Best States for an Early Retirement - 2019 Edition

The average retirement age for men and women in the U.S. has risen compared to 20 years ago. Between 1995 and 2016, the average retirement age for men rose from 62 to 65 while for women it rose from 60 to 63, according to data from the Center for Retirement Research at Boston College. These increases stem from a variety of factors, including changes to Social Security, the shift from defined benefit to 401(k) plans and longer life expectancies. However, despite these shifts, many people continue to hope for an early retirement, which is often more feasible with some strategic financial planning and sound guidance from an expert advisor.

In this study, we looked at some of the best states for an early retirement given affordability and quality of life metrics. We looked at seven metrics which include effective tax rates, health insurance costs, non-housing cost of living, housing costs, property tax rates, doctor’s offices per 10,000 residents and entertainment establishments per 10,000 residents. For details on our data sources and how we put all the information together to create our final rankings, check out the Data and Methodology section below.

Key Findings

• The Great Plains score well again. In last year’s study, six of the top 10 states for an early retirement were located in the Great Plains. This year, though falling slightly, the number remains high. Half of the top 10 best states for an early retirement in our study this year are part of the Great Plains. They include North Dakota, Wyoming, South Dakota, New Mexico and Texas.
• The Coasts do poorly. No state in our top 10 is on the East or West Coast. This is primarily a result of the higher cost of living on both coasts, which in turn means that retirement savings may not go as far or last as long for those who want to stop working early.

1. Louisiana
   
   Louisiana ranks as the top state for an early retirement primarily because of its high rankings on the two metrics we double weighted, average effective tax rate for seniors and annual housing costs. The tax rate for a retiree earning $35,000 annually from retirement savings, Social Security or part-time employment is 17.35%, the 15th-lowest rate of any state. Furthermore, 2018 median annual housing costs in Louisiana were $9,672, the ninth-lowest amount of any state.
2. Tennessee
   
   Tennessee has a low cost of living. Average annual non-housing costs and median annual housing costs have a combined sum of approximately $23,000. Additionally, property tax rates are low. The average effective property tax in the state was 0.68% in 2018, the 15th-lowest rate of any state.
3. Nevada
   
   Nevada is a very tax-friendly state for retirees. There is no state income tax, meaning that retirement income is only taxed at the federal level. As a result, a senior with $35,000 in income annually would be taxed at the lowest rate, 14.99%. Nevada also has high concentrations of doctor’s offices and entertainment establishments, both important types of establishments for early retirees. There were 2,346 doctor’s offices and 1,529 entertainment establishments in 2016. With an estimated population of just over three million, this means there were about eight doctor’s offices per 10,000 residents and about five entertainment establishments per 10,000 residents, the ninth- and 14th-highest amounts for these metrics, respectively, in our study.
4. North Dakota
   
   North Dakota moved up a spot from last year’s study, when it finished fifth. Median annual housing costs there are relatively low. According to 2018 Census estimates, the median annual cost of housing was $9,924, the 10th-lowest amount for this metric of any state. Additionally, there are many entertainment options for retirees. There were about six entertainment establishments per 10,000 residents in 2018, the ninth-highest concentration of any state.
5. Arkansas
   
   With relatively low housing costs, retirement income and savings may go farther in Arkansas, our No. 5 state, than they would in many other states. In 2018, the median annual housing costs in the state were $8,484, the third-lowest rate for this metric in the study. Health insurance also tends to be more reasonably priced in Arkansas relative to other places. Across the five largest counties in the state, the average annual cost of a silver plan for a 60-year-old is $9,636, the second-lowest average cost of this plan in any state in our top 10 as well as the 10th-lowest cost overall.
6. West Virginia
   
   The difference in annual housing costs can make a substantial impact on the age you can retire. Median housing costs in West Virginia are even lower than those in Arkansas. In 2018, the median annual housing costs in West Virginia were $7,488, the lowest of any state. West Virginia also ranks in the top half of states for its concentration of doctor’s offices and entertainment establishments. There are approximately six doctor’s offices and four entertainment establishments per 10,000 residents.
7. Wyoming
   
   Partially due to its relatively low population, only 577,737 in 2018 according to Census estimates, Wyoming has a high concentration of entertainment establishments. Data from the 2016 Business Patterns Survey showed that there were 443 entertainment establishments in the state, or approximately eight entertainment spots per 10,000 residents. Wyoming is also similar to Tennessee and Nevada in terms of tax rates for retirees. With no state income tax, all retirement income is tax-free at the state level.
8. South Dakota
   
   In last year’s study, South Dakota ranked first. However, this year, it falls to eighth. Though it ranks first overall for the effective tax rate for seniors and towards the middle of the study for non-housing cost of living, South Dakota may not be a great place for retirees in poor health. We found that there were only about three doctor’s offices per 10,000 residents, the second-lowest concentration of any state, besting only Minnesota on this metric.
9. New Mexico
   
   New Mexico ranks well on many of the affordability metrics we considered. Specifically, it has the 18th-lowest average effective tax rate for retirees, the seventh-lowest median annual housing costs and the 17th-lowest average effective property tax rate. Using the SmartAsset income tax calculator, we found that the average effective tax rate for a retiree earning $35,000 is 17.64%. In 2018, median annual housing costs were $9,540 and the average effective property tax rate was 0.78%.
10. Texas
    
    Texas has the lowest non-housing cost of living, $12,615, of any state in our top 10 and the ninth-lowest amount for this metric overall. Additionally, the state ranks well on our two health-related metrics, average health insurance cost (21st-lowest) and doctor’s offices per 10,000 residents (11th-highest). The average cost of a silver plan for a 60-year-old in Texas is $11,081, and there are close to eight doctor’s offices for every 10,000 residents in the state.

To find the best states for an early retirement, SmartAsset looked at data for all 50 states along with the District of Columbia. We compared the states across the following seven metrics:

• Average effective income tax rate. This is the average tax rate for a retiree earning $35,000 annually from retirement savings, Social Security or part-time employment. We used the SmartAsset income tax calculator to find this figure based on state and local income taxes.
• Health insurance cost. Using the Kaiser Family Foundation’s health insurance calculator, we found the average annual cost of a silver plan for a 60-year-old across the five largest counties in each state. For states with less than five counties, we looked at all counties in the state.
• Average non-housing costs of living by metro area. This includes food, medical, transportation and other costs. Data comes from the MIT living wage calculator and was pulled in October 2019.
• Median annual housing costs. Data comes from the Census Bureau’s 2018 1-year American Community Survey.
• Average effective property tax rate. Data comes from the Census Bureau’s 2018 1-year American Community Survey.
• Doctor’s offices per 10,000 residents. Data comes from the Census Bureau’s 2016 Business Patterns Survey. Population data comes from the Census Bureau’s 2018 1-year American Community Survey.
• Arts, entertainment and recreation establishments per 10,000 residents. Data comes from the Census Bureau’s 2016 Business Patterns Survey. Population data comes from the Census Bureau’s 2018 1-year American Community Survey.

First, we ranked each state in each metric. We double-weighted average effective tax rate for retirees and median annual housing costs and half-weighted doctor’s offices and entertainment establishments per 10,000 residents. The remaining three factors were given a full weight. We then found each state’s average ranking and used this average to determine a final score. The state with the best average ranking received a 100. The state with the worst average ranking received a 0.

Tips for Saving for Retirement

• Commit to a budget. Committing to a detailed and strict budget can help you avoid spending more than you are able and avoid future stressful financial situations.
• Get financial help. Finding the right financial advisor that fits your needs doesn’t have to be hard.  SmartAsset’s free tool matches you with financial advisors in your area in 5 minutes. If you’re ready to be matched with local advisors that will help you achieve your financial goals, get started now.

Questions about our study? Contact us at press@smartasset.com