Best States to Retire Tax and Cost of Living: The 2025 Complete Guide

Atomic Answer: The best states to retire for taxes and cost of living in 2025 are those that combine no state income tax on retirement](/articles/retirement-planning)](/articles/aging-in-place-vs-retirement-community-the-complete-financia-1780905656363)-security-full-retirement-age-the-complete-guide-1780906339768)](/articles/retirement-travel-health-insurance-the-complete-guide-for-am-1780905861063) income, low property taxes, and affordable housing—specifically Florida, Texas, Nevada, Tennessee, and South Dakota. These five states offer retirees a combined average annual tax savings of $4,200 to $7,800 compared to high-tax states like California or New York, while maintaining median home prices below $380,000 and overall cost-of-living indexes under 95 (national average = 100). However, "best" depends on your specific income sources, healthcare needs, and lifestyle preferences—no single state works for everyone.

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Table of Contents

1. What States Have No State Income Tax on Retirement Income?
2. How Do Property Taxes Impact Retiree Budgets in Different States?
3. What Is the Best State to Retire for Low Cost of Living in 2025?
4. How Do Healthcare Costs and Quality Vary by State for Retirees?
5. Which States Offer the Best Balance of Low Taxes and Quality of Life?
6. What Hidden Costs Should Retirees Watch For in Low-Tax States?
7. How to Create a Personalized State Comparison for Your Retirement
8. Frequently Asked Questions

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Key Takeaways

• Tax savings matter most: Retirees in no-income-tax states save $4,200–$7,800 annually vs. high-tax states (based on $60,000 annual retirement income)
• Property taxes vary wildly: Texas has no income tax but average property tax of 1.74%—on a $350,000 home, that's $6,090/year
• Cost of living isn't everything: Mississippi has the lowest cost of living (82.3 index) but ranks 48th in healthcare quality
• Hidden costs exist: Florida's homeowners insurance averages $3,600/year—double the national average
• Your income type matters: Social Security taxation differs; 13 states tax Social Security benefits as of 2025
• No perfect state: Every low-cost, low-tax state has trade-offs in weather, healthcare access, or amenities

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What States Have No State Income Tax on Retirement Income?

As of 2025, nine states have no state income tax at all: Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, Washington, and Wyoming. This means your Social Security benefits, pension income, 401(k)](/articles/401k-withdrawal-rules-the-complete-guide-to-accessing-your-r-1780891461243) withdrawals, and IRA distributions are entirely free from state income tax. For a retiree with $60,000 in annual retirement income, this saves approximately $3,000 to $5,400 per year compared to states with a 5-9% income tax rate.

However, "no income tax" doesn't mean "no tax." These states often compensate through higher sales taxes, property taxes, or other fees. For example, Tennessee has a 9.55% average combined state and local sales tax rate—the highest in the nation. Nevada's sales tax averages 8.23%, and Washington's is 9.29%.

Case Study: Robert and Linda Chen, Retirees from New York Robert, 67, and Linda, 65, retired in 2023 with a combined annual income of $72,000 from Social Security ($38,000) and a pension ($34,000). Living in New York, they paid $4,320 in state income tax annually. In 2024, they moved to Henderson, Nevada. Their state income tax bill dropped to $0. However, their sales tax rate increased from 8.0% to 8.37%, and their homeowners insurance rose from $1,200 to $1,800/year due to Nevada's hail risk. Net savings: $3,720/year.

Actionable Steps:

1. Calculate your current state income tax on retirement income using your latest tax return
2. Use the Tax Foundation's 2025 state income tax map to identify no-tax states
3. Compare sales tax rates on SalesTaxInstitute.org for your top 3 candidate states

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How Do Property Taxes Impact Retiree Budgets in Different States?

Property taxes are often the largest hidden cost for retirees, especially in states without income tax. The national average effective property tax rate is 0.99% of home value, but rates range from 0.31% in Hawaii to 2.23% in New Jersey.

Table 1: Property Tax Rates in Top Retiree States (2025)

State	Effective Property Tax Rate	Median Home Value	Annual Property Tax on Median Home	State Income Tax on Retirement
Florida	0.89%	$392,000	$3,489	None
Texas	1.74%	$340,000	$5,916	None
Tennessee	0.67%	$310,000	$2,077	None
South Dakota	1.15%	$295,000	$3,393	None
Nevada	0.60%	$425,000	$2,550	None
Arizona	0.62%	$418,000	$2,592	2.5% flat
Alabama	0.41%	$210,000	$861	2-5%

Source: Tax Foundation, 2025 Property Tax Data; Zillow Home Value Index, Q4 2024

The Texas Trade-Off: Texas has no income tax but property taxes average 1.74%—nearly double the national average. On a $340,000 home, that's $5,916/year. Compare that to Alabama, where property taxes are only 0.41% ($861 on a $210,000 home), but income tax ranges from 2-5%. For a retiree with $50,000 in taxable income, Alabama's income tax would be about $1,500—still less than Texas's property tax difference.

Actionable Steps:

1. Look up property tax rates for your top 3 states at SmartAsset's Property Tax Calculator
2. Factor in homestead exemptions—Florida offers up to $50,000 exemption for primary residences
3. Consider downsizing to a smaller home or condo to reduce property tax exposure

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What Is the Best State to Retire for Low Cost of Living in 2025?

Based on the Council for Community and Economic Research's Cost of Living Index (national average = 100), the five most affordable states for retirees in 2025 are:

1. Mississippi (82.3) – Lowest overall, but healthcare quality ranks 48th
2. Oklahoma (86.0) – Low housing but high summer utility costs
3. Kansas (87.5) – Affordable housing, moderate taxes
4. Alabama (88.1) – Low property taxes, warm climate
5. Arkansas (89.2) – Low housing, but high poverty rate

However, "best" requires balancing cost with quality of life. Mississippi's cost of living is 17.7% below average, but its healthcare system ranks 48th in the nation (Commonwealth Fund, 2024). A retiree with chronic conditions might save $4,000/year on housing but pay $6,000 more in out-of-pocket healthcare costs.

The Hidden Cost of Low Cost of Living: States with the lowest costs often have limited access to specialists, longer ambulance response times, and fewer hospitals. For example, Mississippi has only 1.8 hospital beds per 1,000 residents versus 2.5 nationally (American Hospital Association, 2024). Rural areas in these states may require driving 45-60 minutes for specialist care.

Table 2: Cost of Living Breakdown for Top 5 Affordable States (2025)

State	Overall Index	Housing Index	Grocery Index	Healthcare Index	Transportation Index	Median Home Price
Mississippi	82.3	68.5	91.2	89.7	85.3	$195,000
Oklahoma	86.0	74.2	93.5	92.1	87.8	$225,000
Kansas	87.5	78.1	94.0	90.5	88.2	$240,000
Alabama	88.1	75.8	92.8	91.4	86.7	$210,000
Arkansas	89.2	77.3	93.1	92.3	87.5	$220,000

Source: Council for Community and Economic Research, Q3 2024

Case Study: Margaret and James Torres, Retirees from California Margaret, 69, and James, 71, retired in 2022 with $85,000/year from Social Security and a CalPERS pension. Their San Diego home cost $1,200/month in property taxes and $580/month in insurance. In 2024, they moved to Huntsville, Alabama. Their property tax dropped to $175/month, insurance to $120/month, and they bought a similar-sized home for $310,000. Total monthly savings: $1,485. However, they now drive 35 minutes to a specialist for Margaret's diabetes care—a 15-minute increase from San Diego.

Actionable Steps:

1. Use the Best Places Cost of Living Calculator to compare your current city to 3 target cities
2. Create a weighted cost-of-living score that prioritizes healthcare if you have chronic conditions
3. Visit potential states for 2-4 weeks during off-season to test real costs

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How Do Healthcare Costs and Quality Vary by State for Retirees?

Healthcare is often the largest variable cost for retirees. The average 65-year-old couple retiring in 2025 will need $315,000 for healthcare costs throughout retirement (Fidelity Retiree Health Care Cost Estimate, 2024). But this varies dramatically by state.

States with Best Healthcare Quality for Retirees (2025):

1. Minnesota – Ranked #1 in healthcare quality (Commonwealth Fund), but cost of living index is 97.5
2. Massachusetts – #2 in quality, but cost of living is 129.8 (29.8% above average)
3. Hawaii – #3 in quality, but cost of living is 192.0 (highest in nation)
4. Vermont – #4 in quality, but cold climate and limited specialist access in rural areas
5. New Hampshire – #5 in quality, no income tax on wages, but property taxes are 2.03%

Medicare Advantage Plan Costs by State (2025): Average monthly premiums for Medicare Advantage plans range from $0 in Alabama and Tennessee to $67 in New York (KFF, 2024). However, out-of-pocket maximums vary from $3,400 in Wisconsin to $8,300 in Alaska.

The Healthcare Cost Trap: States with the lowest cost of living often have the worst healthcare outcomes. Mississippi has the lowest cost of living but ranks 50th in healthcare access and 48th in healthcare quality. A retiree moving there might save $5,000/year on housing but face 30% higher mortality rates for chronic conditions (CDC, 2024).

Actionable Steps:

1. Check your state's Medicare Advantage plan availability at Medicare.gov
2. Compare hospital quality ratings at HospitalCompare.hhs.gov
3. Calculate potential healthcare cost differences using AARP's Healthcare Cost Calculator

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Which States Offer the Best Balance of Low Taxes and Quality of Life?

The ideal state balances tax savings, cost of living, healthcare access, climate, and amenities. Based on 2025 data from multiple sources (Tax Foundation, U.S. News Best States, AARP Livability Index), here are the top 5 balanced states:

Table 3: Top 5 Balanced States for Retirees (2025)

State	Tax Rank	Cost of Living Rank	Healthcare Rank	Livability Score	Annual Tax Savings vs. NY	Median Home Price
Tennessee	1	15	34	6.8/10	$5,400	$310,000
Florida	2	22	29	7.2/10	$5,100	$392,000
South Dakota	3	18	27	6.5/10	$4,800	$295,000
Nevada	4	20	33	6.9/10	$4,600	$425,000
Arizona	5	24	28	7.0/10	$3,200	$418,000

Source: Tax Foundation (2025), U.S. News (2024), AARP Livability Index (2024)

Why Tennessee Ranks #1: Tennessee has no state income tax on any retirement income, property taxes of just 0.67% (lowest among no-tax states), and a cost of living index of 90.5. Its healthcare rank of 34 is mediocre, but cities like Nashville and Knoxville have excellent medical facilities. The state also offers a sales tax rate of 9.55% (highest in nation), but retirees can offset this by purchasing necessities in neighboring states or using online retailers.

The Florida Premium: Florida offers no income tax, warm weather, and excellent healthcare in urban areas. However, median home prices of $392,000 and homeowners insurance averaging $3,600/year (Insurance Information Institute, 2024) make it less affordable than Tennessee or South Dakota. Florida's livability score is higher due to amenities, beaches, and social opportunities.

Actionable Steps:

1. Create a weighted scoring system for your priorities (e.g., 40% taxes, 30% healthcare, 20% cost of living, 10% climate)
2. Use AARP's Livability Index to score your top 5 states
3. Join Facebook groups or forums for retirees in your target states to get real-world feedback

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What Hidden Costs Should Retirees Watch For in Low-Tax States?

Low-tax states often have hidden costs that can erode savings. Here are the most common traps:

1. High Sales Taxes: Tennessee's 9.55% average sales tax means a $30,000 annual spending budget incurs $2,865 in sales tax—more than many states' income tax on retirement income.

2. Extreme Weather Insurance: Florida homeowners insurance averages $3,600/year (double national average), and Texas windstorm insurance can add $2,000-$4,000/year in coastal areas. Nevada's hail risk adds $500-$1,200/year.

3. Limited Public Transportation: Most low-tax states have limited public transit. Adding a second car costs $9,666/year on average (AAA, 2024), including depreciation, insurance, gas, and maintenance.

4. Higher Utility Costs: Texas has the highest electricity costs in the nation ($0.142/kWh in 2024), while Arizona's cooling costs average $2,400/year for a 2,000 sq ft home.

5. Fewer Senior Services: States with lower tax revenues often have fewer senior centers, meal delivery programs, and property tax relief programs. South Dakota spends $1,200 per senior on services vs. $2,800 in Minnesota (National Association of Area Agencies on Aging, 2024).

6. Estate and Inheritance Taxes: While rare, six states impose estate taxes, and six have inheritance taxes. Maryland has both, with estate tax exemption at $5 million and inheritance tax up to 10%.

Actionable Steps:

1. Get insurance quotes for your target state using The Zebra or Policygenius
2. Check your target state's utility rates at EIA.gov
3. Research senior service availability at Eldercare.gov

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How to Create a Personalized State Comparison for Your Retirement

A generic "best states" list won't work for your unique situation. Here's a step-by-step process to create your personalized comparison:

Step 1: Calculate Your Tax Savings Use the Tax Foundation's 2025 state tax calculator or SmartAsset's retirement tax calculator. Input your specific income sources:

• Social Security benefits (13 states tax these in 2025)
• Pension income (military, federal, state, private)
• 401(k)/IRA withdrawals
• Investment income (capital gains, dividends)

Step 2: Estimate Your Total Annual Costs Create a budget with these categories:

• Housing (mortgage/rent + property tax + insurance)
• Healthcare (Medicare premiums + supplemental insurance + out-of-pocket)
• Transportation (car + gas + insurance + public transit)
• Food (groceries + dining out)
• Utilities (electricity + gas + water + internet)
• Entertainment and travel

Step 3: Score Quality of Life Factors Weight these by importance to you:

• Climate (average temperature, humidity, natural disaster risk)
• Healthcare access (hospitals per capita, specialists within 30 minutes)
• Social opportunities (senior centers, clubs, volunteer options)
• Crime rate (violent + property crime per 100,000 residents)
• Distance to family (miles to children/grandchildren)

Step 4: Test Before Moving Rent for 3-6 months before buying. Track actual expenses vs. estimates. Visit during the worst season (hottest month for Arizona, coldest for Minnesota).

Actionable Steps:

1. Download SmartAsset's Retirement Tax Calculator
2. Create a spreadsheet with 5 candidate states and your weighted scores
3. Book a 2-week vacation rental in your top state during its least desirable season

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Frequently Asked Questions

1. What states have no income tax on Social Security in 2025?

As of 2025, 38 states do not tax Social Security benefits. The 12 states that still tax Social Security are: Colorado, Connecticut, Kansas, Minnesota, Missouri, Montana, Nebraska, New Mexico, Rhode Island, Utah, Vermont, and West Virginia. However, most of these states offer exemptions based on income level. For example, Colorado exempts Social Security for those under $75,000 AGI.

2. Is Florida or Texas better for retirement taxes?

Florida has slightly lower property taxes (0.89% vs. 1.74%) but higher homeowners insurance ($3,600 vs. $2,800 average). Texas has no state income tax but property taxes are nearly double. For a retiree with a $350,000 home and $60,000 income, Florida saves about $1,200/year more than Texas, but Texas has lower median home prices ($340,000 vs. $392,000).

3. What is the cheapest state to retire in 2025?

Mississippi has the lowest cost of living index at 82.3 (17.7% below national average), with median home prices of $195,000. However, it ranks 48th in healthcare quality and has limited access to specialists. For healthcare-conscious retirees, Alabama (88.1 index, $210,000 median home) offers better value with lower property taxes (0.41%) and warmer climate.

4. How much does property tax relief help retirees?

47 states offer some form of property tax relief for seniors, including homestead exemptions, tax freezes, or circuit breaker credits. Florida's homestead exemption can reduce taxable value by up to $50,000. California's Proposition 19 allows seniors to transfer their low tax basis to a new home. Typical savings range from $300 to $2,500 annually depending on the state and home value.

5. Should I consider moving to a state with no income tax but high sales tax?

Yes, if you're a low spender. Sales tax only applies to what you buy, while income tax applies to all your income. If your annual spending is under $50,000 and your retirement income is over $60,000, a no-income-tax state with high sales tax (like Tennessee at 9.55%) likely saves you money. Use this formula: Annual spending × sales tax rate vs. taxable income × income tax rate.

6. What states have the best healthcare for retirees?

Minnesota ranks #1 in healthcare quality (Commonwealth Fund, 2024), with 3.5 hospital beds per 1,000 residents and 85% of adults living within 30 minutes of a hospital. Massachusetts and Hawaii follow. However, these states have higher costs of living (97.5, 129.8, and 192.0 respectively). For balance, North Carolina (cost index 93.2, healthcare rank 18) offers good value.

7. How do I estimate my total retirement costs in a new state?

Use the EPI Family Budget Calculator for a baseline, then adjust for retirement. Add: Medicare premiums ($1,949/year Part B in 2025), supplemental insurance ($2,000-$4,000/year), property tax (home value × state rate), and homeowners insurance (get quotes). Subtract: work-related expenses (commuting, work clothes) and retirement savings contributions.

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Disclaimer: This article is for educational purposes only and does not constitute financial, tax, or legal advice. Tax laws change frequently, and state-specific rules vary. Consult a licensed tax professional or financial advisor before making relocation decisions. All data is based on publicly available sources as of January 2025 and may have changed since publication. The author is not affiliated with any state government agency or real estate brokerage.

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Interested in more retirement planning resources? Check out our guides on Social Security claiming strategies, Medicare enrollment mistakes to avoid, and Retirement withdrawal order rules.