The best states for an early retirement

Many people look forward to the day they can hang up their work clothes for good and enjoy their golden years. For most people, retirement occurs sometime in their late 60s or even their 70s. However with careful planning and prudent financial management, it is possible to retire even earlier. There are many factors at play when determining whether a place is suitable for an early retirement. First and foremost are financial concerns.

This is the 2016 version of this study. Read the 2015 version here.

If you are retiring early, you'll need to make sure you have enough saved for housing, healthcare and enough left over to eat and live comfortably. In order to get the most out of what could be a limited retirement income, you'll want to stretch your dollars to their max. States with low taxes on retirement income and low property taxes enable you to do that. And after making the most efficient use of your dollars, you will probably want to make sure you have activities to do in your free time. Plus, in order to get the best healthcare during older age, the availability of doctor's offices is important. We looked at all these factors in order to create our ranking of the best states for an early retirement.

In order to understand where we got our data and how we put it together please read the Data and Methodology section below.

Thinking about an early retirement? Check out our retirement calculator.

Key Findings

  • Southern states rule – It looks like all the retirees moving to Florida have the right idea. The Sunshine State came in sixth in our ranking. In total, more than half of our top 10 is comprised of Southern states.

  • North East not so much – The North East is the worst region if you are thinking about an early retirement due to high costs of living. Three of the bottom five best states for an early retirement are in the North East. These are Connecticut, Massachusetts and New Jersey.

  • The Great Outdoors - North Dakota and Wyoming, both states in our top 10, offer many activities for outdoor adventure-loving early retirees.

  • 0% effective income tax - Our data shows that there are quite a few states which do not tax retirement income and many of these make our top 10.

Data and Methodology

In order to rank best states for an early retirement, we focused on eight different metrics:

  • Effective income tax rates on people ages 55-64. To calculate this we ran over 32,000 simulations on our retirement income tax calculator. We simulated the potential state and local income taxes paid in each state, plus the District of Columbia for people aged 55, 60 and 64. We used retirement incomes ranging from $20,000 per year to $80,000 per year.

  • State and local sales tax rates. Data comes from the Tax Foundation and is up-to-date as of January 1, 2016.

  • Average effective property tax rates. Data comes from the U.S. Census Bureau's 2015 American Community Survey.

  • Median annual housing costs. Data comes from the U.S. Census bureau's 2015 American Community Survey.

  • Non-housing cost of living. Data comes from the Council for Community and Economic Research and is from 2014.

  • Average annual cost of a silver health insurance plan. In order to calculate this, we used the Kaiser Family Foundation health insurance calculator. We used this tool to estimate the cost of a silver plan for 60-year-olds across the five largest counties in each state. We did not incorporate any potential subsidies, which can vary from situation to situation.

  • Arts, entertainment and recreation establishments per 100,000 residents. Data comes from the U.S. Census Bureau's 2014 Business Pattern Survey. This category includes establishments like museums, sports teams and theater groups.

  • Doctors' offices per 10,000 residents. Data comes from the U.S. Census Bureau's 2014 Business Pattern Survey.

We ranked every state, plus D.C. in each of these eight metrics. We then averaged those rankings, giving double-weight to the effective income tax rates and half weight to doctor's offices per 10,000 residents and to arts, entertainment and recreation establishments per 100,000 residents. All other factors were given a weighting of one. Finally we gave each state, plus D.C. a score between 0-100 based on the average of those rankings. The state with the best score received 100 while the worst scoring state received a 0.

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