15 States That Are Most Expensive for Early Retirees

The cost of living in some states can be significantly higher than in others. While this does not necessarily make them unsuitable places to live, it can make covering your expenses more challenging, especially if you are planning to retire early. Knowing what to expect and preparing for these costs in advance can help you avoid any unpleasant surprises.

A financial advisor can help you understand the expenses associated with certain states, making it easier to plan for early retirement. This article will also explore the most expensive states for early retirees in the country.  

What are the most expensive states to retire in?

1. New York  

New York is one of the most expensive states for early retirement. While it offers an exciting lifestyle and access to some of the best cultural and recreational activities in the world, the high cost of living and taxes can be a major concern for those on a fixed retirement income.

New York's tax structure can significantly impact your retirement savings. If you have a private retirement plan like a 401(k) or an Individual Retirement Account (IRA), anything over $20,000 is subject to state income tax. The tax rates range from 4% to 10.9%, which can take a substantial bite out of your retirement income. On the bright side, Social Security benefits and Railroad Retirement benefits are exempt from state taxes in New York. However, the tax rates remain steep compared to other states. Another factor to consider is New York’s estate tax, which applies to estates valued at over $6.58 million. The tax rate can range from 3.06% to 16%. The state also has a cliff tax provision that is imposed if your estate exceeds the exemption limit by more than 5%. In this case, your entire estate becomes taxable. This could significantly impact the value of the estate you leave behind for your heirs. However, unlike some states, New York does not impose an inheritance tax, which can be a relief for your family members.

It is important to note that property taxes in New York are among the highest in the country, with the average annual bill being around $5,844. In fact, the state and local governments collected about $3,359 per capita in property taxes in 2022, which is one of the highest in the U.S.

For retirees who prefer renting, New York City’s rental market is also notorious for its high costs. The median price for a one-bedroom apartment is as high as $4,500 a month, making it the most expensive city in the U.S. to rent and the third-most expensive in the world. While the city offers incredible amenities, like world-class museums, art galleries, restaurants, etc., these high costs could be a deal-breaker for many retirees. Despite the high costs, New York offers some resources that can help retirees. There are over 300 older adult care centers across New York City, and many of them provide free memberships to New Yorkers aged 60 and older.

If you plan to retire in New York and live to 80, you will need approximately $1,826,424 in savings if you are relying on Social Security. If you live to 90, this number increases to a staggering $2,425,900 with Social Security and $2,472,561 without it.

2. New Jersey

New Jersey’s individual income tax rates range from 1.4% to 10.75%, which can significantly impact your retirement income, depending on the income bracket you fall into. While New Jersey does not tax Social Security benefits, it does impose taxes on other types of retirement income, such as pensions, annuities, IRAs, and 401(k) distributions. However, there is some relief for retirees aged 62 or older. If your Adjusted Gross Income (AGI) is below $150,000, you can qualify for exclusions on a portion of your income from these sources. The maximum exclusion amounts can vary based on your filing status. For instance, married couples filing jointly can get more relief than single filers.

One of the most significant financial burdens in New Jersey is the cost of property taxes. The average annual property tax bill in the state is a whopping $8,797, the highest in the country. The state sales tax in New Jersey is 6.625%, which is relatively moderate compared to other high-cost states. However, luxury items may be subject to higher rates. New Jersey also used to impose both an inheritance tax and an estate tax, but as of 2018, the state no longer imposes an estate tax. Still, the inheritance tax remains for beneficiaries who are not closely related to the deceased. Additionally, the tax rate ranges from 11% to 16% for inheritances over $500.

Planning for retirement in New Jersey requires more savings than in many other states. If you plan to live to 80, you will require $2,025,698 in savings if Social Security benefits are factored in. If you expect to live to 90, this number rises to $2,691,599 with Social Security benefits and $2,738,260 without it.  

3. Connecticut

Connecticut is another state that ranks high in terms of the cost of retirement. In fact, Bridgeport, Connecticut, is among the least affordable cities in the country. Connecticut has a relatively high individual income tax rate, ranging from 2.0% to 6.99%. This state taxes many forms of retirement income, including pensions and Social Security benefits, depending on your income level. For most retirees, there are a few exemptions or tax credits available for retirement income. The state does, however, offer full exemptions for Railroad Retirement benefits and military pensions.

For those with a federal AGI below $75,000 or $100,000 for married couples filing jointly, Connecticut allows a 100% tax deduction on Social Security benefits and a percentage of other retirement income. However, as your income increases, the deduction will decrease. For instance, single filers earning between $80,000 and $82,499 and married couples earning between $110,000 and $114,999 see the deduction drop to 55%. Once your income surpasses these thresholds, you may be liable for taxes on up to 25% of your Social Security income. This makes Connecticut a challenging state for those with mid-to-high retirement incomes as they would be taxed on a significant portion of their savings.

Property taxes in Connecticut are a significant burden. In 2022, the state collected about $3,292 per capita in property taxes, making it the fourth highest in the nation. The average annual tax bill in Connecticut is even higher, reaching $6,153. The state sales tax in Connecticut is 6.35%, but certain luxury items are taxed at a higher rate of 7.75%. While this may not impact your day-to-day expenses dramatically, it is an important factor that can contribute to the overall high cost of living in the state, particularly for those who would like to live lavishly during retirement.

Connecticut is the only state in the U.S. to charge a gift tax on assets that residents give away during their lifetime. The gift tax and estate tax both have an exemption of up to $12.92 million. Anything below this amount is not subject to tax. The estate tax rate is 12%, and the amount owed is capped at $15 million. For retirees with significant wealth, the gift tax makes it harder to plan your estate transfer. While many states allow you to transfer assets tax-free during your lifetime, Connecticut will tax these gifts if they exceed the exemption threshold. Given the high cost of living and taxes, planning for retirement in Connecticut requires careful financial preparation.

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4. California

California is also among some of the most expensive states for early retirement. California’s state income tax is one of the highest in the nation, ranging from 1% to 13.3%, depending on your income bracket. While the state does offer exemptions for Social Security and Railroad Retirement benefits, all other retirement income, including pensions, 401(k) distributions, and IRAs, is fully taxed. The state's high sales tax, which stands at 7.25%, further adds to the financial burden. In certain cities and counties, combined sales tax rates can go as high as 8.85%. While California’s property tax collections, averaging around $2,100 per capita, are not the highest in the country, the actual cost of owning property in California can be extremely high due to its astronomical real estate prices. Cities like San Francisco, Santa Rosa, and Fremont are among the least affordable for retirees in the U.S.

To retire comfortably in California, you will need to plan for a significant financial cushion. If you plan to live to age 80, it is estimated that you would need around $2,709,302 with Social Security benefits factored in. If you expect to live to 90, this amount jumps to $3,603,070 with Social Security and an even higher $3,649,731 without it. California has a lot to offer retirees. However, it also comes with a hefty price tag. So, you must weigh the pros and cons before deciding.

5. Vermont

When it comes to retirement, Vermont can pose significant financial challenges. Vermont ranks ninth in the nation for the highest cost of living. The state’s affordability rank is 42, so you may find it difficult to cover your expenses comfortably. Vermont's average combined state and local sales tax stands at 6.36%, with the state sales tax set at 6.0%. This, combined with high property tax collections averaging around $2,991 per capita, which is the fifth highest in the country, can significantly impact your retirement budget.

The state taxes most forms of retirement income, including pensions, 401(k) withdrawals, and IRAs, at ordinary income tax rates that range from 3.35% to 8.75%. Unfortunately, even Social Security benefits are subject to taxation. Hence, up to 85% of your benefits can be taxed in alignment with federal tax rules. While Vermont does offer some relief for lower-income taxpayers, joint filers with a Federal Adjusted Gross Income (FAGI) of $65,000 or less and individual taxpayers with an FAGI below $45,000 are exempt from Social Security taxes. Railroad Retirement benefits are one exception, as they remain exempt from taxation.

In terms of estate planning, Vermont has a flat estate tax rate of 16%, which applies to estates exceeding $5 million. While the state does not impose an inheritance tax, the estate tax can be a concern for retirees looking to pass on their wealth to their loved ones. Fortunately, the state allows for certain tax deductions to help reduce the taxable value of an estate, including considerations for charitable contributions, debts, and administrative expenses.

Despite the financial challenges, Vermont has much to offer retirees. Though marked as some of the least affordable for retirees, cities like Burlington and South Burlington can offer a rich quality of life that many retirees may find attractive. Having said that, it is important to plan well if you wish to settle in Vermont, as the expenses can spiral out of your control and pose hurdles in your financial planning.

Other expensive states for retirees

Apart from these, some other expensive states for retirees include:

1. Nevada
2. Montana
3. Rhode Island
4. Alaska
5. Utah
6. Oregon
7. New Hampshire
8. Colorado
9. Washington
10. Hawaii

What state is best financially to retire to?

If you are only considering the financial impact of a state on your retirement income, you can consider the following options. These are some of the least expensive states to retire:

1. Mississippi
2. Oklahoma
3. Kansas
4. Alabama
5. West Virginia
6. Georgia
7. Missouri
8. Iowa
9. Arkansas
10. Tennessee

To conclude

It is important to note that apart from money, you must consider several other factors before selecting a place to settle down. Factors such as proximity to your family, climate, cultural offerings, and post-retirement work opportunities also play a significant role in your overall quality of life. These elements can greatly affect your decision and ensure you enjoy your retirement to the fullest. Additionally, you can also consult a financial advisor and get their opinion on where you might comfortably live, taking into account taxes, costs, and your savings.

Use the free advisor match tool to get matched with experienced financial advisors who can help understand the cost-of-living expenses in certain states and plan for retirement. Answer some simple questions about your financial needs and get matched with 2 to 3 advisors who can best fulfill your financial requirements.