Declining Retirement Confidence in 2024: Inflation and Tax Challenges
Worker and retiree confidence levels considerably dropped in 2023, and this confidence level hasn’t recovered so far this year, notes a 2024 Retirement Confidence survey by the Employee Benefit Research Institute (EBRI) and Greenwald Research. Findings by T. Rowe Price Group, Inc. (NASDAQ:TROW) conclude the same, stating retirement confidence is seen to decline as retirement time approaches. Nevertheless, a majority of respondents remain confident about their retirement prospects. The EBRI report reveals that 68% of workers and 74% of retirees are confident that they will be able to live comfortably throughout their retirement. For all those who don’t feel the same, inflation is, in large part, to blame.
Inflation, together with a lack of retirement savings, has been forcing many retirees back to work. A process termed as “Unretiring” by T. Rowe Price Group, Inc. (NASDAQ:TROW), it seems that working part-time isn’t a bad strategy for retirees. A Retirement Saving & Spending Survey by T. Rowe Price Group, Inc. (NASDAQ:TROW) agrees, stating that while 48% of respondents did go back to work for financial reasons, 45% did for social and emotional benefits. Whether or not you, as a retiree, need work for financial reasons, it’s best to get your taxes done right. Understanding and planning for taxes in retirement is important as they impact both your savings and your future income. From navigating the taxation of Social Security benefits and Required Minimum Distributions (RMDs) to maximizing the advantages of tax-advantaged accounts like Roth IRAs, effective tax planning can help you maintain financial stability and peace of mind in your retirement years.
If you are a retiree thinking of going back to work, you may want to check out the best states to retire in the US financially.
Speaking of taxes: those who think their Social Security income isn’t going to be taxed, think again. While it’s true that there are states in the US that won’t tax your Social Security Income, you cannot evade taxes at the federal level if you file your federal tax return as an individual with a combined income over $25,000. Up to 85% of your Social Security benefits can be taxed, and you may even be pushed into the 40% marginal federal tax rate if you don’t understand Social Security tax brackets and your income tax brackets. Delaying your claim on Social Security seems to help, as you may be in a lower tax bracket later in life than you are now. It is also a surefire way to boost your benefits too.
For those with more than just Social Security as their retirement income, it is important to know that taxes don’t just go “poof” in retirement. It may be shocking to know that all of the money you’ve saved up for retirement will now be taxed as regular income and may push you into the same tax brackets as the income you earned when you worked. More importantly, as per The Charles Schwab Corporation (NYSE:SCHW), your overall tax liability is heavily dependent on where you live. This is why an important way to be smart about taxes is to look at them at the state level. This brings us to the question: What is the most tax-friendly state for retirement? Many people ask us this question to make the most of their retirement income. Yet again, taxes aren’t the only thing one must consider when deciding on where to retire. Cost of living is just as important, and so is proximity to family and friends. This is what Hayden from The Charles Schwab Corporation (NYSE:SCHW) has to say:
“When thinking about relocating, taxes are only one of many factors to weigh, including climate, lifestyle, proximity to family, and the availability and quality of health care”
As such, some of the best states to retire for taxes and cost of living are Mississippi, Oklahoma, Missouri, and Alabama. Some of the least tax-friendly states to retire to that you should avoid are Hawaii, Massachusetts, and California. These states are also notorious for their high cost of living, so it’s best to avoid them if you’re on a fixed income.
With that said, we’ve crafted a list of all the best states to retire for taxes in the US. While our list may be a good start to check out states where you can retire, staying in touch with your tax advisor is also important.
“That said, these rules change frequently as states compete for business and investment…so be sure to check with a tax advisor who is familiar with the relevant state and local tax laws.”
-Hayden Adams, CPA, CFP®, director of tax and financial planning at the The Charles Schwab Corporation (NYSE:SCHW) Center for Financial Research.
Copyright: halfpoint / 123RF Stock Photo
Our Methodology
To compile the list of best states to retire for taxes in the US, we relied on our rankings from the Top 26 Tax-Friendly States in the US. Next, we selected only the Very Tax-Friendly and Tax-Friendly states, which were already scored for taxes on Social Security, taxes on other retirement income, sales, and property taxes. Next, we ranked the states for income taxes, considering many retirees are now going back to work. States were scored on all factors and an Insider Monkey total score was generated to rank the states.
Here is the best state to retire for taxes in the US:
1. Wyoming
Insider Monkey Score: 68
Combined State Sales Tax Rate: 5.441%
Average Effective Property Tax Rate: 0.58%
Tax Friendliness: Very Tax Friendly
Income Tax Rate: None
The best state to retire for taxes in the US is Wyoming. Since the state doesn’t have an income tax, it is automatically a very tax-friendly state for retirees to consider for their golden years. That’s right, social security or any form of retirement income isn’t taxed in the state. Wyoming’s cost of living is also lower than the national average, essentially making it one of the best states to retire on Social Security. Besides the taxes and cost of living, the state is also appealing as a retirement destination because of good access to healthcare services and stunning natural landscapes, offering a plethora of recreational activities for seniors.
Discover which state ALMOST beat Wyoming for the top spot in our detailed list of 15 Best States to Retire for Taxes in the US.
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Disclosure: none. The Best State to Retire for Taxes in the US is originally published on Insider Monkey.