The key to making your nest egg last is to spend less money than you earn.
Due to state tax law differences, however, you'll soon learn thatwhere you live during retirement largely dictates what you spend.
Some states, such as Minnesota and Vermont, impose a hefty tax on retirement income. Alaska, Nevada and Wyoming, which do not have income tax, are much friendlier, have a lesser impact.
The sheer size of the aging baby boomer population has encouraged most states to consider more tax-favorable legislation for seniors, said Kathleen Thies, state tax analyst for CCH tax services firm in Riverwoods, Ill. Some relief programs have already been enacted.
Below are the top 10 least friendly states, tax-wise, and the also the friendliest. Because tax laws impact retirees differently, depending on their financial circ*mstances, we did not rank the states, but rather presented them in alphabetical order.
The least friendly states
California
State income tax: 1% - 13.3%
State sales tax: 7.5% (combined state, local rate)
Mean property tax rate as a percentage of mean home value: 0.8%
Property tax ranking:33
Estate tax: Limited to the federal estate tax collection rate
Inheritance tax: None
The sunny skies of California may be a playground for movie stars and millionaires, but retired residents should take their money and run.
The Golden State levies one of the nation's highest personal income tax rates. Its tax exemption for Social Security benefits is little comfort, given that most other retirement income gets taxed in full.
And property taxes are assessed at 100 percent of the home's value, up to a maximum of 1 percent of the home's cash value. That can seriously dent your standard of living. Median home prices for new and existing houses and condominiums reached $340,000, with high real estate prices in cities including San Francisco, Los Angeles and San Diego.
Connecticut
State income tax: 3% - 6.7%
State sales tax: 6.3%
Mean property tax rate as a percentage of mean home value: 1.49%
Property tax ranking: 10
Estate tax: 7.2% - 12%, exemption amount $2 million
Inheritance tax: None
This commuter haven for New York's business elite doesn't cut seniors any slack—especially those of means.
Indeed, Connecticut levies a progressive estate tax of up to 12 percent beyond the $2 million exemption. It also taxes pension benefits and is one of only 14 states that tax Social Security income. Seniors looking to stretch their hard-earned savings further might do well to cast a wider net.
Iowa
State income tax: 0.36% - 8.98%
State sales tax: 6% (but local taxes can add up to 2% more)
Mean property tax rate as a percentage of mean home value: 1.36%
Property tax ranking: 14
Estate tax: None
Inheritance tax: 5% - 15%, depending on amount, relationship of the heir to the decedent.
Iowa may be fertile farming ground, but it also harvests tax revenue from every available source.
Its personal income tax rate tops out at a punishing 8.98 percent, while inherited property is taxed at a maximum rate of 15 percent. Retirement income is also partially taxed, but married taxpayers age 55 and older may exclude from up to $12,000 ($6,000 for single filers) of pension benefits and other retirement pay.
Relief is in sight. The state is phasing out its tax on Social Security income by 2014, and lawmakers this year approved a property tax cut to the tune of $4.4 billion over the next 10 years—agricultural and residential property tax payers will save an estimated $500 million annually by the 10th year. On balance, however, Iowa still leaves most seniors with a bigger tax bill than they bargained for.
Maine
State income tax: 2% - 8.5%
State sales tax: 5%
Mean property tax rate as a percentage of mean home value: 1.11%
Property tax ranking: 18
Estate tax: 8% - 12%, with a $2 million exemption
Inheritance tax: None
Maine is short on tax breaks. The Pine Tree state has an 8.5 percent top marginal income tax rate and hefty property taxes to boot.
Maine also hits wealthy retirees hard, taxing estates over $2 million up to 12 percent. Seniors may deduct up to $6,000 per taxpayer ($10,000 after 2013) of all pension annuities, and retirement plan income included as federal adjusted gross income, but that amount is reduced by any Social Security and Railroad Retirement benefits they receive.
Nebraska
State income tax: 2.46% - 6.84%
State sales tax: 5.5%
Mean property tax rate as a percentage of mean home value: 1.72%
Property tax ranking: 6
Estate tax: None
Inheritance tax: 1% for immediate relatives with a $40,000 exemption, 13% for remote relatives with a $15,000 exemption, and 18% for all others, with a $10,000 exemption. Spouses are exempt. (This tax is levied at the county level.)
The Cornhusker State, famous for fossil beds and historic trails (Pony Express, Lewis & Clark and Oregon), not to mention Omaha Steaks, takes a piece of Social Security benefits.
Property taxes, assessed at 100 percent of actual market value, are also among the nation's highest, but homestead exemptions exist for those 65 and older based on income. Married couples with household income of up to $31,000.99, for example, are 100 percent exempt, while those making $39,301 or more get no exemption.
Correction: An earlier version of the story inaccurately said Nebraska is phasing out its inheritance tax.
New Jersey
State income tax: 1.4% - 8.97%
State sales tax: 7%
Mean property tax rate as a percentage of mean home value: 1.98%
Property tax ranking: 1
Estate tax: 0.8% - 16%, with a $675,000 exemption
Inheritance tax: 0% - 16%, applies only to estates over $1 million
New Jersey offers aging adults proximity to urban culture and fine dining—if they can afford it.
The Garden State has the nation's highest mean property tax rate and a maximum state income tax rate of 8.97 percent. It also levies a sizable tax on estates and inherited property. Social Security benefits are not taxed on the state level, but all forms of retirement income are included on state tax return as income.
A "Pension Exclusion" does help, however, allowing retirees 62 or older with income below $100,000 to exclude up to $20,000 per year for married joint filers in taxable pensions, annuities and IRA distributions. The limit for single taxpayers is $15,000.
New York
State income tax: 4% - 8.82% (not including local income tax)
State sales tax: 4%
Mean property tax rate as a percentage of mean home value: 1.38%
Property tax ranking: 13
Estate tax: 0.8% - 16%, $1 million exemption
Inheritance tax: None
It's no secret that New York City is a pricey place to live. But the rest of the state also wallops your wallet.
The Empire State has the highest individual income tax collections per capita, at $1,865, according to the Tax Foundation. New York's income tax rate is already steep, but the Tax Foundation notes many taxpayers with income above $100,000 pay their top tax rate on all of their income, not just the amount above the bracket threshold. Social Security benefits are exempt.
While property taxes are high, seniors in some localities may be able to reduce the assessed value of their home for tax purposes by up to 50 percent. Income restrictions apply.
Minnesota
State income tax: 5.35% - 7.85%
State sales tax: 6.875%
Mean property tax rate as a percentage of mean home value: 1.09%
Property tax ranking: 19
Estate tax: 0.8% - 16%, with $1 million exemption
Inheritance tax: None
The North Star State where ice hockey reigns and moose roam free gives retired residents a chilly reception.
Minnesota imposes a hefty personal income tax, sale tax (though food, clothing and medication is exempt) and property tax. It also taxes retirement income, including Social Security benefits and pensions, and wants a piece of your estate.
The state does offer a break to those 65 and older with household incomes of $60,000 or less, with a property tax deferral program that limits the amount of property tax they pay to 3 percent of total household income.
Rhode Island
State income tax: 3.75% - 5.99%
State sales tax: 7%
Mean property tax rate as a percentage of mean home value: 1.41%
Property tax ranking: 11
Estate tax: 0.8%-16%, with a $910,725 exemption
Inheritance tax: None
What it lacks in size, Rhode Island more than makes up for in tax collections.
The quaint coastal state taxes most forms of retirement income in full, including Social Security, pensions and capital gains income. Real estate, personal income, and consumer goods are taxed at a higher than average rate, which cuts into your savings faster than you can say steamed clams.
Vermont
State income tax: 3.55% - 8.95%
State sales tax: 6%
Mean property tax rate as a percentage of mean home value: 1.59%
Property tax ranking: 8
Estate tax: 0.8% - 16%, with $2.75 million exemption
Inheritance tax: None
Beloved by skiers, leaf peepers, and Ben & Jerry's ice cream aficionados, the Green Mountain State gets extra points for New England charm. But that hardly negates the impact of a tough tax climate.
There are no exemptions for most retirement income, and property taxes here are the eighth-highest in the nation. Tack on an income tax range that tops out at nearly 9 percent and retirees on the hunt for a new home state might decide to vacation in Vermont instead.
The most friendly states
Alabama
State income tax: 2 percent to 5 percent
State sales tax: 4 percent
Mean property tax rate as a percentage of mean home value: 0.40 percent, but seniors 65 and older do not pay state property tax
Property tax ranking: No. 49 (with one being the highest and 50 the lowest.)
Estate tax: None—but taxpayers pay a "pickup" tax for state death taxes
Inheritance tax: None
The Yellowhammer State boasts a balmy Gulf Coast breeze and one of the most favorable retirement tax climates. Senior homeowners pay nothing, nada, zilch in property taxes, and retirement income from Social Security and most pensions is also exempt.
Add low income tax rates and a sales tax exemption on prescription drugs, and you might be left with enough in your wallet to enjoy more seafood gumbo with sweet iced tea.
Alaska
State income tax: None
State sales tax: None, but many municipalities impose a local sales tax of 2 percent to 5 percent.
Mean property tax rate as a percentage of mean home value: 1.01 percent
Property tax ranking: No. 22 (with one being the highest and 50 the lowest)
Estate tax: Limited to federal estate tax collection
Inheritance tax: None
For the intrepid senior who's not repelled by subzero temps, the state aptly known as the Last Frontier offers breathtaking scenery, more than half of the world's glaciers and front-row seats to the famed northern lights. But the zero tax policy on retirement benefits and lack of state income tax might be its biggest attractions for boomers seeking a new address.
Property taxes, which are assessed at full market value, can sting, but homeowners 65 and older are exempt from municipal taxes on the first $150,000 of assessed value of their home.
Oh, and did we mention the government gives you money to live there? The state issues an annual dividend check to each resident based on its oil revenues, which has ranged recently from $875 to more than $2,000.
Delaware
State income tax: 2.2 percent to 6.75 percent
State sales tax: None
Mean property tax rate as a percentage of mean home value: 0.52 percent
Property tax ranking: No. 46 (with one being the highest and 50 the lowest)
Estate tax: Expired in 2013
Inheritance tax: None
With its coastal shoreline of picturesque beaches (cue the dolphins) and proximity to both Philadelphia and Washington, the first state to ratify the Constitution has become a haven for the senior set seeking to stretch their dollars. Indeed, despite being diminutive, Delaware offers significant big tax breaks.
There is no sales tax, no inheritance or estate tax, Social Security benefits are exempt and up to $12,500 of retirement income is exempt for those 60 and older, including income derived from pensions, dividends, interest, capital gains and rental income. Not sold, yet? Homeowners 65 and older can get a credit equal to half of the school property taxes, up to $500.
Georgia
State income tax: 1 percent to 6 percent
State sales tax: 4 percent
Mean property tax rate as a percentage of mean home value: 0.97 percent
Property tax ranking: No. 25 (with one being the highest and 50 the lowest)
Estate tax: None
Inheritance tax: None
The largest state east of the Mississippi, known for peaches and the Masters Golf Tournament, spares none of its southern charm on retired residents. In 2012, the exemption on most retirement income jumped to $65,000 per spouse for those 65 and older.
Social Security benefits are not taxed at all. Neither are estates or inherited property. Toss in the comfortable climate, access to culture (Atlanta, Savannah), and low state sales tax and Georgia easily maintains its position as a perennial hot spot for aging adults.
Louisiana
State income tax: 2 percent to 6 percent
State sales tax: 4 percent
Mean property tax rate as a percentage of mean home value: 0.48 percent
Property tax ranking: No. 48 (with one being the highest and 50 the lowest)
Inheritance tax: None
With its world-famous Mardi Gras, Cajun cooking and river boat casinos, the Pelican State has no trouble keeping tourists entertained. But Louisiana makes a special effort to make people feel at home. Make that double the effort if you happen to be retired.
Since the destruction of Hurricane Katrina, the state has stepped up its marketing efforts to attract more residents, promoting not only its attractions but its tax breaks for seniors. Besides having the second-lowest property tax rate in the nation, the state exempts from taxation all Social Security benefits and income from military, federal, state and local government pensions.
Mississippi
State income tax: 3 percent to 5 percent
State sales tax: 7 percent
Mean property tax rate as a percentage of mean home value: 0.63 percent
Property tax ranking: No. 40 (with one being the highest and 50 the lowest)
Estate tax: Imposed on the value of the decedent's estate when the total gross estate exceeds the available exemption amount of $1 million, which follows the federal exemption
Inheritance tax: None
As the only state besides Pennsylvania that exempts all forms of retirement income from taxes, including Social Security, pensions, 401(k)s and IRAs, Mississippi cannot be ignored at a retirement haven.
The Magnolia State, which spawned B.B. King, Oprah Winfrey, Elvis Presley and authors William Faulkner and John Grisham, also exempts prescriptions drugs, motor fuel and health-care services. Payments made by Medicare and Medicaid are also exempt.
Tennessee
State income tax: 6 percent on dividends and interest income only
State sales tax: 7 percent, but municipalities can add their own tax up to 2.75 percent. Prescription drugs are exempt.
Mean property tax rate as a percentage of mean home value: 0.74 percent
Property tax ranking: No. 37 (with one being the highest and 50 the lowest)
Estate tax: None
Inheritance tax: 5.5 percent to 9.5 percent on all real and personal property inherited above the $1.25 million exemption in 2013 and $2 million in 2014.
Seniors who reside in the birthplace of blues get a heaping helping of tax breaks with their pulled pork sandwiches. And it's only getting better. Salaries, Social Security and retirement income from IRAs and pensions are not taxed. And while stock dividends and interest are taxed at 6 percent, residents 65 and older with total annual income of up to $26,200 are exempt.
Though in a national ranking, Tennessee's sales tax is undeniably high, prescription drugs, which consume a major portion of most retirees' budgets, are exempt. And while the state's inheritance tax remains in effect, it is slated to be eliminated by 2016.
Nevada
State income tax: None. Income, Social Security benefits and retirement income are not taxed
State sales tax: 6.5 percent
Mean property tax rate as a percentage of mean home value: 0.90 percent
Property tax ranking: No. 28 (with one being the highest and 50 the lowest)
Estate tax: None
Inheritance Tax: None
This southwestern state has long been a draw for tourists and, if you believe the conspiracy theorists, extraterrestrials. (Area 51 lies in the desert off Rt. 375). With Lake Tahoe, Las Vegas and the majestic Sierra Nevada mountains within its borders, it's easy to see why.
But the Silver State is also an oasis for retirees. There is no state income tax, and income generated from retirement accounts and Social Security benefits is exempt. The sales tax rate is admittedly steep, but food and prescription drugs get a refreshingly budget-friendly pass.
South Carolina
State income tax: 3 percent to 7 percent (adjusted for inflation annually)
State sales tax: 6 percent
Mean property tax rate as a percentage of mean home value: 0.54 percent
Property tax ranking: 45 (with one being the highest and 50 the lowest)
Estate tax: None
Inheritance tax: None
The birthplace of music legends James Brown and Chubby Checker, not to mention game show host Vanna White, rolls out the red carpet for retirees. This sunny southern belle levies no tax on Social Security and issues homeowners who are 55-plus a property tax break, allowing a local tax exemption on the first $50,000 of a property's fair market value.
Those 65 and older can also deduct up to $15,000 per spouse in qualifying retirement income, offset by other retirement deductions claimed. Absent any state inheritance or estate tax, you might be able to upgrade your pad to a historic townhouse in Charleston or a beachfront bungalow near Myrtle Beach.
Wyoming
State income tax: None
State sales tax: 4 percent; prescription drugs and groceries are exempt
Mean property tax rate as a percentage of mean home value: 0.58 percent
Property tax ranking: No. 44 (with one being the highest and 50 the lowest)
Estate tax: None
Inheritance tax: None
If Yellowstone National Park or the snow-capped peaks of the Grand Tetonsare your idea of a great backyard, the Cowboy State could be an ideal spot to spend your retirement. That taxes are senior-friendly is an added bonus. Wyoming has no state income tax, no estate or inheritance tax, and sales taxes are minimal. Retirement income, including Social Security benefits, is also tax-free.
Old West enthusiasts can enjoy covered wagon rides and trips to Native American museums while they count the money they save on property taxes, which are among the lowest in the nation. Residential real estate is taxed on less than 10 percent of a property's assessed value.
*This list combines data from CCH, the Tax Foundation, state revenue departments, retirementliving.comand the Federation of Tax Administrators. (Property tax rates, compiled by the Tax Foundation using Census Bureau data, are through calendar year 2011 and reflect the mean property tax as a percentage of mean home value.)
More from TODAY Money:
- Christmas in August as retailers rev up holiday offers
- When it comes to career advancement, body language counts
- Cereal killer? Beware of Greeks bearing breakfast yogurt
- Listing of the week: Uber-luxe Hawaiian estate
- People saving more for college, but still not enough
