15 Worst States to Live in During Retirement
Here is a nice article provided by Stacy Rapacon of Kiplinger:
Number crunching alone can't tell you where to retire. That's a choice you'll ultimately need to make on your own. But identifying the places that hold the lowest appeal for retirees can at least help narrow your search.
We rated all 50 states based on quantifiable factors that are important to many retirees. Our rankings penalized states with high living expenses—especially taxes and health care costs—and rewarded states with relatively prosperous populations of residents age 65 and up. We also ranked states lower if their populations are medically unhealthy, or if the state has fiscal health problems (red ink in state budgets could lead to tax hikes and program spending cuts for seniors).
Using our methodology, the following 15 states rank as the least attractive for retirees. That doesn't make them terrible places to live. They might, indeed, be great states in which to work or raise a family. You might even choose to stick around in retirement simply to be close to your grandchildren. But in dollars-and-practical-sense terms, retirees might be better off looking to settle elsewhere.
The average health care cost in retirement of $387,731 we cite is a lifetime cost for a 65-year-old couple who are expected to live to 87 (husband) and 89 (wife). For a complete explanation of our methodology and our data sources, see the Methodology slide at the end of this slide show.
15. Minnesota
Population: 5.4 million
Share of population 65+: 13.6% (U.S.: 14.5%)
Cost of living: 2% above the U.S. average
Average income for 65+ households: $43,623 (U.S.: $50,291)
Average health care costs for a retired couple: About average at $387,007 (U.S.: $387,731)
Minnesota's tax rating for retirees: Least Tax Friendly
The Land of 10,000 Lakes is a hard place for retirees to stay afloat. Above-average living expenses and below-average incomes can equate to imbalanced budgets in retirement. Plus, the tax situation adds an extra burden. One of the 10 Worst States for Taxes on Retirees, Minnesota taxes Social Security benefits the same as the feds. Most other retirement income, including military, government and private pensions, is also taxable. And the state's sales and income taxes are high.
On the other hand, Minnesota is a great place for health-focused retirees. The state is the third-healthiest in the country for seniors, according to the United Health Foundation rankings, which are based on people's behaviors, such as physical activity, as well as community support and clinical care provided. In fact, Rochester, home of the renowned Mayo Clinic, ranks seventh among the best small metro areas for successful aging, according to the Milken Institute, in part due to its abundance of health care providers.
14. West Virginia
Population: 1.9 million
Share of population 65+: 16.8%
Cost of living: 3% below the U.S. average
Average income for 65+ households: $38,917
Average health care costs for a retired couple: Below average at $370,403
West Virginia's tax rating for retirees: Tax Friendly
Despite its below-average living costs and positive tax rating, the Mountain State offers some rocky terrain for retirees. According to a recent report from the Mercatus Center at George Mason University, West Virginia ranks as the eighth-worst state in terms of fiscal soundness, indicating low confidence that it can keep up with short-term expenses and long-term financial obligations.
The state also scores poorly for the health of its 65-and-over population, ranking 45th in the country, according to the United Health Foundation. While 41.8% of older adults nationwide enjoy excellent or very good health, only 29.5% of those in West Virginia can say the same.
13. Maine
Population: 1.3 million
Share of population 65+: 17.0%
Cost of living: 6% above the U.S. average
Average income for 65+ households: $38,504
Average health care costs for a retired couple: Below average at $367,832
Maine's tax rating for retirees: Not Tax Friendly
The Pine Tree State can be a bit prickly when it comes to its retirees. While Social Security benefits are not subject to state taxes, most other retirement income is taxable. There's even an estate tax. Plus, the Mercatus Center at George Mason University ranks Maine as the ninth-worst state in the country in terms of fiscal soundness.
Individuals in the state may have an equally difficult time balancing their own budgets. With below-average household incomes, retirees may struggle to cover Maine's above-average living costs.
12. Kentucky
Population: 4.4 million
Share of population 65+: 14.0%
Cost of living: 9% below the U.S. average
Average income for 65+ households: $39,935
Average health care costs for a retired couple: About average at $384,317
Kentucky's tax rating for retirees: Tax Friendly
Kentucky seniors suffer the third-worst state of health in the country, according to the United Health Foundation's rankings. Among its challenges are a high rate of smoking, limited access to low-cost, nutritious food, and a low number of quality nursing homes. Also, physical inactivity among residents age 65 and up has increased to 40.2% over the past two years, compared with a national rate of 33.1%.
The Bluegrass State does offer low living costs, as well as a number of tax breaks for retirees. Social Security benefits, as well as up to $41,110 of other retirement income, are exempt from state taxes. However, with a low ranking of 45th in the country for fiscal soundness, those tax benefits may not be very secure. Also, despite the state's overall affordability, plenty of older residents struggle to make ends meet: 11.4% of those age 65 and older are living in poverty, compared with 9.4% for the U.S. as a whole.
11. Indiana
Population: 6.5 million
Share of population 65+: 13.6%
Cost of living: 4% below the U.S. average
Average income for 65+ households: $39,260
Average health care costs for a retired couple: About average at $388,954
Indiana's tax rating for retirees: Not Tax Friendly
With its below-average living expenses, Indiana might seem like a winner for retirees. But when you consider the well-below-average household income, the older residents of the Hoosier State start looking more like underdogs. And the tax situation doesn't help their cause much. Most retirement income other than Social Security benefits is taxable at ordinary rates.
The state's health ranking is also among the 10 worst in the country. Some of the challenges Indiana's older residents face are high rates of obesity, physical inactivity and premature deaths, according to the United Health Foundation.
10. Wisconsin
Population: 5.7 million
Share of population 65+: 14.4%
Cost of living: 10% above the U.S. average
Average income for 65+ households: $37,673
Average health care costs for a retired couple: About average at $387,705
Wisconsin's tax rating for retirees: Mixed
High living costs and low average incomes can put a yoke on retirees in Wisconsin. In fact, the state's average household income for seniors is the second-lowest in the country, behind only Montana. The tax situation in the Badger State doesn't help, either. Social Security benefits are exempt from state taxes, but most other retirement income is subject to taxation (though there are some breaks for low-income residents).
If you can afford it, though, the state capital of Madison holds its charms for retirees, offering an abundance of quality health care facilities, as well as plenty of museums, libraries and the University of Wisconsin.
9. Vermont
Population: 626,358
Share of population 65+: 15.7%
Cost of living: 19% above the U.S. average
Average income for 65+ households: $42,599
Average health care costs for a retired couple: Below average at $373,830
Vermont's tax rating for retirees: Least Tax Friendly
It's not easy being retired in the Green Mountain State. Exorbitantly high living costs and taxes weigh heavily on below-average incomes. Social Security benefits, as well as most other forms of retirement income, are subject to state taxes, and the top income tax rate is a steep 8.95% (which kicks in at $411,500 for both single and married filers).
On a positive note, Vermont boasts the healthiest seniors in the country, according to the United Health Foundation's rankings. Burlington, a small city on the shores of Lake Champlain, rates as a great place to retire thanks to beautiful surroundings that surely help boost physical activity and overall health among the locals.
8. Montana
Population: 1.0 million
Share of population 65+: 15.7%
Cost of living: 1% above the U.S. average
Average income for 65+ households: $36,933
Average health care costs for a retired couple: Below average at $377,877
Montana's tax rating for retirees: Least Tax Friendly
Despite its Treasure State nickname, it can be hard to hold onto your fortune in Montana. Living costs are about average, but incomes are well below the norm. In fact, the average household income for residents age 65 and up is the lowest in the country. The tax situation certainly doesn't help. One of the 10 Worst States for Taxes on Retirees, Montana taxes most forms of retirement income, and the top rate of 6.9% kicks in once taxable income tops just $17,000.
Still, Big Sky Country seems to retain a large number of retirement-age folks: The state's 65-and-older population is 15.7%, compared with 14.5% for the U.S. The great (albeit cold) outdoors, including Yellowstone and Glacier national parks, may be what trumps the state's drawbacks for adventurous retirees. Great Falls, on the high plains of Montana's Rocky Mountain Front Range, proves particularly popular with the over-65 crowd, which makes up 16.1% of the metro area's population.
7. Rhode Island
Population: 1.1 million
Share of population 65+: 15.1%
Cost of living: 13% above the U.S. average
Average income for 65+ households: $55,802
Average health care costs for a retired couple: Above average at $392,592
Rhode Island's tax rating for retirees: Least Tax Friendly
Tiny Rhode Island packs in big bills for older folks. On top of the above-average living costs, it's one of the 10 Worst States for Taxes on Retirees, taxing virtually all sources of retirement income at ordinary rates. (Note: Starting in 2016, the state will begin to give residents a break on Social Security taxes.) The state sales tax is 7%.
On the bright side, the above-average incomes for older residents can make those burdensome costs a bit more bearable.
6. Massachusetts
Population: 6.7 million
Share of population 65+: 14.4%
Cost of living: 17% above the U.S. average
Average income for 65+ households: $61,436
Average health care costs for a retired couple: Above average at $413,007
Massachusetts's tax rating for retirees: Not Tax Friendly
The Bay State harbors some heavy costs for retirees. On top of the high overall living costs, the total a couple can expect to pay for health care throughout their retirement is the second-highest in the country, trailing only Alaska.
And though the average household income for seniors is high, taxes can take a big bite out of those earnings. Social Security benefits are exempt, but effective in 2016 most other retirement income is taxed at the state's flat rate of 5.1%.
5. Illinois
Population: 12.9 million
Share of population 65+: 13.2%
Cost of living: 4% above the U.S. average
Average income for 65+ households: $51,079
Average health care costs for a retired couple: Above average at $398,927
Illinois's tax rating for retirees: Mixed
The Prairie State's fiscal standing has been sliding downward for years. Illinois has weighty long-term debts, large unfunded pension liabilities and big budget imbalances. All this puts it squarely at the bottom of the state rankings for fiscal soundness, according to George Mason University's Mercatus Center. In October 2015, ratings agency Fitch downgraded the state's credit rating to near-junk status.
On the plus side, the state doesn't tax distributions from a variety of retirement income sources, including 401(k) plans and individual retirement accounts. For now, that is. Given such a poor fiscal state, tax breaks are hardly assured, and higher taxes are on the table. Already, state and local sales taxes rise above a combined 10% in some areas, and they will be even higher effective July 1, 2016.
4. Connecticut
Population: 3.6 million
Share of population 65+: 14.8%
Cost of living: 29% above the U.S. average
Average income for 65+ households: $63,726
Average health care costs for a retired couple: Above average at $402,594
Connecticut's tax rating for retirees: Least Tax Friendly
The Constitution State does little to promote the general welfare of its resident retirees. In fact, Connecticut ranks among the 10 tax-unfriendliest states for retirees. Real estate taxes are the second-highest in the country. Some residents face taxes on Social Security benefits, and most other retirement income is fully taxed, with no exemptions or tax credits to ease the burden. Because Connecticut ranks 47th out of all states for fiscal soundness, state taxes are not likely to go down any time soon.
All those taxes come on top of high living costs, the second-highest in the country, tied with New York and behind only Hawaii. One plus: Connecticut residents can often afford the costs. The state's average household income for seniors is the fourth-highest in the U.S., and its poverty rate for residents age 65 and older is a low 7.1%, compared with 9.4% for the U.S.
3. California
Population: 38.1 million
Share of population 65+: 12.1%
Cost of living: 15% above the U.S. average
Average income for 65+ households: $62,003
Average health care costs for a retired couple: Above average at $394,831
California's tax rating for retirees: Least Tax Friendly
Another one of the 10 Worst States for Taxes on Retirees, the Golden State could be fool's gold as a retirement choice. Except for Social Security benefits, retirement income is fully taxed, and California imposes the highest state income tax rates in the nation (the top rate is 13.3% for single filers with $1 million incomes and joint filers with incomes above $1,039,374). The state sales tax combined with additional local levies can reach as high as 10%.
Everything seems bigger in California, including high living expenses. Indeed, plenty of older residents are unable to bear it: 1 in 10 Californians age 65 and over are living in poverty.
2. New Jersey
Population: 8.9 million
Share of population 65+: 14.1%
Cost of living: 22% above the U.S. average
Average income for 65+ households: $66,409
Average health care costs for a retired couple: Above average at $403,420
New Jersey's tax rating for retirees: Least Tax Friendly
Retirees planning to plant themselves in the Garden State might want to reconsider. Both living costs and taxes in New Jersey take a big bite out of retirement nest eggs. The combined state and local tax burden is the second-highest in the nation. And it doesn't ease up after you die—the money you leave behind is subject to both an estate tax and inheritance tax (though there are exemptions for spouses and some others). Plus, with the second-worst ranking for fiscal soundness, behind only Illinois, the tax picture is unlikely to improve soon.
More bad news: New Jersey's living costs are the fourth-highest in the country, with retiree health care costs ranking third-highest in the nation. Still, residents seem to bear the burden well. The average income for 65-and-up residents is the third-highest in the U.S., and the poverty rate for the age group is a low 7.9%.
1. New York
Population: 19.6 million
Share of population 65+: 14.1%
Cost of living: 29% above the U.S. average
Average income for 65+ households: $63,174
Average health care costs for a retired couple: Above average at $397,107
New York's tax rating for retirees: Least Tax Friendly
One (pricey) Big Apple spoils the entire Empire State. Manhattan reigns as the most expensive place to live in the U.S., with costs soaring 127.4% above the national average, according to the Council for Community and Economic Research. New York sports the second-highest living costs of any state, behind only Hawaii.
Despite boasting an average income for residents age 65 and older that's among the top five in the country, the same age group suffers a poverty rate of 11.4%, worse than the national 9.4% rate.
Worst States for Retirement 2016
Our Methodology
To rank all 50 states, we weighed a number of factors:
Taxes on retirees, based on Kiplinger's Retiree Tax Map, which divides states into five categories: Most Tax Friendly, Tax Friendly, Mixed, Not Tax Friendly and Least Tax Friendly.
Cost-of-living, with data provided by FindTheData.com.
Average health care costs in retirement are from HealthView Services and include Medicare, supplemental insurance, dental insurance and out-of-pocket costs for a 65-year-old couple who are both retired and are expected to live to 87 (husband) and 89 (wife). With a national average of $387,731, the average couple can expect to spend about $8,400 per person per year in retirement on health care costs. Note: Some of the worst states for retirees have less than average costs in this category, a positive factor for most retirees, but other factors drove the lower rankings.
Rankings of each state's economic health are provided by the Mercatus Center at George Mason University and are based on various factors including state governments' revenue sources, debts, budgets and abilities to fund pensions, health-care benefits and other services.
Rankings of the health of each state's population of residents 65 and over are from the United Health Foundation and are based on 35 factors ranging from residents' bad habits (smoking and excessive drinking) to the quality of hospital and nursing home care available in the state.
Household incomes and poverty rates are from the U.S. Census Bureau. While many of the worst states for retirees in our rankings have above-average household incomes, high average living costs in those states tend to offset the higher incomes.
Final note: Population data, including the percentage of the population that is age 65 and older, is also provided by the Census data. They are highlighted in these rankings, but were not a factor in our methodology for ranking the states. We provided this additional information for readers to decide for themselves whether they are important factors. Some retirees may want to live in states with higher-than-average retiree populations. For others, this isn't important.
Robert J. Pyle, CFP®, CFA is president of Diversified Asset Management, Inc. (DAMI). DAMI is licensed as an investment adviser with the State of Colorado Division of Securities, and its investment advisory representatives are licensed by the State of Colorado. DAMI will only transact business in other states to the extent DAMI has made the requisite notice filings or obtained the necessary licensing in such state. No follow up or individualized responses to persons in other jurisdictions that involve either rendering or attempting to render personalized investment advice for compensation will be made absent compliance with applicable legal requirements, or an applicable exemption or exclusion. It does not constitute investment or tax advice. To contact Robert, call 303-440-2906 or e-mail info@diversifiedassetmanagement.com.
The views, opinion, information and content provided here are solely those of the respective authors, and may not represent the views or opinions of Diversified Asset Management, Inc. The selection of any posts or articles should not be regarded as an explicit or implicit endorsement or recommendation of any such posts or articles, or services provided or referenced and statements made by the authors of such posts or articles. Diversified Asset Management, Inc. cannot guarantee the accuracy or currency of any such third party information or content, and does not undertake to verify or update such information or content. Any such information or other content should not be construed as investment, legal, accounting or tax advice.