Best States for Retirees 2026: Tax-Friendly Rankings

Where you retire can save or cost you tens of thousands of dollars every year. This guide ranks the most tax-friendly states for retirees in 2026, factoring in income tax, Social Security taxation, property tax exemptions, healthcare access, and overall cost of living.

The difference between retiring in a tax-friendly state versus a high-tax state on a $75,000 annual retirement income can exceed $5,000 per year. Over a 25-year retirement, that is $125,000 or more that either stays in your pocket or goes to state government. Use our income tax calculator to model your specific situation, but first, here is where each state stands.

The Top 10 Tax-Friendly States for Retirees in 2026

1. Florida

Florida remains the gold standard for retirement destinations, and the numbers back it up. No state income tax means zero tax on Social Security, pensions, 401(k) withdrawals, and investment income. The state relies on sales tax (6% base rate, up to 7.5% with local additions) and property taxes to fund services.

Beyond taxes, Florida offers a generous homestead exemption that reduces your property's assessed value by up to $50,000, plus a Save Our Homes cap that limits annual assessment increases to 3% or CPI, whichever is lower. For a retiree on $75,000 of income, the effective state tax rate is 0%.

The trade-offs: homeowner's insurance rates are among the highest in the nation (averaging $4,200/year in 2026), hurricane risk is real, and the cost of living in popular retirement areas like Naples or Sarasota has risen sharply. Still, the overall financial picture is hard to beat.

2. Wyoming

Wyoming charges no state income tax and no tax on retirement income of any kind. Property taxes are low, averaging 0.56% of assessed value. The state also has no estate or inheritance tax.

What makes Wyoming stand out is its combination of zero income tax with below-average property taxes and a very low cost of living outside of Jackson Hole. The sales tax is just 4%, among the lowest in the country. For outdoors-oriented retirees who can handle cold winters, Wyoming delivers exceptional value.

Healthcare access is the primary concern. Wyoming has limited hospital systems and specialist availability, particularly in rural areas. If you have complex medical needs, proximity to a major medical center should be a factor.

3. Nevada

No state income tax, no tax on Social Security or pensions, and a cost of living that is surprisingly reasonable outside of the Las Vegas Strip. Nevada's property taxes average 0.53%, among the lowest in the nation, and the state caps annual assessment increases at 3% for primary residences.

Las Vegas and Henderson have become major retirement hubs thanks to affordable housing (relative to California), excellent healthcare systems including the Cleveland Clinic Lou Ruvo Center, and no shortage of entertainment. The average home price in Henderson is around $430,000 as of early 2026, compared to $800,000+ in comparable Southern California communities.

4. Tennessee

Tennessee eliminated its income tax on investment income (the Hall Tax) completely in 2021, making it a true zero-income-tax state. Social Security, pensions, 401(k) distributions, and all other retirement income are completely untaxed at the state level.

The caveat: Tennessee has one of the highest combined sales tax rates in the country at 9.55% (7% state plus local additions averaging 2.55%). Groceries are taxed at 4%. Property taxes are moderate, averaging 0.62% of assessed value. For retirees who spend modestly and own their homes, the math still works out favorably.

Nashville and Chattanooga offer excellent healthcare systems, cultural amenities, and a lower cost of living than coastal cities. The state's climate is moderate with four distinct seasons.

5. South Dakota

South Dakota charges no state income tax and has relatively low property taxes (average effective rate of 1.08%). The state has no inheritance or estate tax. The overall cost of living is about 6% below the national average.

Sioux Falls has grown into a surprisingly vibrant mid-size city with Sanford Health providing strong medical infrastructure. Winters are harsh, but for retirees who prefer seasons and value their dollar stretching further, South Dakota is compelling.

6. Texas

No state income tax makes Texas attractive on paper, but the full picture is more nuanced. Texas compensates with property taxes that average 1.60% of assessed value, among the highest in the nation. On a $350,000 home, that translates to $5,600 per year.

However, Texas offers several property tax relief programs for retirees. Homeowners 65 and older get an additional $10,000 school district exemption on top of the standard $40,000 homestead exemption, plus a school tax ceiling that freezes your school district taxes once you turn 65. Some counties offer additional exemptions.

The San Antonio and Rio Grande Valley areas offer the best value for retirees, with affordable housing, mild winters, and established retirement communities. Houston and Dallas offer world-class medical centers (MD Anderson, Baylor Scott & White).

7. Alaska

Alaska has no state income tax and no state sales tax, making it unique on both fronts. The state also pays residents an annual Permanent Fund Dividend, which was approximately $1,700 per person in 2025. For a retired couple, that is over $3,400 in free money each year.

The downsides are significant: extremely high cost of living (groceries cost 30-40% more than the national average), brutal winters, limited healthcare access outside Anchorage, and seasonal darkness. Alaska works best for active, adventurous retirees with above-average savings who want unmatched natural beauty.

8. Washington

Washington has no traditional income tax, though it enacted a 7% capital gains tax on gains exceeding $250,000 annually starting in 2022. For most retirees, this threshold is irrelevant. Social Security, pensions, and 401(k) withdrawals are completely untaxed.

The sales tax is high (6.5% state plus local additions averaging 3%, totaling around 9.5%), and housing in the Seattle metro is expensive. However, areas like Sequim, Bellingham, and the Tri-Cities offer much more affordable living while retaining Washington's tax advantages.

9. New Hampshire

New Hampshire has no sales tax and no tax on earned income, Social Security, pensions, or retirement account withdrawals. The state previously taxed interest and dividend income at 5%, but this tax was fully phased out as of January 1, 2025. New Hampshire is now a true zero-income-tax state for retirees.

The significant caveat: property taxes are among the highest in the nation, averaging 1.86% of assessed value. On a $400,000 home, expect to pay roughly $7,440 per year. For retirees who rent or have modest homes, New Hampshire is excellent. For those with expensive properties, the property tax burden can offset the income tax savings.

10. The Surprise Pick: Iowa

Iowa is not on most "best states for retirees" lists, but it should be. As of 2026, Iowa has completed its income tax reform that phases down to a flat 3.9% rate. More importantly for retirees, Iowa exempts all retirement income from state tax for anyone 55 or older, including Social Security, pensions, 401(k) and IRA withdrawals, and annuity income.

Combined with a cost of living 12% below the national average, affordable housing (median home price around $210,000), excellent healthcare through the University of Iowa Health Care system, and a property tax credit program for seniors, Iowa offers outstanding overall value that many retirees overlook.

States That Do Not Tax Social Security Benefits (2026)

As of 2026, 38 states plus Washington D.C. do not tax Social Security benefits. This includes all nine states with no income tax (Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, Washington, Wyoming) plus 29 states that specifically exempt Social Security from their income tax.

The 12 states that still tax Social Security to some degree are: Colorado, Connecticut, Kansas, Minnesota, Missouri, Montana, Nebraska, New Mexico, Rhode Island, Utah, Vermont, and West Virginia. However, several of these offer significant exemptions based on income. For example, Connecticut only taxes Social Security for individuals with adjusted gross income above $75,000 ($100,000 for married filing jointly).

Use our Social Security optimizer to estimate your benefits and see how state taxation affects your take-home amount.

States That Do Not Tax Pension Income

Beyond the nine no-income-tax states, several additional states fully exempt pension income:

• Illinois: Exempts all retirement income including pensions, Social Security, and retirement account withdrawals. Combined with moderate property taxes and affordable downstate living, Illinois is underrated for retirees (though Chicago's property taxes are punishing).
• Mississippi: Exempts all qualified retirement income. Very low cost of living but lower rankings in healthcare quality.
• Pennsylvania: Exempts all retirement income for residents over 59.5, including pensions, Social Security, and retirement account withdrawals. The flat 3.07% income tax does not apply to retirement income.
• Iowa: As noted above, exempts all retirement income for those 55 and older.
• Hawaii: Exempts employer-funded pension income and Social Security. However, the high cost of living makes Hawaii impractical for most retirees.

Property Tax Considerations for Senior Retirees

Property tax is often the largest ongoing expense for retired homeowners, and many states offer significant relief programs that dramatically reduce the burden.

Best Senior Property Tax Programs

• Texas: School tax freeze at 65, plus additional $10,000 exemption and optional tax deferral until the home is sold.
• Florida: $50,000 homestead exemption plus the Save Our Homes 3% annual cap on assessment increases.
• South Carolina: No property tax on the first $50,000 of fair market value for homeowners 65+ (effectively eliminates property tax on homes worth under $250,000 in many counties).
• Georgia: Multiple exemptions for seniors 62+ and 65+, with some counties offering full school tax exemptions for seniors with income below $10,000.
• Alabama: Complete property tax exemption for homeowners 65+ with income below $12,000 (the threshold is surprisingly generous because it excludes Social Security from the calculation).

State-by-State Comparison: Effective Tax Rate on $75,000 Retirement Income

The following comparison assumes a retiree with $75,000 total income composed of $25,000 Social Security, $25,000 pension, and $25,000 from IRA/401(k) withdrawals, living in a $350,000 home.

*After senior homestead exemption. **Income tax is $0 due to retirement income exemption; the flat rate would otherwise apply. Effective rate includes property tax as a percentage of $75K income. Estimates based on 2026 rates and typical senior exemptions.

The 5 Worst States for Retirees (Tax-Wise)

On the other end of the spectrum, these states impose the heaviest tax burdens on retirees:

1. California

California's progressive income tax tops out at 13.3%, the highest in the nation. While Social Security is exempt, all pension income, IRA withdrawals, and 401(k) distributions are taxed as ordinary income. A retiree with $75,000 in taxable retirement income would pay approximately $2,500-$3,500 in state income tax, depending on filing status and deductions.

2. Minnesota

Minnesota taxes Social Security benefits (with partial exemptions phasing in), pensions, and retirement account withdrawals. The top marginal rate is 9.85%. Property taxes average 1.02%. A retiree on $75,000 faces an effective combined rate of approximately 10-12%.

3. Vermont

Vermont taxes Social Security (above certain thresholds), all retirement income, and has a top rate of 8.75%. Property taxes are high (average 1.73%). Beautiful state, expensive for retirees.

4. Connecticut

Connecticut taxes Social Security for higher-income retirees, has a top income tax rate of 6.99%, and property taxes average 1.96%. The combined burden on a $75,000 retirement income can exceed 12%.

5. New York

While New York exempts Social Security and the first $20,000 of pension income for residents 59.5+, the top income tax rate of 10.9% (plus NYC's additional 3.876% for city residents) and high property taxes make it one of the most expensive states for retirees. The cost of living in the New York metro area compounds the challenge.

Beyond Taxes: Other Critical Factors

Healthcare Access and Quality

Tax savings mean little if you cannot access quality healthcare. States like Minnesota, Massachusetts, and Connecticut rank among the best for healthcare quality despite their higher tax burdens. Meanwhile, some tax-friendly states like Mississippi, Alaska, and parts of rural Texas have significant healthcare access challenges.

Consider proximity to Medicare-accepting physicians, hospital quality ratings, and availability of specialists relevant to your health conditions. Use our retirement savings calculator to factor healthcare costs into your retirement budget.

Cost of Living

A state with no income tax but a high cost of living can leave you worse off than a state with moderate taxes and low living costs. Use our cost of living comparison calculator to compare specific cities side by side.

For example, retiring to Jacksonville, Florida (no income tax, cost of living index 95) may leave you better off than retiring to Reno, Nevada (no income tax, cost of living index 107), even though both states have zero income tax. The 12-point difference in cost of living translates to roughly $6,000-$8,000 per year in actual spending.

Climate and Natural Disaster Risk

Tax-friendly Florida has significant hurricane and flood risk. Texas faces hurricanes along the coast and extreme heat. Alaska and Wyoming have brutal winters. Nevada and Arizona have extreme summer heat and increasing wildfire risk. Factor insurance costs and personal comfort into your decision.

Crime and Safety

Crime rates vary enormously within states. A state's overall crime ranking is less useful than looking at specific cities and neighborhoods. Generally, suburban and smaller-city areas in tax-friendly states (Henderson, NV; Sarasota, FL; Sioux Falls, SD) offer both low taxes and above-average safety.

How to Make Your Decision

Choosing a retirement state is not just about minimizing taxes. Here is a practical framework:

1. Calculate your actual tax burden. Use our income tax calculator to model your specific retirement income across 2-3 candidate states. The difference may be smaller or larger than you expect.
2. Factor in property taxes and cost of living. A $0 income tax bill means less if property taxes add $6,000+.
3. Evaluate healthcare access. Visit potential retirement cities and check provider availability for your specific needs.
4. Consider proximity to family. The best tax deal in the world is not worth it if you are isolated from the people you love.
5. Try before you commit. Rent for 6-12 months in your target state before selling your current home and buying.

Federal Taxes Apply Everywhere

Remember that federal income tax on Social Security benefits, pensions, and retirement withdrawals applies regardless of where you live. Up to 85% of Social Security benefits may be federally taxable depending on your combined income. State tax optimization is valuable, but federal tax planning through strategies like Roth conversions, strategic withdrawal ordering, and managing provisional income can save even more.

Plan Your Tax-Optimized Retirement

The right state for your retirement depends on your complete financial picture. Start by modeling your retirement income and tax burden with our free calculators:

• Income Tax Calculator to estimate your state and federal tax burden
• Social Security Optimizer to maximize your benefits and plan around taxation
• Retirement Savings Calculator to project your total retirement income
• Cost of Living Comparison to compare specific cities head to head

Where you live in retirement is one of the most impactful financial decisions you may ever make. Take the time to run the numbers for your specific situation before committing.