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Insurable Interests

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Insurable Interests

Vol. 12, Issue 3November 2016

FINANCIAL INTERESTS

Worst States for Retirees

There are many things you probably think about when you consider where you might want to spend your retirement: climate, activities, proximity to friends and family. But one of the most important is probably how financially friendly a state is.

According to Kiplinger’s, these are the 10 least friendly states for retirees. The selection is based on cost of living, cost of health care, household income, the economic health of the state and taxes on retirement income. The 10 states are:

10. Wisconsin. The cost of living is 10 percent above the national average, and the average income for households 65 and over is only $37,673. A retired couple can expect to pay $387,705 for health care through their retirement, which is about average for the country. Although Social Security is not subject to state taxes, most other retirement income is.

9. Vermont. The cost of living is 19 percent above the national average, and the average income for 65-plus households is $42,599. The Green Mountain State is very tax-unfriendly to retirees: Social Security benefits and other retirement income are subject to state tax rates, which top out at 8.95 percent.

8. Montana. Health care costs are below average, but the average income for households 65 and over is the lowest in the country, at $36,933. Kiplinger calls Montana one of the 10 worst states for taxes on retirees: Most retirement income is taxed, and the top state tax rate of 6.9 percent applies to taxable income over $17,000.

7. Rhode Island. The beaches of tiny Rhode Island come at a high price. The cost of living is 13 percent above the national average, though incomes are above average at $55,802. Rhode Island is among the 10 least-friendly tax states for retirees, and it has a sales tax of 7 percent.

6. Massachusetts. The cost of living is 17 percent above the national average, and Massachusetts retirees pay the second-highest health care costs in the country: an average $413,007 per couple throughout their retirement. Social Security benefits are not taxed, but most other retirement income is, at a flat rate of 5.1 percent.

5. Illinois. Although the cost of living and health care are relatively low, the biggest issue in the Land of Lincoln is the dismal financial health of the state itself – the worst in the country. Sales taxes are high – above 10 percent in some areas. And although the state currently does not tax several kinds of retirement income, it is considering tax changes and increases to raise money for state coffers.

4. Connecticut. The cost of living is a whopping 29 percent above average. Household incomes are also higher than average, but so are health care costs. Real estate taxes are the second-highest in the country, and overall the state is among the least tax-friendly for retirees. In addition, Connecticut ranks 47 out of 50 states in financial soundness, which makes tax cuts unlikely.

3. California. All retirement income other than Social Security is fully taxed, and California has the highest state income tax rates in the country, topping out at 13.3 percent. Sales taxes are also high. And the cost of living is 15 percent above the national average.

2. New Jersey. The state suffers from a double whammy of a high cost of living – 22 percent above the national average – and high taxes. New Jersey has the second-highest combined state and local tax burden in the nation, and it also has an estate tax, although there are exemptions. It also has the second-worst fiscal health of any state, behind only Illinois, which suggests the taxes are unlikely to go down.

1. New York. The cost of living in the state overall is 29 percent above average, and in Manhattan it is 127.4 percent above the average. The poverty rate for those 65 and over is 11.4 percent, much higher than the 9.4 percent national rate. And to top it off, Kiplinger ranks the Empire State among the least tax-friendly states for retirees.

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