The cost of retirement by state varies more than most people expect: the average household headed by someone 65 or older spent about $61,432 in 2024,1Federal Reserve Bank of St. Louis. Total Average Annual Expenditures by Age: Age 65 or Over but a comfortable middle-class retirement runs $45,000 to $55,000 a year in parts of the Southeast and Midwest and $80,000 to $100,000 or more in Hawaii and California. Housing, state tax treatment of retirement income, healthcare premiums, and long-term care costs account for most of that spread. The same Social Security check and the same portfolio can last years longer in one state than another, which makes location one of the few retirement decisions that genuinely moves the numbers.
Housing and Daily Living
Housing is the biggest line item in most retiree budgets, and record numbers of Americans now spend more than 30 percent of their income on it. Inland and rural regions tend to offer substantially lower property values and rents than coastal metros, where demand keeps even modest homes at premium prices. For a retiree deciding whether to carry a mortgage, downsize, or rent, that one gap can reshape a 30-year plan.
Utilities track climate. States that need near-constant summer air conditioning or heavy winter heat push monthly energy bills well above the national average, and a retiree in the desert Southwest may pay roughly twice as much for July electricity as someone in the Pacific Northwest. Groceries and household staples also move by region: remote areas pay shipping premiums, dense urban centers pay the cost of high commercial rents, and states with strong local agriculture and competitive grocery markets tend to sit at or below the national average. No single one of these costs is huge on its own. Together they decide whether a fixed income covers daily life or leaves a shortfall every month.
State Income Tax on Retirement Income
State income tax policy creates some of the widest cost gaps in retirement. Nine states impose no personal income tax at all: Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, Washington, and Wyoming. A retiree in one of these keeps every dollar of pension income, 401(k) distributions, and IRA withdrawals without any state-level deduction. Of the remaining states, about a third use a flat rate and the rest use graduated brackets.
Social Security Benefits
Most states exempt Social Security entirely. Only nine states still taxed benefits as of 2026, and most of those offer partial or full exemptions below certain income thresholds. West Virginia completed a multi-year phase-out and fully exempted Social Security starting with 2026 returns. Colorado exempts the full benefit for residents 65 and older. Connecticut, Minnesota, Montana, New Mexico, Rhode Island, Utah, and Vermont each apply their own income tests, and many retirees in those states still owe little or nothing.
Unless you have substantial income beyond Social Security, the odds of paying state tax on your benefits are low even in states that technically allow it. Large 401(k) distributions or pension payments that push adjusted gross income past the exemption thresholds change the math.
401(k), IRA, and Pension Withdrawals
Traditional 401(k) and IRA withdrawals count as ordinary income in most states that levy an income tax. Some states let retirees subtract a fixed amount of pension or retirement account income from state taxable income, sometimes varying by age. Those exclusions can save hundreds or thousands a year, but they rarely eliminate the tax entirely for retirees with six-figure distributions. If minimizing state tax on withdrawals is the priority, the nine no-income-tax states are the cleanest answer.
Sales, Property, and Vehicle Taxes
States that skip income tax have to fund public services somehow, and they usually lean on consumption and property taxes instead. A no-income-tax state is not automatically cheaper once those are added in.
Sales Tax
Five states charge no statewide sales tax: Alaska, Delaware, Montana, New Hampshire, and Oregon. Elsewhere, state rates run from about 2.9 percent to 7.25 percent, and local add-ons push combined rates past 10 percent in some areas. The national population-weighted average is around 7.5 percent. For a retiree spending $30,000 a year on taxable goods and services, the difference between a 4 percent combined rate and a 10 percent one is roughly $1,800 a year.
Property Tax
Effective property tax rates on a primary residence range from well under 1 percent of home value in some states to nearly 2 percent or more in others. Many states offer targeted relief for older homeowners: homestead exemptions that reduce taxable value, circuit breaker credits that cap property taxes as a percentage of income for seniors meeting age and income rules, and assessment freezes that lock in taxable value once the owner reaches 65. Savings can run from a few hundred dollars to several thousand a year. Eligibility rules differ widely, and some programs require annual applications or phase out above income limits.
Vehicle Taxes
Some states charge an annual personal property tax on vehicles based on current value, which can run several hundred dollars a year on a newer car. Others charge only a flat registration fee. It’s easy to miss during planning, and it adds up across 20 or 30 years of retirement, especially for a two-car household.
Healthcare and Medicare Premiums
Medical expenses often become the fastest-growing cost category in retirement. Medicare provides a foundation but doesn’t cover everything, and roughly 80 percent of traditional Medicare enrollees carry some form of supplemental coverage.2Medicare. Compare Original Medicare and Medicare Advantage Medigap policies help pay coinsurance and deductibles under Original Medicare. Medicare Advantage plans bundle coverage through private insurers. Premiums for both vary significantly by state and even by county, driven by local market competition, provider costs, and state insurance regulations. Two retirees with identical health profiles can pay monthly premiums that differ by hundreds of dollars solely because of where they live.
IRMAA Surcharges for Higher Incomes
Higher-income retirees face an added federal cost that doesn’t depend on state. Medicare Part B and Part D both impose income-related monthly adjustment amounts (IRMAA) based on modified adjusted gross income from two years earlier. In 2026, the standard Part B premium is $202.90 per month, and individuals with income above $109,000 ($218,000 for joint filers) pay a Part B surcharge ranging from $81.20 to $487.00 on top of that.3Centers for Medicare & Medicaid Services. 2026 Medicare Parts A and B Premiums and Deductibles Part D carries separate surcharges on the same brackets, adding between $14.50 and $91.00 per month.4Medicare. 2026 Medicare Costs
A large Roth conversion or a lump-sum pension distribution can temporarily spike income above an IRMAA threshold and trigger surcharges two years later. Retirees in no-income-tax states save on the state side of that distribution but still face the federal IRMAA consequences.
Long-Term Care
Long-term care is the single biggest financial wildcard in retirement, and Medicare does not pay for it.5Medicare. Long-Term Care Most health insurance doesn’t either. About 14 percent of people who need long-term care will require more than two years of paid services, and the geographic cost differences are large.
According to the 2025 national cost-of-care survey, the median monthly cost for a private room in a nursing home is $10,798, roughly $130,000 a year. A semi-private room runs about $9,581 per month. Assisted living communities carry a national median of $6,200 per month, and non-medical in-home caregivers cost a median of $35 per hour.6CareScout. Cost of Long Term Care by State – Cost of Care Report In high-cost states, you can add 30 to 50 percent to those figures. In lower-cost regions, you might pay 20 to 30 percent less.
A retiree who can self-fund two years of assisted living at $5,000 per month in one state would burn through the same money in barely over a year at $8,000 per month somewhere else. Long-term care insurance can offset some of this exposure, but premiums have risen sharply in recent years and fewer insurers offer the policies than a decade ago.
State Estate and Inheritance Taxes
Most retirees won’t owe federal estate tax. The basic exclusion amount for 2026 is $15,000,000 per person after July 2025 legislation made the higher exemption permanent, and married couples can effectively shelter up to $30 million with proper planning.7Internal Revenue Service. What’s New – Estate and Gift Tax
State-level estate and inheritance taxes are a different story. More than a dozen states impose their own death taxes, and many set exemption thresholds far below the federal level. Oregon’s estate tax kicks in at just $1,000,000. Washington’s threshold is roughly $2.2 million. Connecticut aligns more closely with the federal exemption at about $13.6 million. Iowa, Kentucky, Nebraska, New Jersey, and Pennsylvania impose inheritance taxes, which the person receiving the assets pays rather than the estate. Inheritance tax rates and exemptions depend on the beneficiary’s relationship to the deceased: spouses and direct descendants often pay nothing, while more distant relatives or unrelated heirs face meaningful bills. If you have assets that might exceed your state’s threshold, where you establish legal residence has real consequences for your heirs.
What the Numbers Mean for Your Savings
The average Social Security retirement benefit in 2026 is about $2,071 per month, or roughly $24,850 a year.8Social Security Administration. 2026 Cost-of-Living Adjustment (COLA) Fact Sheet That covers somewhere between a quarter and half of typical retiree spending depending on the state. The rest has to come from savings, pensions, part-time work, or some combination.
Financial planners often stress-test plans against a 30-year horizon. At a 4 percent annual withdrawal rate, a retiree who needs $50,000 a year beyond Social Security requires roughly $1.25 million in savings. The same retiree needs only $625,000 if a lower-cost state cuts the annual gap to $25,000. Geographic choice won’t fix an underfunded retirement on its own. It is one of the few levers that can meaningfully extend the life of a portfolio without requiring you to earn more or spend less on the things you care about.