Planning for retirement means having to make a number of key decisions. Will you work part-time? Will you downsize your home? And what state will you end up calling home?

The latter choice might hinge on a number of factors ranging from climate to amenities to proximity to family. And cost of living should help drive that decision, too.

Many people enter retirement with little in the way of savings and wind up relying heavily on Social Security to pay their bills. But some seniors are surprised to learn that not all states treat Social Security the same way. And you may lose a chunk of your benefits depending on where you decide to settle down.

Social Security cards

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Some states tax Social Security

Whether or not you'll pay taxes on your Social Security benefits at the federal level will depend on what your retirement income looks like. For those living solely or mostly on Social Security, taxes on benefits are often avoidable. But once your income increases, so too do your chances of seeing a portion of your benefits taxed.

But in addition to federal taxes on benefits, there are some states that impose their own tax on Social Security. Here are the 13 states that uphold that practice:

  • Colorado
  • Connecticut
  • Kansas
  • Minnesota
  • Missouri
  • Montana
  • Nebraska
  • New Mexico
  • North Dakota
  • Rhode Island
  • Utah
  • Vermont
  • West Virginia

So does this mean that you should automatically avoid living in one of these states for retirement? Not necessarily.

First of all, some of these states offer a relatively low cost of living. And so while you may risk losing some of your Social Security income to state taxes, you might also benefit in the form of lower housing costs, utilities, and other essential expenses.

Furthermore, most of the above states offer some type of exemption on Social Security taxes for low to moderate earners. And so if you don't have all that much income outside of your Social Security benefits, you may get to keep them in full even if you decide to settle down in one of these 13 states.

Now if you are expecting a higher retirement income and want to avoid the above states at all costs to prevent your benefits from being taxed, don't just rush to move elsewhere. Instead, look at the big picture.

Not only may the cost of living be higher in the remaining 37 U.S. states, but it's important to see what different states' income taxes look like. And also, assess your overall tax situation. If you have your retirement savings in a traditional IRA or 401(k), that means your withdrawals be subject to taxes once you start taking them. And so moving to a state that doesn't have an income tax at all could make sense.

Plan carefully

While there's no need to write off the 13 states that impose taxes on Social Security, it's important to be aware of those policies before choosing a place to call home for retirement. Once you stop collecting a paycheck from work, you'll need to be very careful about managing your money, and the more tax-aware you are, the less financial stress you're apt to encounter.