Planning your retirement is about more than just picking a spot with a nice view. It’s a math problem. With the Social Security Cost-of-Living Adjustment (COLA) projected at roughly 2.8% for 2026, many seniors are finding that inflation in high-cost states eats up that increase before it even hits their bank account.
You might have spent decades dreaming of a specific location, but if that state taxes your Social Security, levies massive property taxes, or has skyrocketing healthcare costs, your nest egg could disappear faster than you expect.
We’ve analyzed the data for 2025-2026 to identify the six states that pose the biggest financial risks to your retirement—and six smarter alternatives where your money will go further.
Quick Summary: What You’ll Learn
- The “Tax Traps”: Why states with “no income tax” (like Illinois) can still drain your savings.
- The 2026 Outlook: Current data on Social Security taxation and property tax rates.
- Better Options: Specific alternative states that offer tax breaks and lower costs without sacrificing lifestyle.
- The City Factor: Why where you live within a state matters just as much as the state itself.
The 6 Worst States for Retirement Finances
These states consistently rank at the bottom for affordability. While they offer culture, scenery, and amenities, you pay a premium for them.
1. New Jersey: The Property Tax Nightmare
New Jersey frequently tops the list of “states to flee,” and for one primary reason: property taxes. As of 2025, New Jersey has the highest effective property tax rate in the nation at approximately 2.23%. To put that in perspective, if you own a home valued at $500,000, you are paying over $11,000 a year just to live in it.
The “Zoom-In”: Towns in Essex and Bergen counties can see average tax bills exceeding $15,000 to $20,000 annually. While the state has introduced the “Stay NJ” program to offer relief to seniors, eligibility caps and rollout timelines can make it tricky to count on.
Why it’s hard for retirees: Even if you’ve paid off your mortgage, that monthly tax bill remains a significant fixed cost that rises with home values.
2. California: The Cost of Living King
California is beautiful, but it is brutally expensive. While the state does not tax Social Security benefits, it does fully tax income from 401(k)s, IRAs, and private pensions. Add to that some of the highest gas prices, utility rates, and housing costs in the country, and your purchasing power plummets.
The “Zoom-In”: In cities like San Francisco or Los Angeles, the cost of living is nearly double the national average. Even moving inland to “cheaper” areas like Bakersfield or Fresno comes with trade-offs in healthcare access and air quality.
Financial Reality: A nest egg of $1 million in California lasts roughly 13 years less than it would in a cheaper state like Mississippi or Kansas.
3. New York: Taxes on Top of Taxes
New York combines a high cost of living with a heavy tax burden. While the state offers a sliding-scale exemption for property taxes for some low-income seniors, the baseline costs are incredibly high. Sales tax in NYC is nearly 9%, and state income tax rates are progressive and steep.
What to watch out for: New York is aggressive about residency audits. If you try to claim you’ve moved to Florida but spend too much time in your NY apartment, the Department of Taxation and Finance may still tax you as a resident.
4. Illinois: The “No Income Tax” Trap
Here is a common misconception: “Illinois doesn’t tax retirement income, so it must be cheap!”
It is true that Illinois exempts Social Security, 401(k) distributions, and pension income from state taxes. However, the state makes up for it with the second-highest property taxes in the U.S. (hovering around 2.0%) and high sales taxes. The state’s fiscal health is also frequently cited as a long-term risk for public services.
The “Zoom-In”: Cook County (Chicago area) drives these costs, but even rural counties often have high property tax rates to fund local school districts.
5. Connecticut: Expensive, But Improving Slightly
Connecticut has historically been tough on retirees, taxing everything from real estate to income. For the 2025 tax year, the state is still expensive, though there is a bright spot: the state is phasing out taxes on retirement income. By 2026, many residents will see a 100% exemption on eligible pension and annuity income.
Why it’s still on the “Worst” list: Despite the income tax improvements, the cost of living remains roughly 20-30% above the national average, and estate taxes can still be a concern for wealthier retirees.
6. Vermont: The Social Security Taxer
While many states have stopped taxing Social Security, Vermont is one of the few that still does (above certain income thresholds). If your adjusted gross income is above the limit (approx. $50,000 for singles in recent years, though thresholds adjust), you pay state tax on your federal benefits.
Combined with harsh winters that can lead to high heating bills and a generally high cost of living, Vermont is financially challenging for retirees on a fixed income.
“Price is what you pay. Value is what you get.” — Warren Buffett.
When choosing a retirement state, ensure the high price tag actually delivers the value you need in healthcare and lifestyle.
The 6 Best Alternatives
If you want to keep more of your money, consider these states. They offer a mix of tax friendliness, lower costs, and solid healthcare.
1. Florida: The Classic (With a Caveat)
Why it works: No state income tax. No tax on Social Security, pensions, or IRA withdrawals.
The Trade-off: Homeowners insurance. Premiums in Florida have skyrocketed due to hurricane risks.
Strategy: To make Florida work, look at inland areas (like Ocala or Gainesville) where flood risk—and insurance premiums—are often lower than on the coast.
2. Delaware: The Northeast Haven
Why it works: If you want to stay near family in NY, NJ, or PA, Delaware is a fantastic financial shield. It has no sales tax and very low property taxes compared to its neighbors.
Tax Perk: Delaware exempts a significant portion of pension income for residents over 60.
3. Tennessee: The Low-Cost All-Star
Why it works: Tennessee has no state income tax (interest and dividends tax was fully repealed). Property taxes are incredibly low.
Lifestyle: You get four seasons (mild winters compared to the north) and great access to healthcare in hubs like Nashville.
Financial Win: Your dollar stretches significantly further here than in Illinois or California.
4. Wyoming: The Wealth Preserver
Why it works: Wyoming frequently ranks as the #1 tax-friendly state. No income tax, extremely low property taxes (approx. 0.55%), and very low sales tax.
The Vibe: It is rural and rugged. If you love the outdoors and independence, this is your spot.
Healthcare Note: Access to specialized healthcare can be tricky in very rural areas, so living near Cheyenne or Casper is wise.
5. Pennsylvania: The “Income-Free” Zone
Why it works: Pennsylvania is unique. It has a flat income tax rate, BUT it completely exempts almost all retirement income (Social Security, 401k, pensions) from tax.
The Advantage: You get the amenities of the East Coast without the income tax hit of New York or Connecticut. Property taxes can be high locally, so check the specific county.
6. Georgia: The Peach State Value
Why it works: Georgia offers a massive tax deduction for seniors. Residents aged 65+ can deduct up to $65,000 of retirement income per person (or $130,000 per couple) from state taxes.
Cost of Living: Housing prices in suburbs and rural areas remain affordable compared to the national median.
Comparison: Property Tax Impact on a $400,000 Home
To visualize the difference, here is what you might pay in annual property taxes on the same value home in 2025.
| State | Est. Rate | Annual Tax Bill |
|---|---|---|
| New Jersey (Worst) | 2.23% | $8,920 |
| Illinois (Worst) | 2.08% | $8,320 |
| Delaware (Best) | 0.56% | $2,240 |
| Tennessee (Best) | 0.64% | $2,560 |
Note: Rates are averages based on 2024-2025 data. Local county rates vary significantly.
What Can Go Wrong? (Common Mistakes)
Even in a “perfect” state, you can make expensive errors. Here is how to avoid them.
1. Ignoring the “Micro-Location”
Moving to a low-tax state like Nevada doesn’t help if you pick a neighborhood with massive HOA fees. In some retirement communities, HOA fees can equal a second property tax bill. Always ask for the last 3 years of HOA fee history before buying.
2. Forgetting About Healthcare Access
Rural Wyoming is cheap, but if you have a chronic condition requiring frequent specialist visits, the travel costs (and stress) will outweigh the tax savings. Use the Medicare.gov provider search tool to ensure doctors in your new area accept your insurance.
3. Overlooking Estate/Inheritance Taxes
Some states, like Pennsylvania, have an inheritance tax (ranging from 4.5% to 15% depending on the heir). If leaving a legacy is your primary goal, make sure you check the state’s rules on what happens to your assets after you pass.
When to Consult a Professional
Moving states is a major financial event. You should speak to a fee-only financial planner or tax professional if:
- You have significant assets in tax-deferred accounts (Traditional IRAs/401ks).
- You own a business or rental properties in your current state.
- You are moving specifically for tax reasons (to ensure you properly establish domicile).
Your Next Steps
Don’t let this list scare you—let it empower you. If you live in one of the “worst” states and love it, staying put might still be the right emotional choice. But you need to budget for it. If you are looking for a change, start by visiting one of the “best” alternatives during their worst weather season (e.g., August in Florida, February in Wyoming) to see if you can truly handle the lifestyle.
Check your specific numbers. Go to the IRS website or your state’s Department of Revenue page to verify the current tax brackets for 2025. Your retirement is yours to design—make sure the math works in your favor.
The information in this guide is meant for educational purposes. Your specific circumstances—including income, benefits, tax situation, and health needs—may require different approaches. When in doubt, consult a licensed financial advisor or tax professional.
Last updated: February 2026. Benefit amounts, tax rules, and program details change annually—verify current figures with official government sources.
