With the baby boom generation entering retirement by the thousands each day, many are considering not only how to spend their golden years, but where.
It may be no surprise that Florida is maintaining its hold as a retirement destination. Not only does the state offer favorable tax treatment for retirement income, but weather and a high concentration of other seniors appeal to many who are hitting their retirement years. In 2014, Florida's The Villages retirement community saw its population rise more quickly than other census area in the U.S.
Moving isn't an easy task, however, and many other factors come into play besides taxes, ranging from weather to the quality of local health care. More Americans are also realizing the importance of having family or friends nearby in case of a health emergency, with ailments more likely to crop up as people age.
About half of nonretired adults said they would consider moving to another city or state when they retire, although the least likely group to say they would be willing to move are the Silent Generation, whose oldest members are in their early 90s, according to a new Bankrate.com survey.
"There are a lot of factors to consider when determining where you want to live in your retirement years," said Rocky Mengle, senior state tax analyst at Wolters Kluwer Tax & Accounting. "Proximity to friends and family, weather, access to decent health care. But I would advise people to look at the state tax liability. It can be an important factor, especially if someone is living on a fixed income and has to stretch their dollars."
So what does it mean to be a tax-friendly state for retirees? These are states that exclude both Social Security income and pension income from taxation. To be sure, other taxes can make a dent in one's finances, including the estate tax and sales tax. Retirees who rely on income from other sources, such as real estate, may be taxed at higher rates.
Social Security is a major source of income for six of 10 retirees, according to a 2016 Gallup poll. Almost four of 10 said traditional pension plans provide a major source of income in their retirements. Those two sources were cited as the most important to retirees, Gallup found.
Only 13 states tax Social Security income, according to Wolters Kluwer. They are: Colorado, Connecticut, Kansas, Minnesota, Missouri, Montana, Nebraska, New Mexico, North Dakota, Rhode Island, Utah, Vermont and West Virginia
Read on to learn more about the states with the most favorable tax treatment for Social Security and pension income.