In a 2025 report from The Center for Retirement Research at Boston College, more than 43% of retirees say they worry about outliving their money in retirement—a number that rises in costly states. The accumulated weight of taxes, housing, healthcare, and everyday expenses can drain away even the best-planned retirement fund.
Inflation may be easing from record heights in 2022–2023, but states still haven’t revised tax policies or cost-of-living indexes to reflect economic conditions. As Suze Orman warns, “Retirement isn’t just about how much you’ve saved—it’s about how much you keep.”
Keeping that in mind, here is a detailed look at 26 states that retirees may want to avoid in 2025 if they want to protect their savings, maintain their standard of living, and avoid tax-season surprises.
California
California sunlight comes with a price tag that can throw a shadow over even the most well-planned retirement budget. With a state income tax rate averaging 9.3% and a highest marginal rate well above 13.3%, California is always one of the most expensive states for retirees.
Housing costs are still in the stratosphere—median home prices exceed $780,000, Zillow’s estimates based on data through 2025 indicate. The California Budget & Policy Center reports that the minimum monthly expenses for a retired couple are more than $4,600 for many urban counties.
Health care suffers as well. A Kaiser Family Foundation study finds Medicare Advantage plans in California boast some of the nation’s highest out-of-pocket maximums. In a Forbes interview, financial expert Clark Howard warned, “California may be the worst place to retire unless you’re a millionaire with low expenses.”
New York
Empire State retirees feel as though they’re paying to operate an empire. New York state income tax ranges from 4% to 10.9%, and NYC local taxes contribute an additional 3.9%. A 2025 WalletHub study ranked New York in the top 5 of most non-tax-friendly states for retirees, with the cost of living 30% above the national average.
Rent for a one-bedroom apartment in Manhattan is now over $4,000 per month, and upstate is barely cheaper for fixed-income seniors due to high property taxes. New York’s statewide average property tax burden is the 7th highest in the nation, based on information from the Tax Foundation. Medical costs have also risen—retirees pay an average of $7,500 annually for supplemental Medicare insurance.
New Jersey
New Jersey retirees are faced with a formidable combination of the state’s highest-in-the-nation property taxes, averaging $9,500 per year, as reported by the Tax Foundation, and a 10.75% top marginal state income tax rate. The Garden State does exempt retirement income, but these deductions phase out quickly and fail to shield retirees with modest to significant savings.
Healthcare here in New Jersey is no bargain, either. Home prices are also steep, with a median home value of around $510,000, Redfin reports
Illinois
Although Illinois does not tax retirement income, the state remains relatively low for retirees due to astronomically high property taxes—the second highest in the country—and a ballooning state pension crisis. Illinois has one of the worst-funded pension systems in the country, according to Truth in Accounting, forcing local governments to raise taxes.
In 2025, the average property tax rate in the state is 2.11%, which means a $250,000 home generates an annual property tax of $5,675. Couple that with rising healthcare costs and infrastructure problems across much of the state, and the magic erodes quickly.
Connecticut
Connecticut offers East Coast pizzazz at a very high cost for retirees. Its state income tax rate is as high as 6.99%, and while Social Security income is partially exempt, most other retirement income sources are not. Property taxes are brutal, averaging $5,500 annually, ATTOM Data Solutions reports.
Connecticut’s cost of living is approximately 21% higher than the national average, with healthcare and utilities being costly. Connecticut ranks among the top 10 states for the most expensive elder healthcare, based on a report from the United Health Foundation in 2025
Massachusetts
Massachusetts is a paradox: it offers excellent public services and healthcare, but has among the highest costs of retirement living. A 5% flat income tax is levied even on income in retirement that exceeds Social Security. The housing market is brutal in Boston’s metro area—median home prices exceed $700,000, according to Realtor.com’s Q1 2025 report.
The Mercatus Center warns against Massachusetts’ unaffordable public pension obligation, which may compel lawmakers to raise taxes even further. Healthcare remains world-class, but it is costly, with retirees paying $500–$800 monthly in insurance premiums and copays.
Vermont
Vermont retirees face a triple threat in the form of high taxes, heating costs, and limited access to healthcare in rural areas. Vermont taxes Social Security benefits, unusual for a small state, and features a top marginal income tax rate of 8.75%. Median home prices climbed to over $420,000 on the strength of out-of-state buyers and low supply.
Rhode Island
Tiny but onerous, Rhode Island charges as much as 5.9% in income taxes and taxes virtually all retirement income, except for part of Social Security exemptions. The cost of living is 17% above average, and access to health care continues to become an issue. A 2025 Commonwealth Fund report references long wait times for specialists and a shortage of rural healthcare practitioners.
Oregon
Oregon’s progressive income tax system hits retirees with a vengeance—up to 9.9% in taxes. Social Security is untaxed, but other sources of retirement income—even pensions and 401(k) withdrawals—are taxable. Property taxes are under control, but the state’s crushing cost of living (over 18% above average) places a burden on a set income.
Washington
While Washington doesn’t charge an income tax, it makes up for it with staggering sales taxes throughout the state, averaging 9.4%. Seattle home costs averaged $785,000 in 2025, and rent levels increased 6.2% so far this year, according to Redfin. Long-term care coverage is required by the WA Cares Fund, adding another layer of complexity.
“Washington looks tax-friendly until you relocate here and start spending,” warns retirement planner Mary Beth Franklin.
Minnesota
Minnesota has long been criticized for taxing Social Security income—a practice that will continue into 2025, albeit with new brackets. The state’s top marginal income tax rate is 9.85%, one of the highest in the Midwest. Property taxes are moderate, but utility and heating bills soar in winter, raising the cost of living for retirees.
According to a 2025 report by the Tax Foundation, Minnesota is one of the top five least tax-friendly states for retirees. A Minneapolis average retiree household today must budget $58,000 each year to keep up with basic living expenses, according to the Minnesota Budget Project.
Maine
Maine combines New England’s charm with a cold cost of living. While certain retirement income is exempt from taxation, Maine still taxes Social Security benefits above a certain income level. The top marginal income tax is 7.15%, and the cost of heating oil rose to over $4.20 per gallon in 2025, as reported by the U.S.
Energy Information Administration. Housing prices increased 14% year-over-year in coastal towns because of out-of-state buyers.
Colorado
Colorado generally ranks highly in quality of life, but retirees enjoy a mixed financial profile. The flat-rate income tax is 4.4%, but most retirement income is partially taxable. The cost of living in Denver is 20% above the national average, and median home prices are well over $575,000, based on Zillow.
Healthcare costs are rising fast. A 2025 report by the Colorado Health Institute reported that Colorado retirees are paying 26% more than the national average for supplemental health coverage.
“The altitude is high, and so are the bills,” says retirement analyst Liz Weston. “It’s a beautiful but budget-busting place to grow old.”
Alaska
Although Alaska lacks a state sales tax and state income tax, its geography isolates it, resulting in staggering living expenses. Food, medical supplies, and transportation are all costly. The cost of living in Alaska is 33% above the national average in 2025, according to the Council for Community and Economic Research.
Healthcare access remains a critical issue. A Kaiser Family Foundation survey found that many Alaska seniors must travel out of state for specialized treatment, substantially increasing their out-of-pocket costs.
Hawaii
Tropical haven? Oh, sure. Inexpensive retirement? Not exactly. The cost of living in Hawaii is #1 in the country, with median home prices coming in just shy of $860,000, according to Realtor.com. Food costs 54% more than the national average, and the utilities are the highest in the nation, Bankrate’s 2025 Cost Index says.
While Hawaii doesn’t tax Social Security, it does tax most other retirement income. Factor in inexpensive healthcare services, and retirees face an uphill battle.
New Mexico
While appealing to retirees for weather and scenery, New Mexico now taxes Social Security and other retirement benefits beyond the end of the 2023 reforms. In 2025, New Mexico ranked in the lower one-third for senior healthcare access, and crime is a growing problem in larger cities, such as Albuquerque.
Housing remains moderately affordable, but utility and long-term care costs are through the roof, especially in rural New Mexico.
Pennsylvania
Although Pennsylvania does not tax retirement income from Social Security, pensions, and 401(k)s, it does take a hit from high wage taxes in the localities and high property taxes. Median property taxes exceed $4,300 a year, particularly in pension-strapped school districts.
The costs of healthcare and long-term care are increasing. A 2025 AARP report documents a 16% increase in spending on nursing homes, over inflation.
Wisconsin
Wisconsin taxes most forms of retirement income, including IRA and 401(k) payments, at rates of up to 7.65% in income tax. The state also has above-average property taxes—a $250,000 residence brings in around $5,100 per year in taxes, per the Wisconsin Policy Forum.
Healthcare is generally good, but lengthy winters raise the cost of utilities. A 12% increase in home heating expenses was noted in 2025 by the Public Service Commission of Wisconsin.
Iowa
Iowa just revamped its tax code to phase out state taxation of retirement income by 2026, but in 2025, most retirees will get hit. The top income tax rate remains 5.7%, and property taxes are approximately $4,000 annually. Utility and medical costs have increased due to inflation.
A Des Moines Register article notes that senior couples currently spend approximately $48,000 annually to maintain a moderate lifestyle.
Montana
Montana’s progressive income tax rate increases to 6.75%, and although it excludes some Social Security benefits, few retirees are eligible. Rural health care is limited, and seniors routinely drive over 50 miles for follow-up visits, says Montana Health Co-Op. Housing prices have surged—especially in Missoula and Bozeman—thanks to out-of-state buyers. Median home prices are over $500,000, as of Q1 2025, according to Zillow data.
North Dakota
Even with low housing expenses, North Dakota began taxing Social Security in 2019, and its top income tax rate is 2.9%. The cost of heating is still expensive, averaging $2,300 per household per year, according to the North Dakota Department of Energy. Access to healthcare in rural communities is also tricky.
A 2025 Kaiser Family Foundation report identified nurse shortages in 80% of counties.
South Dakota
Although South Dakota has no income tax, retirees face high sales taxes (up to 6.5%, including local taxes) and rising costs in metropolitan centers like Sioux Falls. Residential prices increased by 12% from 2024 to 2025, driving median prices above $360,000.
“No income tax is wonderful—but astronomical daily bills will catch up to you,” cautions financial coach Joe Saul-Sehy.
Nevada
Nevada has no state income tax, but fast-growing housing, health, and utility expenses make it challenging for retirees. Las Vegas house prices surged more than 14% annually, according to Redfin, with one-bedroom rent approaching $1,800/month. Sales taxes can be as high as 8.375%, and healthcare access is limited due to shortages of healthcare providers.
North Carolina
While comparatively priced compared to coastal neighbors, North Carolina charges a flat 4.75% on most retirement income, and taxes on property are creeping upward. Access to long-term care is at a crisis point, with AARP rating North Carolina’s elder care facilities as “underprepared” for the aging population.
Georgia
Georgia’s tax law provides limited exclusions for retirement income, but does not offer complete relief. Individuals 65 and older receive an exemption of up to $65,000; however, at higher income levels, the tax rate increases to 5.75%. Rising real estate taxes in Atlanta and Savannah have driven affordability to issue status.
South Carolina
While it’s a retiree paradise, private retirement income is taxed in South Carolina, and its sales taxes are nearly 9% in some counties. Property taxes are low, but home insurance premiums have doubled on the coast due to hurricane exposure, according to FEMA’s 2025 Climate Report.
Key Takeaways
When planning for retirement in the U.S., it’s crucial to avoid states with high taxes and a high cost of living, as these can quickly erode your savings. According to recent analyses, 26 states stand out as less favorable for retirees due to financial burdens. California tops the list with its soaring housing costs and high cost-of-living index.
New York follows closely, burdening residents with the highest total tax load in the country, including income tax rates that climb as high as 10.9%. Connecticut and New Jersey also prove unfriendly, taxing most retirement income and imposing some of the nation’s highest property taxes. States like Massachusetts and Illinois continue the trend with elevated costs and flat or high income tax rates.
Washington, despite having no state income tax, offsets that advantage with high sales taxes and living expenses. Alaska is similarly expensive due to high healthcare and housing costs, which are further compounded by geographic isolation and a harsh climate. In addition to taxes, retirees should also consider other factors, such as healthcare access and climate-related costs.
Ultimately, the best place to retire depends not only on finances but also on quality-of-life factors, such as weather, access to healthcare, and proximity to loved ones. For those nearing retirement, consulting a financial advisor can help navigate these complex choices and ensure a more comfortable and sustainable lifestyle.
Disclaimer: The Finance key does not provide and does not intend to provide financial, investment, tax, or legal advice. Information contained in this article is for informational and educational purposes only. This list is solely the author’s opinion based on research and publicly available information. The inclusion of links to third-party content is not an endorsement by The Finance Key of such content or services. Please do your due diligence and use your discretion.
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