Did you know that 41 states currently don’t tax Social Security benefits? Soon, Missouri and Nebraska will join them in 2024. This makes retirement planning quite enticing in states that boast great weather, delicious food, and stunning views.
For retirees, taxes and rising healthcare costs can eat up a large portion of their expenses. Given that we’ve already contributed taxes during our work years, it feels unfair to pay taxes again on Social Security income during retirement. Many of us would prefer not to let the government dip into our pockets more than necessary when we retire.
Most states, including Washington, D.C., will not tax Social Security benefits starting in 2024. This list includes places from Alabama to Wyoming, and even includes bustling urban centers like Washington, D.C.
Interestingly, back in 2021, only 37 states refrained from taxing Social Security. It’s good to see this number increasing as time goes on. For instance, while Michigan started taxing Social Security benefits in 2021, it also introduced a $40,000 additional exemption for senior couples.
If Social Security is your primary income source, retiring in a state that doesn’t tax these benefits makes sense. Why live in states like Utah or Rhode Island that still tax Social Security when you could move to tax-friendly states like Florida, Hawaii, or California? The ease of modern communication means staying in touch with family and friends back home is just a video call away.
Besides the tax benefits, states like California, Hawaii, and Florida offer great climates year-round. Plus, no sales tax in Oregon makes it another attractive option.
Social Security remains a crucial topic for those under 40, many of whom are skeptical about its future viability. They worry that it might not even exist by the time they retire, due to government reductions or because they might not live long enough to collect it.
Lowering living expenses could allow you to live solely on Social Security benefits in retirement. Imagine a life with no debts, where your expenses are just food, entertainment, and some taxes, and if your income is low enough, you might qualify for Medicare or Medicaid too.
Now, consider if you had saved in a 401k or made regular investments over the years—your retirement could be quite comfortable, perhaps even on a beach in a beautiful state.
Investing in real estate in states that don’t tax Social Security benefits can also be a wise financial move. With remote work becoming more common, many are moving to states with lower taxes, enhancing their investment potential.
To leverage these opportunities, you might consider platforms like Fundrise, which invests in real estate in areas with high potential for growth and reasonable costs, like the Sunbelt region.
Managing your investments wisely and performing due diligence on potential real estate investments are crucial steps in building and maintaining wealth throughout retirement. Remember to check the track records and management quality of any investment before committing your funds.
Empower, a wealth management tool, can be extremely useful in tracking your finances and planning for retirement. Their Retirement Planning calculator, using real data and Monte Carlo simulation algorithms, can provide a clear picture of your financial future. Always make sure to run your numbers to see how well you’re set up for the years ahead.
So, considering all these factors, deciding where to live in retirement isn’t just about finding the cheapest state—it’s about balancing costs, quality of life, and financial benefits to find the best place for your golden years.
