Ideally, taxes will not be your top concern in deciding where to retire; you'll want to first consider things like family, weather, health care facilities, cultural attractions and amenities. But taxes matter, even for the well-heeled. Your tax bill can vary considerably by state. Seven states have no income tax: Alaska, Florida, Nevada, South Dakota, Texas, Washington and Wyoming. Two states (New Hampshire and Tennessee) tax dividend and interest income only. Some states exempt from taxation all or part of pension income; these include Alabama, Hawaii, Kansas, Louisiana, Massachusetts, Michigan, New York, Delaware, Georgia, Illinois, Minnesota, New Mexico, Utah, Virginia and West Virginia. Five states levy no sales tax: Alaska, Delaware, Montana, New Hampshire and Oregon. Alaska is by far the state with the lowest tax (but beware, it's otherwise kind of pricey), and it has the additional bonus of paying residents a yearly dividend ranging from about $1,000 to $3,000 from the Alaska Permanent Fund.
You'll also want to be on the lookout for age-related property-tax exemptions that vary by state or municipality. To find out which types of retirement income are exempt, contact the state's department of revenue or check out TaxAdmin.org. If you are moving overseas, consider that some foreign governments offer tax perks to retirees. Panama, for example, has a program for foreign retirees with guaranteed pension income that offers property-tax exemptions for new construction, a subsidized mortgage for a primary residence and discounts on utility bills. Many foreign governments don't tax Social Security benefits. Contact the country's embassy in Washington, D.C., for more information. But be warned: If you intend to keep your U.S. citizenship, you must continue to file a tax return each year and report your worldwide income, all or part of which may be subject to U.S. taxes.
See more questions about where you should live:
Introduction: Where Should I Live?
Should I Move Abroad?
Should I Move to a Low-Cost Region?
Should I Move into a Retirement Community?
Should I Just Stay Put?