Evaluating Where to Retire: Pennsylvania Vs. Surrounding States - Rodgers & Associates
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Evaluating Where to Retire: Pennsylvania Vs. Surrounding States

Where do you want to live after you’ve reached financial indepen­dence? For many people, where they live is dictated by their career. That restraint ends once you have built your net worth and no longer need to work for a living. Do you want to live in the country, near the ocean, or in a busy metro­politan area with lots to do?

The question of where to live in retirement is a very personal decision, and the right answer will depend on many factors. Roughly 930,000 people age 60 and older moved across state lines in 2018. Financial impli­ca­tions are not neces­sarily the most important factor, but they’re definitely up there. Most reports published on the best places to retire give a heavy weighting to afford­ability. Other important consid­er­a­tions are access to healthcare, climate, and culture.

I was curious to see how Pennsyl­vania fared in the rankings of the best states for retirees. MoneyWise analyzed studies by Bankrate, WalletHub, and Kiplinger to create a list of the “best of the best” states for retirement. In 2019, Pennsyl­vania ranked number 14. MoneyWise cited our livable, four-season climate with warm summers, a pleasant fall, and a genuine winter. While Pennsyl­vania lacks a coastline, it offers easy access to beaches and lakes, mountains, and several bustling urban centers.

A more recent ranking by MoneyRates placed Pennsyl­vania in the thirteenth position overall.

Best States for Retirement 2021

Overall RankStateEconomyCrime/SafetyLifestyleHealthcare
13Pennsyl­vania42131015
Source: MoneyRates, February 4, 2021

Retire­mentLiving placed Pennsyl­vania at number eight in their top ten states to retire to, noting the many senior housing options to choose from and housing afford­ability.

Percent of Pop. 65+18.7%
Median Income$61,744
Percent in Poverty12.0%
Average Home Price$180,200
Top State Income Tax Rate3.07%
Cost of Assisted Living$3,750/Month
Cost of Memory Care$5,995/Month
Cost of Nursing Homes$9.480/Month
Cost of In Home Care$4,282/Month
Number of Hospitals176
Number of Hospital Beds34,841
Physi­cians Per 100,000320.5
Dentists Per 100,00059.44
Acres of Parkland295,000
RL Rating7.52
Source: Retire​mentLiving​.com, February 17, 2021

Taxation is often cited as an important factor when consid­ering where to live in retirement. The key aspects of taxes to consider are:

  • State income tax: Seven states do not have a personal income tax: Alaska, Florida, Nevada, South Dakota, Texas, Washington, and Wyoming.
  • Taxation of retirement income: Four states—Hawaii, Illinois, Missis­sippi, and Pennsylvania—exempt all or most retirement income (such as Social Security benefits) from taxable income.
  • Sales Tax: Adding a sales tax onto a purchase makes every­thing you buy a little more expensive. Pennsyl­vania has a 6% sales tax—but groceries, clothing, pharma­ceu­tical drugs, and residential heating fuels are exempt. 
  • Property Tax: Property taxes can severely impact retirement living because the tax is not based on income or spending. 

Kiplinger provides a helpful state-by-state guide to taxes for retirees. Their site allows you to compare states side-by-side. I used this resource to compare Pennsyl­vania with a few of its neighbors.

Source: Kiplinger State-by-State Guide to Taxes on Retirees

New Jersey is listed as the least tax friendly, but the state has taken steps to reduce retirees’ taxes. The state does not tax Social Security benefits or military pensions. The state recently elimi­nated its estate tax, but still imposes an inher­i­tance tax. Taxpayers age 62 or older with income below $100,000 can exclude some or all of their pension, annuity, IRA, or other retirement plans. Unfor­tu­nately, New Jersey has the highest average real estate taxes in the country.

New York is another of the least tax-friendly states in the union. Real estate taxes are the seventh highest in the country, and average combined state and local sales taxes are tenth highest. Retirees can exclude Social Security and some pensions from the state income tax. However, anything over $20,000 from a private retirement plan or out-of-state government pension is taxed.

Maryland doesn’t tax Social Security benefits and allows filers age 65 or older an exclusion of up to $33,100 (2020 amount) on distri­b­u­tions from 401(k), 403(b), and 457 plans, along with income from public and private pensions. However, income above the exclu­sions will be heavily taxed. The state income tax has a top rate of 5.75%, and Maryland’s counties and cities may levy additional income taxes ranging from 1.75% to 3.20% of taxable income. 

Delaware is the most tax-friendly state of the group. There is no sales tax, property taxes are low, and they don’t have a death tax. Taxpayers over age 60 can exclude $12,500 of pension and other retirement income from state income taxes. Above this exclusion, the state income tax is applied in a range from 2.2% on taxable income from $2,001 to $5,000, up to 6.6% on taxable income above $60,000. There is a property tax credit of up to $400 for homeowners age 65 and older once they have lived in the state for ten consec­utive years.

Many clients have told me the most important factor for them is living close to the people they love and care about. Before you decide to move, consider what’s really important to you: costs of living, healthcare and tax laws are important, but they aren’t the only things you’ll need to consider.

Insights:

  • Surveys report that more than a third of seniors move to another state after retirement.
  • Afford­ability, access to healthcare, climate, and culture are just some of the important factors to consider before moving to another state.
  • Taxes—like income tax, sales tax, and property tax—can have a huge impact on one state’s afford­ability over another.

Origi­nally posted September 2019