Best states to retire on a budget

If you’re deciding where to retire, everyday costs can make a meaningful difference in how far your income and savings will go. After years of inflation and economic uncertainty, higher prices for housing, gas, groceries, and electricity have affected Americans across the country, especially older adults living on fixed incomes.

The poverty rate for Americans age 65 and older is 14.1%, up from 9.5% in 2020, according to the United States Census Bureau.

While inflation is beginning to cool, about 66 million Social Security recipients will receive an annual cost-of-living adjustment that is 3.2%, smaller than in previous years.

With economic concerns top of mind, older adults may need to think carefully about where they want to retire. To help clarify the financial landscape, researchers used the most recent available data to compare 10 metrics across all 50 states and Washington, D.C. The metrics covered housing, inflation, taxes, everyday expenses, Medicare costs, Social Security payments, and more.

You can find the complete methodology at the bottom of this report.

Key findings

• Iowa is the most affordable state. Its high score was driven by a low median rent of $1,100, the third-lowest; high average Supplemental Security Income (SSI) payments of $834 per month, the fifth-highest; and its policy of not taxing retirement income for people over 55. These factors helped make Iowa one of the most tax-friendly states for retirees, and it ranked well across the board.

• California is the most expensive state. It has the second-highest gas prices in the country at $4.62 per gallon, behind only Hawaii; the fourth-lowest homeownership rate among householders age 65 and older at 73.2%; and the fourth-highest median rent at $2,795. New York, Massachusetts, Washington, D.C., and Connecticut also ranked among the most expensive places for retirees.

• Low taxes and gas prices helped several states reach the top 10. No. 5 South Dakota, No. 8 Wyoming, and No. 10 Utah had some of the strongest ratings for gas prices and tax-friendliness. Wyoming also had the fourth-highest homeownership rate among people age 65 and older at 84.1%.

Most affordable states

Iowa is the most affordable place for retirees in 2024. About 4 in 5 older adults own their homes, and the median rent is $1,100, one of the lowest in the country. Kiplinger also considers Iowa one of the most tax-friendly states for retirees because it doesn’t tax retirement income for people age 55 or older and offers a property tax break for retirees. Iowa’s average SSI payment of $834 per month is the fifth-highest in the U.S.

New Mexico, Tennessee, Oklahoma, and South Dakota complete the five most affordable states to retire. Interestingly, they all receive relatively low SSI payments. Oklahoma residents receive an average of $606 per month, ranking No. 25, while the rest of the top five rank in the bottom half of states in this category. They make up for this in other areas.

No. 2 New Mexico has the nation’s second-lowest average electricity costs at $91 per month and the third-lowest Medicare hospital spending compared with the national average.

In No. 3 Tennessee, 82.1% of older adults own their homes, and home values rose 21.1% between 2021 and 2022, the second-highest increase in the nation.

No. 4 Oklahoma spends an average of $226 per month on groceries, the lowest amount in the U.S. Inflation increased costs by $733 per month, the second-lowest increase.

No. 5 South Dakota has the fifth-lowest average rent at $1,143, the fifth-lowest average grocery bill at $250, and the sixth-lowest gas prices at $2.81 per gallon.

Most expensive states

The most expensive states for retirees tend to have high rents, low homeownership rates, and less favorable tax policies. California ranks as the most expensive, with gas costing $4.62 per gallon and inflation adding $1,079 per month to expenses. California also has one of the country’s highest average SSI payments at $780 per month, which may help offset some of these costs.

New York, the District of Columbia, Massachusetts, and Connecticut complete the five most expensive areas, largely because of their high housing and living costs. Massachusetts has the highest median rent in the U.S. at $3,200. New York’s median home value grew by only 8.6%, a slower rate than in the rest of the country. Washington, D.C., has the lowest homeownership rate among people age 65 and older at 60.2%, along with gas prices of $3.39 per gallon. Connecticut’s average monthly electricity bill is about $176, higher than every state except Hawaii at $222.

Looking ahead: Homeownership, affordable housing, and senior living

As you plan for the next 10 years, finding a comfortable and affordable place to live may be one of your biggest considerations. That could mean aging in place or being able to afford quality care in a senior living community. America’s population will age significantly in the coming years, and the number of households led by someone in their 80s is expected to double by 2040.

Homeownership has historically been a primary source of wealth for older Americans. On the positive side, baby boomers made up 39% of U.S. homebuyers in 2023, according to the National Association of Realtors.

At the same time, recent economic challenges have left a record 11.2 million older adults cost-burdened, meaning they spend more than 30% of their household income on housing costs, according to a 2023 report from Harvard University’s Joint Center for Housing Studies.

The analysis also points to an affordability challenge: the average American needs to save for 17.2 years to afford one year at an assisted living community. The average monthly cost of assisted living rose to $4,401 in 2023, up from $4,057 in 2021, with costs increasing in 30 states during that period. Across the 97 metro areas included in this Harvard study, just 13% of adults age 75 and older could afford the area’s median assisted living community.

Conclusion

This analysis shows significant differences in retirement affordability across the U.S. By considering living costs, health care expenses, and tax burdens, you can identify where your retirement dollars may stretch further and where it may be harder to cover everyday expenses. If you’re retired or considering leaving the workforce, these factors can give you a practical starting point for choosing where to live and planning your next chapter with greater financial confidence.

Methodology

We used the most recent data for 10 metrics to determine the most affordable states to retire. We used a Z-score distribution to scale each metric relative to the mean across all 50 states and Washington, D.C., and capped outliers at +/-2. We multiplied some Z-scores by -1 when a higher score had a negative association with being above the national average. These metrics included inflation, rent, electricity, gas and grocery bills, and Medicare hospital spending. We calculated each state’s overall ranking using its average Z-score across the 10 metrics. Because Maryland was missing Medicare data, we calculated its overall score using the remaining nine metrics. Here’s a closer look at the metrics used:

• Share of householders age 65 and older who own their homes (Census Bureau 2022)

• Median rent (Zillow 2024)

• Growth in median home value (Census Bureau, 2021-2022)

• Average monthly home electricity bill (Energy Information Administration, 2022)

• Average per-gallon price for regular gas (AAA, February 2024)

• Average monthly grocery bill per person (Bureau of Economic Analysis and Census Bureau, 2022)

• Tax-friendliness rating for retirees, converted to a 1-3 score, 2023 (Kiplinger)

• Average monthly Supplemental Security Income payment, including federal and state payments (Social Security Administration, 2022)

• Monthly inflation costs (U.S. Senate, November 2023 relative to January 2021)

• Medicare hospital spending per beneficiary relative to the national average (Centers for Medicare & Medicaid Services, 2022)