The Retirement Financial Anxiety Study conducted by the National Institute on Retirement Security in 2022 found a soaring rise of stress from the COVID-19 pandemic has led countless Americans to suspend their retirement savings completely, down to just 63% from a generous pre-pandemic figure of 93%. The shocking median amount saved by Americans for their sunsetting years lands at a meager $71,500. This validates the harsh reality that many Americans already recognize - the majority are not financially outfitted for retirement.
Those without enough funds to retire domestically may search for alternatives, such as relocating to a country with lower living costs and affordable healthcare. But, the all-important question remains - where should one retire?
In our quest to answer this question, we referenced data from Bankrate's "Best and Worst States to Retire" 2023 list and the state tax burden ranking for tax year 2022 supplied by The Tax Foundation, a private tax policy research entity. Our focus was on each state's cost of living and tax rate ranking. After a close examination of the 10 worst (read as most expensive) states in each category, we noticed six states that unfavourably feature in the top 10 of both categories, securing their spots as the most expensive overall retirement destinations. Continue reading to discover the offenders, listed from the priciest.
As per 2022 data, though New York does not possess the highest living costs in the U.S., its total 2022 tax burden of 15.9% eclipses the national average and is indeed the country's highest. The state in 2022 alone collected an unrivaled $3,407 per capita in state and local taxes, along with state and local governments collecting roughly $3,180 per capita in property taxes.
Connecticut, the nation's third most expensive state in terms of living costs, follows with a 2022 tax burden of 15.4%, making it the second highest nationwide. The state gathered $2,725 per capita in state and local taxes - property tax collections around $3,215 per capita.
California holds its place as the state with the second highest living cost and lands fifth on the tax-rate ladder. The individual income tax cap rate of 13.3% leads among states imposing an individual income tax. Its 2022 tax burden stands at 13.5%, collecting $2,411 per capita in state and local taxes.
New Jersey, with its fifth highest living cost and a 13.2% tax burden as of 2022, has collected $1,692 per capita in state and local taxes, while property taxes stand around $3,513 per person. Interestingly, up until 2018, New Jersey levied both an estate and an inheritance tax.
Located sixth in the high cost of living lineup and fourth for tax rate is Vermont. Its 2022 tax burden is 13.6%, and the taxes collected per capita for state and local taxes are $1,312 (standing 16th), with property tax collections around $2,928 per capita (fifth in the rank).
Finally, Maine ranks tenth in both the most expensive places to live and tax rates, with a tax load of 12.4% in 2022. State and local tax per capita collection stood at $1,199 (16th in the rank), complemented by property tax collections roughly at $2,772 per capita (sixth in the rank).
A smattering of states are making an attempt at making their tax systems appealing to retirees. Maine, for instance, increased the amount of pension income that's excluded from state taxes, and Nebraska is phasing out taxation of Social Security income. The 2022 federal exclusion for estate tax is $12.06 million, inflating to $12.92 million in 2023. Following this trend, both New York and Maryland plan to increase their exclusions incrementally to align with the federal amount.
When considering retirement spots, cost of living and tax rates come up as essential considerations, especially for those concerned about outliving their assets or hoping to bequeath substantial assets to their children. Non-financial factors like personal interests, health, comfort, closeness to loved ones and general conveniences should not be dismissed either. However, the choice of retirement destination, whether relocating domestically or to a foreign land or choosing to age in place, can influence your finances considerably.