Retirement planning is a comprehensive process that not only involves thinking about how much you need to save but also the type of lifestyle you want to live when you're no longer working. A general rule for saving is that you need to put away enough so that you can survive off 80 percent of your annual pre-retirement income. For instance, if you earned $60,000 upon leaving the workforce, you'll have to save enough so that you can comfortably spend $48,000 per year. Assuming you retired at 65 years old and plan on living until 90, you'll need $1.68 million.
However, there are several other retirement savings guidelines and suggestions. There are also a variety of factors to consider to determine how much you need to save. If you plan on traveling extensively, you may need to save more than the 80 percent rule suggests. Conversely, you can get away with saving less if you plan on downsizing your home or making other cost-effective lifestyle changes.
Youcan also get the most out of your savings by moving to a tax-friendly state that either has no income tax, low sales taxes, and low estate and property taxes. The following is a look at five of the best states for retirees.
In a November 2022 blog post, Kiplinger named Delaware the most tax-friendly state for retirees. While the northeastern state does have a state income tax, it maxes out at 6.6 percent on taxable income of more than $60,000. It also doesn't have an estate or inheritance tax and is one of just five states without a sales tax, with the others being New Hampshire, Oregon, Montana, and Alaska.
Delaware also has one of the lowest property tax rates in the country at just $568 per $100,000 of the total value of a particular home. At that rate, a retired couple living in a $350,000 home would have to pay just $1,988 in property taxes. In contrast, here's a look at the median property tax payments in nearby states: New Jersey ($8,488), Connecticut ($5,966), Vermont ($4,392), and New York ($5,590).
Kiplinger ranked Wyoming as the third-most tax-friendly state for retirees and the best state for middle-class families. There is no state income tax in Wyoming. Plus, the Equality State doesn't have estate or inheritance taxes and has the eighth-lowest combined local and state tax rate in the US at 5.22 percent.
The property tax rate in Wyoming isn't much different than in Delaware either. Retirees can expect to pay $2,118 in annual taxes on a $350,000 home. Moreover, qualified seniors can delay as much as half of their annual property tax payment if needed.
Hawaii's relatively low tax burden isn't the only reason to consider a move to one of its many tropical islands, of course. Hawaiian islands like Kaua'i, Lāna‘i, and Maui offer a variety of outdoor adventures and have seasonably warm weather compared to most states. Hawaii is a great place to relax, soak up the sun on a warm beach, and enjoy retirement.
However, you can also make your retirement savings last longer by spending less on taxes living in Hawaii. It has a state income tax range of 1.4 to 11 percent, the latter of which is the maximum for single filers who make more than $200,000 and joint filers who make more than $400,000. While 11 percent is rather high, most seniors won't pay that much. Moreover, Hawaii offers several other financial benefits, including relatively low average local and state tax burdens, tax-free Social Security benefits, and the lowest median property tax rate in the US.
The Silver State is a great place to retire and maximize your savings because it doesn't have income, estate, or inheritance taxes. This means you can make withdrawals from retirement accounts and collect Social Security checks without paying a considerable amount in taxes. Property taxes are also relatively low. Nevada has the seventh-lowest median rate in the country at $572 per $100,000 of the home's assessed total value. This equals $2,002 per year for a $350,000 home.
Retirees can expect to pay more in sales taxes than in the aforementioned states, but Nevada still ranks 13th in the country in that regard. Its state tax is 6.85 percent, while counties can add 1.53 percent in taxation. Groceries and prescription drugs, however, are exempt from sales taxes.
5. South Carolina
Despite a sales tax well above the average rate in the US at 7.44 percent, South Carolina offers several tax advantages for retirees. The median property tax rate is just $566 per $100,000 of total home value. There are many income tax breaks as well. Social Security isn't taxed in South Carolina, while those 65 and older can exclude as much as $10,000 from their taxable retirement income. South Carolina also introduced new legislation in 2022 that allows veterans to collect 100 percent of their military pension tax-free.
There has been a growing trend of Americans heading overseas upon retirement, often for a much lower cost of living in addition to the location and cultural benefits. In particular, warmer or even tropical locations such as Mexico, Costa Rica, Panama, and Ecuador have become expat favorites. The cost of living is much lower in these locales, and the people are friendly toward Americans, and the food and culture are often exciting and different. Additionally, there are often very favorable tax laws for expats, and reasonably easy ways to build a “second passport” if desired.