk of loss associated with these catastrophes, you’ll also face a higher cost in insurance.
New Jersey
New Jersey has the highest property tax in the U.S. Homeowners with a $348,300 home pay a median annual property tax of $6,579. This 1.89% rate is well above the national average.
These financial issues, coupled with the high housing and healthcare costs, can strain retirement budgets. Though access to healthcare is good, the state’s unpredictable weather and substantial financial burdens make it a less-than-ideal retirement destination for many.
Hawaii
Hawaii’s breathtaking beaches and delightful climate might make it an ideal retirement destination, but its steep expenses deter many retirees. The average cost of living in Hawaii is $2865, 1.28 times higher than the national average, making it the 5th most expensive state in the U.S.
As of August 2024, home prices average $850,343, showing a 1.6% increase over the previous year. Essential expenses like groceries, utilities, and healthcare are also significantly pricier due to Hawaii’s isolated location and reliance on imported goods.
While Hawaii exempts Social Security income from taxation, its top income tax rate of 11% and other high living costs make it challenging even for retirees with substantial savings.
Massachusetts
Massachusetts is not the most retirement-friendly state due to its high cost of living, which is 46% above the national average. Housing, healthcare, and general expenses are significantly expensive, particularly in areas like Boston.
Although Social Security benefits are exempt from Massachusetts state income tax, other retirement incomes, such as pensions and IRA withdrawals, face taxation at 5%, with additional surtaxes for high earners. Property taxes can also be steep in desirable areas.
Moreover, the harsh winters with heavy snowfall and cold conditions can be daunting for retirees.
Illinois
Retiring in Illinois presents challenges, mainly due to its substantial tax burden and expensive housing market. Although Social Security and retirement income are exempt from state taxation, property taxes remain high, consuming 15% of household income—well above the national average.
Here, housing is 108% higher than the national average, while utilities are 16% higher. The average rent exceeds $2,000. Additionally, rural regions often lack sufficient healthcare services, making it difficult for retirees to access affordable and reliable care.
Alaska
Alaska is highly tax-friendly, with no state income tax. It also has property tax exemptions for seniors over 65 on the first $150,000 of property value. However, its reliance on oil revenue raises concerns about financial stability.
Due to the state’s remote location, essentials such as groceries, utilities, and transportation are more expensive than the national average. Housing costs in popular areas are steep.
While Anchorage has excellent medical facilities, access to specialists can be limited in remote regions. Retirees should plan carefully to ensure financial security in Alaska’s unique environment.
Rhode Island
While Rhode Island’s history appeals to many, retirees struggle to maintain an affordable lifestyle there. The state has a high cost of living, with housing prices 31% above the national average and annual property taxes exceeding $4,776.
Retirement income, including certain pensions and Social Security benefits, is taxed at rates ranging from 3.75% to 5.99%, adding to financial strain. Healthcare costs are 12% higher than the national average, and access to services is limited in such a small state.
Maryland
Maryland presents notable challenges due to its high living costs and complicated tax policies. The state enforces income tax rates of up to 5.75%, with pensions and IRA distributions fully taxed, while Social Security benefits are exempt.
Moreover, Maryland is the only state in the U.S. to impose both an estate tax (up to 16%) and an inheritance tax (up to 10%), making it financially taxing for retirees aiming to pass on wealth. Housing costs add to the strain, with median home prices ranging from $400,000 to $450,000 and rental prices averaging $1,500–$2,000 monthly.
With an average effective rate of 1.02%, property taxes become burdensome due to high property values, resulting in higher annual payments than in most states. Healthcare costs continue to rise, and issues like traffic congestion and crime have further dampened the appeal of retirement in the state.
Vermont
Vermont has one of the highest property tax averages at $4,859 annually and imposes taxes on pension and retirement account earnings.
Housing costs are rising sharply, with a 12.8% year-over-year home appreciation rate, far exceeding the national average. Vermont’s cold winters and heavy snow can further isolate rural areas. While it boasts the nation’s lowest violent crime rates, the high living costs and harsh climate make Vermont a less practical choice for many retirees.
Oregon
Retirees should carefully evaluate their financial situations to determine if Oregon aligns with their retirement plans. The state’s average cost of living is $2415, 1.08 times higher than the national average. This is driven primarily by housing costs—median home prices recently reached $497,646, about 139% of the U.S. average.
Healthcare expenses are rising, and Oregon’s top income tax rate of 9.9%, among the highest in the nation, adds financial strain for seniors on fixed incomes.
