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10 worst states for retirement

  • By Stacy Rapacon,
  • Kiplinger
  • – 12/31/2013
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Picking the best place to retire is a personal decision that no amount of number-crunching can make for you. However, a close look at the factors that matter most to retirees — in particular those tied to health, safety and economic security — can help eliminate from the running the least attractive places to retire. With this goal in mind, we asked data aggregator FindTheBest to help us rate all 50 states in terms of how well each suits the unique needs of retirees.

Our rankings penalized states that have higher rates for crime, poverty and unemployment, as well as higher living costs. We also took into account life expectancy of retirees and the size of the retirement-age population. Finally, we weighed the tax situation for retirees in each state.

After factoring in all of the criteria, we found many Northeastern states near the bottom of our rankings due to high taxes and living expenses, especially related to health care. Retirees hoping to head West may be equally disappointed. The following ten states might be great places to work or visit, but judged purely as retirement living destinations, they hold the least appeal.

10. Tennessee

  • Share of population over 65: 14.2% (U.S.: 13.7%)
  • Crime rate: 4,015 crimes per 100,000 people (U.S.: 3,246)
  • Median home value: $137,800 (U.S.: $171,900)
  • Life expectancy for population over 65: 83 years (U.S.: 84.1)
  • Retiree tax picture: Mixed

Retirees might want to think twice before heading to the Volunteer State. The crime and poverty rates are each the second-highest on this list, with crime 24% above the national level and poverty plaguing 17.9% of the population. Residents over the age of 65 also have the shortest life expectancy of all the states on this list.

Low housing costs — the most affordable on this list, in fact — may offer one advantage to retirees. But local health care costs, at 11% above the national average, could eat away at those savings. And an average combined state-local sales tax of 9.44%, among the highest in the country, won't help either.

9. New Mexico

  • Share of population over 65: 14.1%
  • Crime rate: 4,160 crimes per 100,000 people
  • Median home value: $157,500
  • Life expectancy for population over 65: 84.6 years
  • Retiree tax picture: Mixed

As a retirement destination, the Land of Enchantment is far from enchanting when it comes to taxes. There's a statewide gross receipts tax (similar to a sales tax) of 5.125%, and county and city taxes can add another 3.56%. Retirees looking to the Southwest for its sunny, dry climate and multicultural vibe might be better off heading to Arizona, one of our ten most tax-friendly states for retirees, where taxes are lower and Social Security benefits are entirely tax-free.

Other notable drawbacks: New Mexico's crime rate is 28% above the national average, and the percentage of the population living in poverty is 20.8%, the second-highest rate in the U.S. after Mississippi.

On the positive side, if you live to 100, you won't have to pay state income taxes anymore.

8. Hawaii

  • Share of population over 65: 15.1%
  • Crime rate: 3,314 crimes per 100,000 people
  • Median home value: $496,600
  • Life expectancy for population over 65: 86.3 years
  • Retiree tax picture: Mixed

Unless you're flush with cash, say goodbye to a dreamy retirement in the Aloha State. Exorbitant living costs make Hawaii less than idyllic for those on a fixed income. The median home value is the highest of all 50 states — as is median rent, at $1,379 a month — and nearly three times the national level. The high end of Hawaii's income tax range is a hefty 11%.

If you can afford it, Hawaii does offer retirees some advantages. Social Security benefits and most pensions are exempt from state income taxes. Plus, the state has that whole island paradise thing going for it.

7. Connecticut

  • Share of population over 65: 14.8%
  • Crime rate: 2,423 crimes per 100,000 people
  • Median home value: $267,800
  • Life expectancy for population over 65: 85.2 years
  • Retiree tax picture: One of the Least Tax-Friendly States

The Constitution State does little to promote the general welfare of its resident retirees. In fact, Connecticut ranks among the ten tax-unfriendliest states for retirement. Real estate taxes are the second-highest in the country. Most pensions and other retirement income are fully taxed, with no exemptions or tax credits to ease the burden (only half of a military pension is taxed). And a portion of Social Security benefits is taxed for individuals with federal adjusted gross income over $50,000 and married couples filing jointly earning more than $60,000.

6. Massachusetts

  • Share of population over 65: 14.4%
  • Crime rate: 2,559 crimes per 100,000 people
  • Median home value: $323,800
  • Life expectancy for population over 65: 84.7 years
  • Retiree tax picture: Not Tax-Friendly

World Series championship aside, Massachusetts has few winning characteristics to recommend it to retirees. High living costs and meager tax benefits can be a drain on fixed incomes. The state's median home value is nearly double the national price tag. According to the Economic Policy Institute, health care costs in the Bay State are 27% higher than average. And besides Social Security benefits and most government-employee pension income, which are exempt, the state taxes all other income at a flat rate of 5.25%.

5. Rhode Island

  • Share of population over 65: 15.1%
  • Crime rate: 2,825 crimes per 100,000 people
  • Median home value: $234,600
  • Life expectancy for population over 65: 84.4 years
  • Retiree tax picture: Least Tax-Friendly

Tiny Rhode Island packs a hefty tax burden, giving it the distinction of being the most tax-unfriendly state for retirees. It taxes up to 85% of Social Security benefits to the same extent as the federal government, and taxes basically all other sources of retirement income, including pensions. Also, median real-estate taxes are the fifth-highest in the country, according to the Tax Foundation; only low-income seniors can qualify for relief.

Plus, if you were thinking about an encore career, Rhode Island's job market might throw you. The Ocean State's unemployment rate was 9% as of November 2013, compared with 7% for the rest of the nation.

4. New Jersey

  • Share of population over 65: 14.1%
  • Crime rate: 2,337 crimes per 100,000 people
  • Median home value: $311,600
  • Life expectancy for population over 65: 84.6 years
  • Retiree tax picture: One of the Least Tax-Friendly

Retirees planning to plant themselves in the Garden State might want to reconsider. Both living costs and taxes in New Jersey will take a big bite out of the limited bounty of retirees. Combined state and local taxes are the second-highest in the nation. And the burden doesn't ease up after you pass on — the money you leave behind is subject to both an estate tax of up to 16% and inheritance tax of 11% to 16% (there are exemptions for spouses and some others).

More bad news: The state's median home value is nearly double the nation's, and lofty real estate taxes bump housing costs even higher. Also, health care costs are 8% above average despite prescription and nonprescription drugs being exempt from the 7% state sales tax.

3. Oregon

  • Share of population over 65: 14.9%
  • Crime rate: 3,472 crimes per 100,000 people
  • Median home value: $223,900
  • Life expectancy for population over 65: 84.3 years
  • Retiree tax picture: One of the Least Tax-Friendly

The West Coast can prove just as uninviting for retirees as the East Coast. Oregon residents bear some of the highest state income tax rates in the country, ranging from 5% to 9.9%. And although Social Security benefits are exempt, most other retirement income is subject to your top income tax rate. On the plus side, the Beaver State levies no sales tax.

Other factors of note for retirees considering Oregon: crime and poverty. The state's crime rate is 7% above the national average. Oregon's poverty rate is a worrisome 17.2%, 27% higher than neighboring Washington and 72% higher than a low-crime state such as New Hampshire.

2. New York

  • Share of population over 65: 14.1%
  • Crime rate: 2,329 crimes per 100,000 people
  • Median home value: $280,900
  • Life expectancy for population over 65: 85 years
  • Retiree tax picture: One of the Least Tax-Friendly

High living costs are not confined to the Big Apple. The Empire State has a median home value 63% greater than the national level and health care costs 30% above average. It also levies some of the highest property taxes in the country and a state income tax ranging from 4% to 8.82%.

Some good news: Social Security benefits and public pensions, as well as up to $20,000 of qualified private pensions and annuity income, are tax-exempt. On the health front, retirement-age residents live longer than average in New York, perhaps making those higher medical bills worth the expense.

1. California

  • Share of population over 65: 12.1%
  • Crime rate: 3,182 crimes per 100,000 people
  • Median home value: $349,400
  • Life expectancy for population over 65: 85.3 years
  • Retiree tax picture: One of the Least Tax-Friendly

The Golden State could be a fool's gold choice for your golden years. Except for Social Security benefits, retirement income is fully taxed, and California imposes the highest state income tax rates in the nation (the top rate is a substantial 13.3%). The state sales tax of 7.5% — a temporary hike from 7.25% that's set to expire in 2016 — is also daunting. The sales tax can reach as high as 10% in certain cities and counties that collect additional local taxes. It's no wonder why California ranks so high among the top ten tax-unfriendly places for retirees.

Living costs are high, too. The median home value in California is more than double the national median and the second-highest of all 50 states, behind only Hawaii. Plus, if you were thinking of supplementing your fixed income by returning to work, the state's unemployment rate of 8.5% as of November 2013 (compared with 7% for the U.S.) might put a kink in those plans. The percentage of residents over 65 is by far the lowest of the ten states on this list.

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All 50 states were evaluated on nine factors: percentage of population over 65, life expectancy, crime, poverty, unemployment, median apartment rent, median home value, health care costs and taxes. FindTheBest collected data from the U.S. Census Bureau, Centers for Disease Control and Prevention, Federal Bureau of Investigation and the Economic Policy Institute. Tax rankings were based on Kiplinger's Retiree Tax Map.

© 2014 The Kiplinger Washington Editors, Inc.

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