If you’re a lover of the outdoors and thinking about where you want to live in your retirement, you probably already have some candidates. But have you considered the financial ramifications of living in those areas? While financial implications should not necessarily be your primary focus, you should consider such things as taxes and cost of living when making your decision.
Cost of living is generally measured in terms of the average price paid for housing, utilities, groceries, healthcare, transportation, and miscellaneous expenses. Not coincidentally, perhaps, you won’t find any of the top rated outdoor living states in the bottom of the cost of living rankings, but there are some decent bargains out there relative to 50th (most expensive) ranked Hawaii and 45th ranked California. Those are beautiful parts of the world, but they carry income tax rates as high as 11% and 13.3% respectively, and Hawaii is one of only a few places still imposing a state estate tax (albeit only on estates over $3.5M). Maine and Minnesota don’t stack up very well financially either.
But there are some good — and financially sensible — alternatives.* Here are five of them, in general order of preference…
Florida is a favorite spot for retirees, for many reasons. It features long periods of warm weather (though watch out for the humidity), a huge number of available outdoor activities, and a surprisingly friendly financial environment. With no income tax (though a 6% sales tax), no estate tax, and a slightly less than average cost of living (ranked 26th overall and highlighted by the still depressed housing prices), it’s no surprise that we continue to see people moving there.
Keeping with the warmer theme (both are golf and skydiving meccas), Arizona ranks 35th in cost of living, and it’s a dry heat. While the state does have a 2.59% – 4.54% income tax, you don’t hit the top level until taxable income is over $150,000, and Arizona exempts Social Security and some pension income.
A 5.6% sales tax is a little heavy, but no estate tax and low housing costs keep Arizona in the running (pun intended).
Alaska has a surprisingly high cost of living (ranked 49th), but that gets offset with no income tax or state sales tax. Many municipalities do charge a sales tax, typically 2-5%, but few have both a sales tax and a property tax.
Our northernmost state might be too cold for some (and lacks daylight through some portions of the year), but if you’re really looking for the next great frontier, this could be your place.
In my opinion, there is no more beautiful state than Washington in the summer time. Surrounded by mountains and water, you can enjoy no income tax along with a middling 36th ranked cost of living (though housing costs are fairly high).
You might want to live on the border of Montana or Oregon, though: Both are good outdoor living states that feature no sales tax, which helps mitigate Washington’s steep 6.5% sales tax. Washington might not be your ideal full time residence, though, as it gets awfully cloudy from October through May, and the state imposes a tax on estates over $2M.
The Rocky Mountain State is ranked 42nd in housing costs, but falls in the middle of the pack with a cost of living rank of 32. This skier’s paradise starts to head downhill as we look at the flat 4.63% income tax, and gets worse when we throw in a moderate 2.9% sales tax.
Given all the factors, Florida and Arizona will likely continue to be popular destinations for financially savvy retirees. But for some of the bolder adventurers, Alaska, Colorado, and Washington all have something to offer those who love the outdoors.
* Some items — property tax and sales tax, for example — are often governed by county or municipality, so you’ll need to look carefully at the costs associated with each area you’re considering.