The Best States to Retire for FERS Retirees in 2024: A Comprehensive Guide
Retirement is an exciting phase of life, and for employees under the Federal Employees Retirement System (FERS), choosing the right state to retire in can significantly impact their financial well-being and overall quality of life. In 2023, it’s crucial to consider states that offer favorable tax policies, a reasonable cost of living, and a comfortable environment for retirees.
When it comes to determining factors, the states on our list classify as very tax-friendly for seniors and FERS retirees. Other factors that come into play include access to healthcare, median housing costs, the cost of living across multiple categories, entertainment, and cultural activities, and the availability of leisurely outdoor pursuits. We’ve done the research, analyzed the data, and compiled a list of the best states for FERS retirees to consider for their golden years.
1. Mississippi – Tax-Friendly and Affordable
Mississippi is often overlooked as a retirement destination but offers significant advantages. With no state income tax on retirement income and one of the country’s lowest living costs, Mississippi can stretch your retirement dollars.
The Magnolia State exempts all forms of retirement income from taxation, including Social Security benefits, IRA, 401(k), and pension income. Mississippi also has low property and sales taxes and no estate or inheritance tax. Even federally taxed Social Security income is exempt from state tax in Mississippi.
Property taxes in Mississippi are very low, at 0.75%. Those over 65 years old are also eligible for exemption. The average home in Mississippi is valued at $176,655 in 2023, far lower than the national median of $349,329.
Additional Factors to Consider
It’s important to note that while Mississippi has a relatively low crime rate (27th among U.S. states), certain cities have notably higher crime rates.
The state’s general sales tax rate is 7%, except in Jackson, the state capital, where an extra 1% tax is applied.
The cost of living in Mississippi is 16% below the national average, with housing expenses being 32% less and utility costs 9% lower.
2. South Dakota – Safety & Affordability
South Dakota is often hailed for its low taxes and affordable living. The state doesn’t tax Social Security benefits, and there’s no state income tax. The cost of living varies, but many retirees find it reasonable. South Dakota’s natural beauty and friendly communities are additional perks.
Additionally, the state boasts a slightly above-average property tax rate at 1.17% of assessed home value. South Dakota even permits individuals over 70 with qualifying income levels to defer property tax payments until their homes are sold, albeit with a 4% annual interest rate on the accrued taxes. The average home value in South Dakota in 2023 is $296,096, well below the national average.
Additional Factors to Consider
South Dakota ranks 10th lowest in total crime rate among all states
The state features a continental climate characterized by hot summers and cold winters. While milder temperatures can be enjoyed in the Black Hills region, it’s worth noting that this area is more prone to extreme weather events, such as severe thunderstorms and tornadoes.
South Dakota has countless natural attractions, including Badlands National Park, Mount Rushmore, The Corn Palace, and Custer State Park. South Dakota provides ample opportunities for retirees who relish outdoor activities and seek adventure.
3. Wyoming – Rock Bottom Property Taxes
Wyoming is an attractive choice due to its lack of state income tax and relatively low cost of living in many areas. The state’s vast open landscapes, national parks, and outdoor pursuits make it a haven for nature enthusiasts.
Wyoming is one of the most tax-friendly states outside of Alaska. It doesn’t have its own income tax, which means various retirement income sources are not taxed at the state level. The state also has a low average effective property tax rate of just 0.58%. In addition, the combined state and average combined state and local sales tax rate is 5.44%. Wyoming doesn’t impose estate or inheritance taxes either. Social Security retirement benefits remain untaxed, even at the federal level.
The average home value in Wyoming in 2023 is $338,857, just slightly below the national average. Retirees can find some rural locations that have home values much lower than Wyoming and the U.S. average, including:
Shoshoni, WY – $205,057
Riverton, WY – $246,698
Alcova, WY – $311,570
Additional Factors to Consider
Wyoming boasts a remarkably low sales tax rate of 5.44%, which combines the state rate and the average of local rates.
It ranks #44 in violent crime among all states
With its sparse population, Wyoming faces challenges in providing healthcare services in certain rural areas.
Over 50% of Wyoming comprises public land, including national parks, forests, monuments, and wildlife refuges, making it an ideal destination for outdoor enthusiasts passionate about activities like hiking, camping, and fishing.
4. Georgia – Taxation Benefits Below $65,000
Georgia is a tax-friendly choice for FERS retirees. Social Security benefits are untaxed, and the state has low-income tax rates. Georgia allows a retirement income deduction of $65,000 per person for retirees aged 65 and older. Those aged 62 to 64 have a deduction of $35,000. Any retirement income exceeding these limits will be combined with other sources and taxed at Georgia’s standard rates.
However, Georgia provides a homestead exemption to homeowners using a property as their primary residence. This exemption shields the initial $2,000 from property taxes, based on 40% of the assessed property value. Seniors aged 65 and above may qualify for a double homestead exemption.
The average home value in Georgia in 2023 is $319,330, above the national average. Although, Georgia has quite a few cities that come in well below the U.S. national average, including:
Jeffersonville, GA – $89,808
Dry Branch, GA – $87,306
Danville, GA – $60,056
Additional Factors to Consider:
Georgia is ranked #23 in terms of violent crime among all states.
Georgia’s diverse geography, moderate weather, and cultural diversity make it an appealing destination for retirees.
Georgia frequently contends with a range of natural calamities, such as hurricanes, tornadoes, severe storms, wildfires, and floods.
Georgia boasts an average combined state and local sales tax rate of 7.74%, slightly exceeding the national average.
5. Florida – Lower Taxation With Higher Costs
Florida is a top choice for FERS retirees due to its appealing features. It offers no state income tax, a reasonable cost of living, a warm climate, stunning beaches, and cultural attractions for an active lifestyle. In Florida, you won’t pay state income tax on wages or retirement income sources like Social Security benefits, pensions, 401(k)s, and IRAs.
While property taxes significantly contribute to local governments in Florida, the property tax rates are relatively moderate, with an average effective rate of 0.80%, just below the 2023 U.S. average of 1.11%.
The average home value in Florida is $390,052, slightly higher than the national average, making it a reasonable option for seniors, who often allocate the majority of their income to housing. Some more affordable areas in the state include:
Masaryktown, FL – $230,590
Spring Hill, FL – $306,634
Brooksville, FL – $307,363
Additional Factors to Consider
Florida’s cost of living exceeds the national average by a mere 1%. Housing is 4% higher than the U.S. national average, while utility costs only surpass it by 1%.
Florida ranks #48 in healthcare access and 24th in overall healthcare quality in the U.S.
Regarding violent crime rates, Florida ranks 25th in the nation as of 2023.
The state faces significant vulnerability and potential damage due to its susceptibility to hurricanes. Consequently, homeowners insurance can be quite costly due to the heightened risk involved.
6. Nevada – Potential Rural Savings
Nevada is famous for its entertainment hubs like Las Vegas and Reno and its lack of state income tax. The cost of living varies by area. Retirees enjoy a unique experience in Nevada with its stunning desert landscapes and recreational opportunities.
Nevada’s tax-friendly environment benefits retirees. The state has no income tax, so retirement income, including Social Security and withdrawals from retirement accounts, isn’t taxed. Property taxes are fairly low, with an average effective rate of just 0.53%, and the total combined sales tax rate can be up to 8.25%. Nevada doesn’t impose estate or inheritance taxes, and Social Security retirement benefits remain untaxed at the state level, even if they’re taxed federally.
The average home value in Nevada is $416,545, but there are a few rural locations with lower home costs, including:
Tonopah, NV – $139,968
Austin, NV – $83,653
Eureka, NV – $228,745
Additional Factors to Consider
Nevada ranks thirteenth in violent crime rates among states.
Healthcare access in Nevada has been rated at #44 in the U.S., and healthcare premiums remain fairly inexpensive compared to other states.
Honorable Mention – Alaska
Alaska is considered tax-friendly for FERS retirees but has costly caveats. It’s remote and potentially expensive to live there. While there is no state income tax, federal taxes on Social Security may apply. With high property tax and above-average home prices, Alaska may not be ideal for retirement. The cost of living in Alaska is notably higher than in the rest of the United States, with expenses like housing and utilities averaging over 30% more.
In addition, Alaska takes the title for the 2nd most dangerous state in the U.S. in 2023, boasting the highest rate of combined violent and property crimes compared to any other state.
Final Thoughts
FERS retirees have a variety of options when it comes to choosing a retirement destination. There are many factors to consider, including the cost of living and taxes. While this list of seven states may be the most tax-friendly for FERS retirees, they each come with their own set of pros and cons that should be weighed before making any major decisions. Ultimately, it is up to the individual to choose the state that best meets their unique needs.
Sources
Florida
Mississippi
Nevada
https://wisevoter.com/state-rankings/crime-rate-by-state/#nevada
https://www.usnews.com/news/best-states/rankings/health-care
