Although everyone may walk a different path, ultimately the end goal for practically all of us is to retire comfortably, and on our own terms.
Of course, retiring comfortably and on a preset schedule is a lot easier to talk about than to actually make happen. Unexpected life events, such as having kids and starting a family, paying for college, or buying a home, can have a transformational impact on when you retire.
A majority of retirees do this
Another factor that can impact your retirement is where you retire. According to the latest Bankrate retirement survey, 60% of people will move once they retire. But, a good number of these retirees and pre-retirees don't consider the consequences of their move. Factors such as cost-of-living, taxes, and access to healthcare can drastically affect their wallet and potentially even their well-being. Understanding which states are the best, or worst, could be the difference between the retirement of your dreams and one that, for lack of a better word, isn't what you dreamed up.
Understanding which states are the best or worst states to retire in isn't a simple cut-and-dried practice. That's why we'll turn to Bankrate's study, "Best and Worst States to Retire," to examine the five worst states you can call home in your golden years.
But, before I list the five worst states it's important to understand what factors went into Bankrate's rankings.
What goes into ranking the best and worst states
Overall, Bankrate's 50-state ranking was based on six factors:
- Cost of living
- Crime rate
- Community well-being
- Healthcare quality
- Tax Rate
Some of these categories are probably self-explanatory. Lower tax rates, for instance, are beneficial for retirees as it could mean they get to keep more of their hard earned money. The same can be said for cost of living or the weather. Lower costs also allow retirees to keep more of their income, while nicer weather can simply be more enjoyable over the long haul.
Community well-being and healthcare quality are a bit more opaque. In the context of this study, "well-being" scores for seniors came from Gallup-Healthways and were determined by examining the happiness and overall satisfaction of seniors with their surroundings. The healthcare quality measure comes from the Agency for Healthcare Research and Quality, which measured around 160 different health-related issues in each state.
The end result is Bankrate's 50-state ranking.
The five worst states to retire in
Based on the aforementioned factors, Bankrate concluded that the worst states to retire in (i.e., those ranked 46th through 50th) are:
- 5th worst: Louisiana
- 4th worst: West Virginia
- 3rd worst: Alaska
- 2nd worst: New York
- The worst: Arkansas
New York, for example, ranked in the better half for crime rate (seriously!), but was in the bottom 20% in cost of living, community well-being, and dead last in tax rate. New York state has an income tax that ranges between 4%-8.82% depending upon a tax filers' annual income, as well as a sales tax rate of 4%, with local municipalities potentially charging even higher taxes. New York City has its own separate tax brackets. And don't even get me started on home prices in Manhattan or Long Island for that matter where I currently have family living. For retirees it means potentially eating through their nest egg faster than if they lived in any number of other states.
On the other hand, Alaska ranked as second-best in tax rate, and was in the middle of the pack for healthcare quality and community well-being. However, it ranks dead last for weather considering its cold extremes and how little sun you might see for months on end, second-worst in terms of cost of living since it's expensive to import goods and services into the sparsely populated state, and fifth-worst in crime rate.
West Virginia deserves a special place on this list as it's one of only 13 states to currently tax Social Security benefits. The minimum and maximum marginal tax rate ranges between 3%-6.5%, and while a little more than half of taxing states offer seniors some Social Security tax exemptions, West Virginia offers none.
The title, however, for America's worst state to retire in goes to Arkansas which ranked in the top 20% for cost of living, but found itself in the bottom-half of the list in the other five categories. Arkansas consistently ranked particularly poor on crime rate, community well-being, and healthcare quality, while scoring in the bottom half for tax rate and weather too.
Things to consider as you prepare to retire
Do Bankrate's rankings mean these five states should absolutely be crossed off your list of places to consider living? That may be a bit harsh if you've got more than enough saved up in your retirement account or if you're moving to one of these states for very specific reasons, such as to be near family or friends.
However, Bankrate's rankings do provide great insight into some of the factors that pre-retirees should consider before hanging up their coat for good in the working world.
For example, it pays to know which states do and don't tax Social Security benefits. According to the Social Security Administration, Social Security benefits are meant to replace about 40% of a workers' income in retirement. However, closer to half of all single elderly retirees are counting on Social Security for 90% or more of their income. For these individuals extra taxation is something they potentially may not be able to afford. The good news here, as noted earlier, is that many of the taxing states offer exemptions up to a certain dollar amount that help seniors keep more of their retirement income.
Some states are also particularly friendly to retirees in that they have no income tax, thus protecting retirement income from state taxation. My home state of Washington and six other states do not tax income, however, I will caution that some of them make up for it with high state and/or local taxes.
Laslty, pre-retirees should seriously consider access to medical care. Per Ameriprise Financial, healthcare costs for retirees are averaging more than $9,000 per year today, and are only expected to rise. Ameriprise further predicts that by 2020 a 65-year-old married couple without employer-based insurance and with just average drug expenses could wind up paying between $365,000-$454,000 in Medicare Part B & D premiums and out-of-pocket drug expenses over their lifetime. These figures necessitate that pre-retirees carefully consider their access to medical care. Living out in the country may be preferable, but it could also greatly increase an individual's medical costs.
Ultimately where you retire is completely up to you, but understanding the dynamics of how your retirement can affect your pocketbook and your level of happiness can go a long way to ensuring you have the retirement you've always dreamed of.
Sean Williams has no material interest in any companies mentioned in this article. You can follow him on CAPS under the screen name TMFUltraLong, track every pick he makes under the screen name TrackUltraLong, and check him out on Twitter, where he goes by the handle @TMFUltraLong.
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