SoFi

Many people consider relocating when they retire to reduce their cost of living and make their savings last longer. When weighing the pros and cons of moving to another state, it’s important to consider the total tax burden there, including state and local taxes on retirement income, property tax, even sales tax. Some areas with a lower tax burden have a higher overall cost of living, which can cancel out any savings.

Below we look at the best states to retire in for taxes and how to tell if moving will be worth it.

Most Tax-Friendly States for Retirement

A number of states exempt Social Security income from state taxes. A smaller number offer a tax break on other retirement income, such as IRAs and 401(k) plans, private pensions, interest, dividends, and capital gains.

These are the 10 tax-friendly states for retirees, according to Kiplinger:

1.    Mississippi

2.    Tennessee

3.    Wyoming

4.    Nevada

5.    Florida

6.    South Dakota

7.    Iowa

8.    Pennsylvania

9.    Alaska

10.    Texas

But before you complete that change of address card, you’ll want to look at the bigger picture.


💡 Quick Tip: How much your home is worth impacts your property taxes, homeowners insurance, and net worth. Online tools can help you easily estimate home value whenever you need it.

Factors to Consider When Choosing the Best State to Retire In

When choosing where to retire, it’s wise to first consider issues like safety, access to healthcare, distance to friends and family, or living near other people of retirement age.

Make a list of features that are important to you in a retirement locale, and consider whether any of them could indirectly impact your cost of living, such as being close to friends and family.

Then look at the total cost of living in an area: housing, food, transportation, cultural activities, and other expenses. These retirement expenses generally have a bigger impact on one’s lifestyle than taxes.

Finally, to determine whether a state is tax-friendly for retirees, look at the following:

Does the State Tax Social Security?

Generally, Social Security income is subject to federal tax. But some states also tax Social Security above a certain income threshold, while other states offer tax exemptions for individuals in lower tax brackets.

The states that tax some or all Social Security benefits are Colorado, Connecticut, Kansas, Minnesota, Missouri, Montana, Nebraska, New Mexico, Rhode Island, Utah, Vermont, and West Virginia.

Does the State Tax Pensions?

Many states tax income from pensions, but 14 states do not. These states are: Alabama, Alaska, Florida, Hawaii, Illinois, Mississippi, Nevada, New Hampshire, Pennsylvania, South Dakota, Tennessee, Texas, Washington and Wyoming.

And these 13 states do not tax income from 401(k) plans: Alaska, Florida, Illinois, Iowa, Mississippi, Nevada, New Hampshire, Pennsylvania, South Dakota, Tennessee, Texas, Washington, and Wyoming.

Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, Washington, and Wyoming have no state income tax.

Recommended: Tax-Friendly States That Don’t Tax Pensions or Social Security Income

Other Taxes That Affect Retirees

When choosing the best state for you to retire in, it’s a good idea to look into sales tax and property taxes too. States that don’t charge sales tax are Alaska, Delaware, Montana, New Hampshire, and Oregon. On the other hand, New Hampshire has very high property taxes, reducing the benefit of no sales tax.

Recommended: When to Start Saving for Retirement

States to Avoid When Retiring

Choosing the best state to retire in sometimes means making compromises. If safety and healthcare access are top priorities, for instance, you may not get your ideal weather. But for many retirees, a high cost of living is a deal-breaker.

Here are the 10 states with the highest annual cost of living, according to a 2023 analysis conducted by GOBankingRates:

1.    Hawaii: $124,486

2.    Massachusetts: $100,325

3.    California: $92,829

4.    New York: $90,821

5.    Alaska: $83,995

6.    Maryland: $83,058

7.    Oregon: $81,786

8.    Vermont: $77,904

9.    Connecticut: $77,235

10.    New Hampshire: $76,766

Recommended: Avoid These 12 Retirement Mistakes

The Best States to Retire in 2024

As noted above, the best state to retire in will depend on an individual or couple’s budget, lifestyle, and values. But recent trends may help point you in the right direction.

These are the top 10 states that retirees are moving to, according to United Van Lines’ annual National Movers Study:

1.    Wyoming

2.    Delaware

3.    South Carolina

4.    Florida

5.    Maine

6.    Arizona

7.    New Mexico

8.    South Dakota

9.    West Virginia

10.    Alabama

If cost of living is your sole concern, the following are the 10 least expensive states, according to Bankrate:

1.    West Virginia

2.    Mississippi

3.    Iowa

4.    Alabama

5.    Missouri

6.    Oklahoma

7.    Indiana

8.    Kansas

9.    Wyoming

10.    Arkansas

States with the Lowest Tax Burden

An area’s total tax burden is the sum of all property taxes, sales taxes, excise taxes (which affect the price of goods), and individual income taxes. Below are the states with the lowest total tax burden for retirees.

Rank	State	Total Tax Burden
1	Alaska	5.06%
2	Delaware	6.12%
3	New Hampshire	6.14%
4	Tennessee	6.22%
5	Florida	6.33%
6	Wyoming	6.42%
7	South Dakota	6.69%
8	Montana	6.93%
9	Missouri	7.11%
10	Oklahoma	7.12%

States With the Most Millionaires

One way to measure the overall desirability of an area is the number of millionaires who live there. After all, millionaires can afford to live in states that have high-quality healthcare, nice weather, and diverse cultural offerings. These are not the cheapest states in terms of cost of living or taxes, but their popularity may help non-millionaires reevaluate their must-haves vs. nice-to-haves.

Rank	State	% of Millionaire Households
1	New Jersey	9.76%
2	Maryland	9.72%
3	Connecticut	9.44%
4	Massachusetts	9.38%
5	Hawaii	9.20%
6	District of Columbia	9.12%
7	California	8.51%
8	New Hampshire	8.47%
9	Virginia	8.31%
10	Washington	8.18%
Source: Statista

Does It Make Financial Sense to Relocate in Retirement?

For workers who already live in a state with moderate taxes, near family, and have a lifestyle they enjoy and can afford, there may not be any compelling reason to move. But for those looking to make a change or lower their retirement expenses, it may make financial sense to relocate.

Just remember that housing, food, transportation, and other expenses usually have a bigger impact on one’s retirement lifestyle than taxes.

Pros and Cons of Relocating for Tax Benefits

Lower taxes alone may not be enough to motivate someone to pick up and move house. Other factors should also support the decision.

Pros of Relocating for Tax Benefits

•   Potentially lower cost of living

•   Discovering a community of like-minded retirees

•   Possibly ticking off other boxes on your list

Cons of Relocating for Tax Benefits

•   Other living costs may cancel out the tax benefits

•   Moving costs are high, and the stress can be tough

•   Need to find another home in a seller’s market

💡 Quick Tip: We love a good spreadsheet, but not everyone feels the same. An online budget planner can give you the same insight into your budgeting and spending at a glance, without the extra effort.

The Takeaway

The best state to retire in for tax purposes depends on an individual’s budget, lifestyle, and values. Some states with lower taxes for retirees can have higher housing and transportation costs, canceling out any tax benefit. A financial advisor can help you decide if saving on taxes is worth the expense and trouble of relocating.

Take control of your finances with SoFi. With our financial insights and credit score monitoring tools, you can view all of your accounts in one convenient dashboard. From there, you can see your various balances, spending breakdowns, and credit score. Plus you can easily set up budgets and discover valuable financial insights — all at no cost.

With SoFi, you can keep tabs on how your money comes and goes.

FAQ

What are the 3 states that don’t tax retirement income?

Nine states don’t tax retirement plan income because they have no state income taxes at all: Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, Washington and Wyoming. Illinois, Iowa, Mississippi and Pennsylvania don’t tax distributions from 401(k) plans, IRAs, or pensions. Alabama and Hawaii don’t tax pensions, but do tax distributions from 401(k) plans and IRAs.

Which state is the best state to live in for tax purposes?

Alaska has the lowest overall tax rates.

Which states do not tax your 401k when you retire?

Alaska, Florida, Illinois, Iowa, Mississippi, Nevada, New Hampshire, Pennsylvania, South Dakota, Tennessee, Texas, Washington, and Wyoming do not tax 401(k) plans when you retire.

---

Photo credit: iStock/Jeremy Poland

SoFi Relay offers users the ability to connect both SoFi accounts and external accounts using Plaid, Inc.’s service. When you use the service to connect an account, you authorize SoFi to obtain account information from any external accounts as set forth in SoFi’s Terms of Use. Based on your consent SoFi will also automatically provide some financial data received from the credit bureau for your visibility, without the need of you connecting additional accounts. SoFi assumes no responsibility for the timeliness, accuracy, deletion, non-delivery or failure to store any user data, loss of user data, communications, or personalization settings. You shall confirm the accuracy of Plaid data through sources independent of SoFi. The credit score is a VantageScore® based on TransUnion® (the “Processing Agent”) data.

Third-Party Brand Mentions: No brands, products, or companies mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third-party trademarks referenced herein are property of their respective owners.

Tax Information: This article provides general background information only and is not intended to serve as legal or tax advice or as a substitute for legal counsel. You should consult your own attorney and/or tax advisor if you have a question requiring legal or tax advice.

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

SORL1023002

Read more

What Are the Dogs of the Dow?

The “Dogs of the Dow” is an investment strategy that focuses on large, established companies that offer relatively high dividends. There are different ways to pursue the strategy, but it generally attempts to outperform the Dow Jones Industrial Average (DJIA) by investing in the highest dividend-yielding stocks from among the 30 stocks that comprise the DJIA.

The Dow Jones is among the oldest and most popular stock indices in the world, with casual investors often using it as a shorthand for the performance of the broader stock market, and even the global economy. Over time, the Dogs of the Dow tends to perform in line with it.

The Dogs of the Dow strategy became popular in 1991 with the publication of Beating the Dow in which author Michael B. O’Higgins coined the term “Dogs of the Dow.” The strategy itself reflects the assumption – usually true – that blue-chip companies have the stability to continue to pay out their regular dividends regardless of the performance of their stocks.

How the Dogs of the Dow Work

The formula for identifying the companies in the Dogs of the Dow is – by the standards of economics – fairly simple. It comes down to the stock’s dividend yield, calculated by dividing the annual dividend paid by a stock (in dollars) by its stock price. The stocks with the highest dividend yields are the Dogs of the Dow.

Followers of the Dogs of the Dow strategy believe the dividend paid by a company more accurately reflects its average value than the trading price of that company’s stock. Unlike the dividend, the stock price is always in flux.

When the stock prices of companies go down in response to the business cycle, the ratio of those companies’ dividends to their stock prices will go up. In other words, the dividends of those stocks will be disproportionately high in relation to their stock prices. Adherents of the Dogs of the Dow strategy believe the companies with that high dividend-to-stock-price ratio will eventually revert to their mean and should grow faster when the business cycle turns, and their prices increase. In addition to promising performance, the strategy also offers investors regular income in the form of dividend payments.


💡 Quick Tip: Before opening any investment account, consider what level of risk you are comfortable with. If you’re not sure, start with more conservative investments, and then adjust your portfolio as you learn more.

Who Are the Dogs of the Dow in 2023?

The 2023 Dogs of the Dow are led by Verizon with a dividend yield of 6.62%, followed by Dow with a dividend yield of 5.56%. The others are: Intel (5.52%), Walgreens (5.14%), 3M (4.97%), IBM (4.68%), Amgen (3.24%), Cisco (3.19%), Chevron (3.16%), and JP Morgan Chase (2.98%).

The Dogs are always changing, as are the companies that make up the DJIA itself. In 2020, for example, Salesforce.com joined the index – a rare entrant that has never paid its investors a dividend. In the same year, troubled aerospace titan and DJIA member Boeing suspended its dividend.

Between 2022 and 2023, Cisco and JP Morgan Chase joined the list, and Merck and Coca-Cola left the list because their dividend yields dropped.

It’s easy to see that the highest-yielding stocks in the DJIA are always changing. This means that an investor who is pursuing this strategy needs to regularly rebalance their holdings, whether monthly, quarterly or annually.

One reason such rebalancing is necessary is that even though the large stocks in the DJIA typically have lower volatility than some other stocks, their values still change over time. So rebalancing is an important step toward preventing a situation where one stock plays too big of a role in a portfolio’s performance. But with a Dogs of the Dow strategy, rebalancing is even more important, as the companies that fit the description will change on a semi-regular basis.

Investing in the Dogs of the Dow

Different investors view the Dogs of the Dow differently. Some say it’s only the five or 10 DJIA stocks with the highest dividend-to-share-price relationship. But it’s worth noting that not all 30 companies on the DJIA index currently pay dividends.

Investors can buy 10, 15 or all 30 of those stocks through a brokerage account. Or they can invest in the DJIA by purchasing exchange-traded funds (ETFs). There are even Dogs of the Dow ETFs that invest in the dividend-focused strategies similar to Dogs of the Dow approach. But when buying one of these funds, it is important to read their strategies before investing.

Recommended: What Are Dividend ETFs?

Pros and Cons of Dogs of the Dow Strategy

There are several advantages to using a Dogs of the Dow strategy, but there are also some drawbacks for investors to consider.

Dogs of the Dow: Pros

• The strategy invests in Blue Chip companies with a long history of success and industry-leading positions.

• It has a history of outperforming the DJIA.

• Investors receive regular dividend payments.

Dogs of the Dow: Cons

• The IRS taxes dividends paid by the stocks at the income-tax rate rather than the lower capital gains rate.

• It is a value-oriented strategy that may lag during growth markets.

• The strategy isn’t widely diversified.

💡 Quick Tip: When you’re actively investing in stocks, it’s important to ask what types of fees you might have to pay. For example, brokers may charge a flat fee for trading stocks, or require some commission for every trade. Taking the time to manage investment costs can be beneficial over the long term.

Does Dogs of the Dow Still Work?

The Dogs of the Dow struggled during the market upheaval of 2020. As a group of 10, the Dogs lost 13% over the course of the year, well below the 7% increase posted by the DJIA. In 2021, the Dogs were also below the DJIA and the S&P 500. And 2021 was the third straight year the Dogs didn’t do as well as the broader Dow.

However, in 2022, Dogs of the Dow did better than the DIJA with a positive return of 2.2%, while the DJIA had a negative return of -7.0.

Historically, Dogs of the Dow has occasionally done worse than the broader DJIA, notably in the financial crisis of 2008, when it suffered larger losses than the index. But through the 10 years that followed, it outperformed the Dow, though not profoundly.

But even small amounts of outperformance add up over time. A $10,000 investment in the DJIA made at the outset of 2008 would have grown to approximately $17,350 by the end of 2018. The same amount invested in the Dogs of the Dow strategy would have reached $21,420 by the end of 2018, assuming that the investor rebalanced their holdings once per year.

Recommended: What Is the Average Stock Market Return?

The Takeaway

Dogs of the Dow is an investment strategy that uses dividends as a way to spot undervalued Blue Chip stocks, and to benefit from economic cycles.

While investors may be interested in exploring the Dogs of the Dow, the strategy does have pros and cons. Investors should weigh the benefits and drawbacks carefully before using it.

Ready to invest in your goals? It’s easy to get started when you open an investment account with SoFi Invest. You can invest in stocks, exchange-traded funds (ETFs), mutual funds, alternative funds, and more. SoFi doesn’t charge commissions, but other fees apply (full fee disclosure here).

Invest with as little as $5 with a SoFi Active Investing account.

Photo credit: iStock/Helin Loik-Tomson

---

Third-Party Brand Mentions: No brands, products, or companies mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third-party trademarks referenced herein are property of their respective owners.

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

SoFi Invest®

SoFi Invest encompasses two distinct companies, with various products and services offered to investors as described below: Individual customer accounts may be subject to the terms applicable to one or more of these platforms.
1) Automated Investing and advisory services are provided by SoFi Wealth LLC, an SEC-registered investment adviser (“SoFi Wealth“). Brokerage services are provided to SoFi Wealth LLC by SoFi Securities LLC.
2) Active Investing and brokerage services are provided by SoFi Securities LLC, Member FINRA (www.finra.org)/SIPC(www.sipc.org). Clearing and custody of all securities are provided by APEX Clearing Corporation.
For additional disclosures related to the SoFi Invest platforms described above please visit SoFi.com/legal.
Neither the Investment Advisor Representatives of SoFi Wealth, nor the Registered Representatives of SoFi Securities are compensated for the sale of any product or service sold through any SoFi Invest platform.

Exchange Traded Funds (ETFs): Investors should carefully consider the information contained in the prospectus, which contains the Fund’s investment objectives, risks, charges, expenses, and other relevant information. You may obtain a prospectus from the Fund company’s website or by email customer service at [email protected]. Please read the prospectus carefully prior to investing.
Shares of ETFs must be bought and sold at market price, which can vary significantly from the Fund’s net asset value (NAV). Investment returns are subject to market volatility and shares may be worth more or less their original value when redeemed. The diversification of an ETF will not protect against loss. An ETF may not achieve its stated investment objective. Rebalancing and other activities within the fund may be subject to tax consequences.

SOIN0723058

Read more