The Worst States to Retire In

The Worst States to Retire In 350One of my New Year goals this year is to make an official Will just in case something happens. Unfortunately, the 2020 coronavirus pandemic exploded and I put a lot of things on the back burner. However, I’m planning to fly to Thailand very soon and I really want to get this done before I go. That’s why we bit the bullet and scheduled an appointment with a local attorney. Estate planning is an expensive process but it’s worth it because we already learned something very valuable – Oregon is the worst state to retire in. (I was going to say die in, but that’s a bit too morbid.)

Today, I’ll share why Oregon is a terrible state to live in after FIRE. Also, this will be a crowdsourcing project because I need your input. I don’t have the resources to research every state. If your state is worse than Oregon, tell us why. I’ll add it to our “worst states” list at the end of the post. I doubt you can top Oregon, though. Prove me wrong! Oh, this post is pretty US-centric. If you live in a different country, I’d love to see how it compares. Tell us in the comment section if it’s more expensive to retire in your country.


For this post, I’ll mostly focus on the financial aspects of life after financial independence. Life is more expensive in some locations and some states cost much more than others to live in. If you’re still in the accumulation phase, this isn’t a huge concern. But it’s a different story when you’re drawing down your portfolio. It’s better to minimize taxes and conserve your portfolio.

Also, I’ll use FatFIRE for this article. This means about $100,000 of passive income annually. This is enough income to live very comfortably almost anywhere in the United States. You’d need about $3,000,000 net worth to generate this much. Of course, many of us in the FIRE community are not shooting for FatFIRE. I think it’s still relevant, though. Your net worth will keep growing and probably get there someday. Lastly, I’ll use the RB40 family as a template – 2 adults and one son. This is important for estate planning.

Death Tax

Most people in the FIRE community probably aren’t too worried about the estate tax. In 2020, the federal estate tax exemption is $11.58 million for singles and $22.8 for married couples. That’s way beyond the FatFIRE level. This is one of the reasons why I put off estate planning for so long. Why worry about it when our net worth is far below that point? However, I completely forgot about death taxes at the state level.

There are two kinds of death taxes in the US — inheritance tax and estate tax.

Inheritance Tax

Inheritance tax is paid by the person who inherits the assets. Generally, if you’re a close relative, you’re exempted. The definition of close relative varies from state to state. We’ll look at Pennsylvania for example. A spouse is exempted from inheritance tax. A direct descendant (e.g., a son, daughter, or grandchild), pays 4.5%. Siblings pay 12%. Other heirs lose 15%. Yikes! That’s a big bill. Fortunately, only six states have inheritance tax – Maryland, New Jersey, Iowa, Nebraska, Kentucky, and Pennsylvania. Also, Pennsylvania and Nebraska are the only two states where a direct descendant has to pay inheritance tax, 4.5% and 1% respectively. We’ll put Pennsylvania on our list because it’s the worst of this lot. If you live in one of these states and don’t have a close relative, then you need to research more.

Estate Tax

Estate tax is a bit different than inheritance tax. When someone dies and leaves assets behind, some states levy a tax on it. It doesn’t matter who inherits the estate. Twelve states have estate tax – Maryland, Connecticut, Hawaii, Illinois, Maine, Massachusetts, Minnesota, New York, Oregon, Rhode Island, Vermont, and Washington. Washington D.C. also has an estate tax. Fortunately, each state has an exemption on the estate. For example, Hawaii will tax estates above $5.5 million. Anything below $5.5 million is exempted. There are a few states that have low exemptions.

  • Oregon! – Anything above $1 million is taxed at 10% to 16%. The exemption is per person. For a married couple, the exemption is doubled. That’s if both people die at the same time.
  • Massachusetts – 0.8% to 16% above $1 million.
  • Rhode Island – 0.8% to 16% above $1.6 million. The exemption is not portable between spouses so a married couple still only has a $1.6 million exemption!

*Maryland has both inheritance tax and estate tax. However, the estate tax exemption is $5 million and a direct descendant doesn’t have to pay inheritance tax. It’s not bad for the RB40 household, but it really depends on your situation.

Estate Planning

Jackpot! We live in Oregon and have over $1 million in the estate. This isn’t that uncommon if you take life insurance into account. I have a $250,000 term life insurance policy and Mrs. RB40 has $500,000. We also have a house, rental condo, dividend portfolio, retirement accounts, and our real estate crowdfunding investment. We’ll assume everything adds up to about a $3,000,000 estate. If we get into a car accident and pass away, Oregon would take about $100,000 right off the top.

For us, Oregon is the worst state to die in. Let’s see if other states are better. The exemption is per person so the estate tax would be levy on whatever is above that.

  • Massachusetts – about $40,000 in estate tax
  • Rhode Island – $71,000 estate tax. Yikes, the
  • Pennsylvania – $135,000 inheritance tax.

From this section, we’ll add OR, RI, MA, and PA to the worst states list. Unexpectedly, Pennsylvania is worse than Oregon.

You can read more details on the 17 states with death taxes at the AARP.

State and local taxes

Next, we’ll look at state taxes. Each state has its own tax structure so this one is tough. I’ll share what our taxes look like in Oregon. If your state is worse, let me know in the comment section. There are three main ways a state levies taxes – income tax, property tax, and sales tax. Personally, I prefer sales tax over income tax because I’m frugal. We don’t buy a lot of stuff. Income tax sucks because the money is taxed right when it comes in. Anyway, here is what a FatFIRE family would pay in Oregon.

  • Oregon state income tax on $100,000 income (married) – about $7,500.
  • Property tax in Portland ($300,000 assessed value) – $8,000.
  • Sales tax – $0. We don’t have a sales tax in Oregon.

So, we pay about 15.5% to live in Portland, Oregon. It’s lower in other Oregon cities, but not by a huge amount. Post FIRE, this is a huge burden. Other states with high tax burdens are California, Hawaii, New Jersey, Minnesota, and New York.

Let’s crunch the numbers for Palm Springs, California. We may move there to be closer to our families someday.

  • CA state income tax on $100,000 income (married) – about $3,000. The tax brackets are pretty good for this income level.
  • Palm Springs property tax (assessed value $300,000, a small house) – $4,000.
  • CA sales tax (spend $50,000 on taxable goods) – $3,500.

Whoa, did I make a mistake here? It looks like a retiree in Palm Springs pays less tax than Portlanders, about 10.5%. Maybe we should accelerate our relocation plan.

From this section, I’ll add Oregon, California, and Hawaii to the list. Let me know if I need to add other states.

Cost of living

Lastly, we’ll look at the cost of living. This one is complicated because every location is so different. The cost of living in Portland is much higher than in other cities/towns in Oregon. This is mostly due to the cost of housing. In a normal year, we spend about $50,000 and live a pretty comfortable lifestyle. I think the cost of living is moderate here for FatFIRE.  Also, our cost of living would stay about the same if we move to Palm Springs, CA. That’s fortunate because it’s bad to increase your COL after retiring.

The states with the highest cost of living are Hawaii, California, New York, and Massachusetts. We’ll put these on our list too. Oh, the cost of living is also very high in Washington, D.C. Let me know if the cost of living is very high in your city/town. We can add it to the list.

Here is a nice site to compare the cost of living between two cities. I also used this site to figure out local taxes.

Worst States to live after FIRE

Alright, here are the winners! This is for a family with a net worth of between $2 million to $5 million. If you’re worth more than this, you definitely need to talk to an estate planner.

worst states

If you live in any of these states, you might want to consider relocating to a more affordable location. Let me know if there are any mistakes here.

We like living in Portland so it’ll be difficult to move. However, Oregon is not a good state to retire in and we can’t stay here. Here is our tentative plan.

  • Move to Palm Springs when our son goes off to college. Mrs. RB40 has family in that area so we need to live there for a while.
  • Once we’re not needed in CA anymore, we’ll establish residency in Florida or Nevada. These states do not have an income tax or estate tax. I plan to travel a lot more extensively at that point and live around the world.
  • When we got tired of traveling, we’ll settle down in a location with a low cost of living and a low tax burden. It needs to be a good fit for us too.

Alright, now I need your help. Please tell us if your location is a particularly bad place to retire. We need to build this list so we can avoid these places. Oregonians, what do you think? Will you retire in Oregon or move across the river to Washington? Our lawyer told us many well off Oregonians are doing this.

Here is my friend’s post about Rhode Island – Why FI in RI.

If you want to build your wealth, signup with CrowdStreet to see the projects on their marketplace. There are quite a few impressive hotels and apartment complexes on offer right now.

Image credit: Zack Spear

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Joe started Retire by 40 in 2010 to figure out how to retire early. After 16 years of investing and saving, he achieved financial independence and retired at 38.

Passive income is the key to early retirement. This year, Joe is investing in commercial real estate with CrowdStreet. They have many projects across the USA so check them out!

Joe also highly recommends Personal Capital for DIY investors. They have many useful tools that will help you reach financial independence.

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67 thoughts on “The Worst States to Retire In”

  1. To me it’s just insane that people as privileged as the ones writing in this comment section (most have probably had a decent upbringing) would complain about wealth being taxed to pay for better schools and more equal opportunities. Noone deserves to inherit anything, especially not a million dollars.

    Really disgusting to see. Shows that wealth does not increase moral capacity and that the support for true meritocracy doesn’t exist in the community.

    Myself, I’m financially independent but also live in Scandinavia so I may have a different perspective for that reason. I’m more than happy to pay taxes.

    • “Noone deserves to inherit anything, especially not a million dollars.”

      Rubbish comment. With this logic, people should be shamed for using personal funds to provide their children an advantage. After all, the children didn’t earn the money through merit.

      Also, I doubt OP would be more than happy to pay taxes if the rate crosses a threshold that they consider to be too high.

      A Swedish friend once told me that Scandinavian countries enjoy wagging their finger at others. I suppose it’s true.

  2. Personally, Virginia and Mass. are my least favorite states for taxes as I’ve been audited by both. Virginia, especially Fairfax County has been my worst location to deal with. They regularly lose paperwork, come up with reasons to fine you. Tax you on vehicles you haven’t owned in years… Re-register vehicles of past residents which they see in front of residences for over two weeks and then come after you for taxes as well.

    Not a state I ever plan on living in again. Now that the rant is over, I highly recommend looking at the states which RV owners register their vehicles in. Especially if you plan on going full-nomad for a bit while you travel. The normal trinity is Florida, South Dakota, and Texas as they’re 0% state income tax states with loose laws on residency. For example you can register in South Dakota after a couple of days in a hotel/camp ground. There are even organizations which help with mail forwarding and domicile registration in these states.

    The other two you’ll often hear are Tennesee and Nevada as they also have 0% state income tax. You must have a physical residence for Tennessee though.

  3. Do the death taxes hit all inherited assets or only ones that go through probate? We recently created wills — note we have fewer assets, but still! — and since most of our assets were in retirement accounts (with beneficiaries) or bank accounts (with co-owners, POD, or beneficiaries), or Vanguard brokerage (with beneficiaries) I left wondering what money would actually be in the estate at all, other than the house and such. Plus, we’ll probably let our term life insurance expire because we mostly got that to cover the mortgage which is paid off. Still, it felt better to have a will in place. It’s interesting, for the retirement I just worry so much more about health care cost… but I’m in VA which doesn’t do any death tax.

  4. Hey man, great post! Definitely think NJ should be on the list. You mentioned it several times above, but also have to look at home prices and local property taxes more closely in NJ. Looking at a random town in NJ, about 30 miles out from NYC: Allendale, NJ at a median listing price of $774900. I pulled up sample house in that town worth $750,000. property tax on a home at that cost: $16,000. side of the house: 3 bd 2 ba 2,495 sqft, sits on about 0.5 acres. So this house is reasonable size for a family of 3, but the property tax is huge! and yes, you can always argue you can downsize, but downsizing in NJ gets you much less house and cost will still be high as well as corresponding property tax. I looked up a random house in Portland for similar price: $771,304 6 bd 3 ba 4,783 sqft, property tax: $12,596!!! so in Portland, the main city in OR, you get more house and $3,000 less tax than comparable NJ home that is outside NYC.

    Some other nuances: NJ has sales tax. NJ does not have 529 state tax deduction for your child. And for tax loss harvesting losses cannot be carried over in future years.

    some asset protection nuances: Oregon has a homestead law. NJ none. also whole life insurance cash value is not protected in NJ from bankruptcy (for those of us who made the mistake of buying a policy and was able to see it through)

    There is also an exit tax in case you find out your retirement is being torpedoed by the high cost of living.

  5. After living in PA,IL,MI, and IN, we moved to lower Alabama (the other LA). We finished med school; and the Army and decided that in family practice , we could live any where . Our ultimate decision was -why not live where you would like to retire. That was 41 years ago and we are still here. We have low taxes, beautiful beaches, great hunting and fishing and good weather. My only problem was finding somebody to take over my practice last April.

  6. Thank you for this informative post! I consider myself to be pretty tax-savvy, but I never thought about state inheritance and estate tax! I live in California, so taxes are pretty high across the board, but I am glad to see we don’t have to worry about inheritance/estate taxes. I am pretty far from retirement so we will see how things change in the next few decades.

  7. Hmm, not too bad. South Africa has 20% estate tax which is super high I feel. My US assets though as a foreigner attracts up to 40% estate tax… On top of that theres up to 4% fee on assets for the estate planner on distributing the assets in winding up an estate so we always advise people to get a family member to wind up the estate to save on fees.

    Income tax is 45% once you reach $80k of income.. Dividends taxed at 20% from the first dollar.

    It seems South Africa would be a worse state than Oregon had it been in the US, lol.. The saving grace? LCOL and weather. Property is super cheap relative to the US. And 300+days a year of outdoor weather.

  8. I love this article so much. Thanks, Joe. Palm Springs has a lot of adjacent communities that are safe, clean, secure access to water, power generation and fire/life services and still don’t have that Cali price tag. Perfect for older family.

    One thought to share, is 38 states (including OR, CA, and FL) do not levy income tax on Social Security. One could delay S.S. until 72, while drawing down the income-generating holdings.

  9. Some good points in here that I hadn’t considered in so far as a retirement destination, Joe! I’ve mostly just looked at more immediate concerns:
    – Cost of living
    – Access to nature (national parks, a coast, etc)
    – Cultural attractions (especially free things, like Museums)
    – Access to transit (major airport for travel purposes, local transit)

    One element that might be easy to overlook when considering those high state taxes is the health insurance market within the state. Even the ACA has dramatically different offerings depending on the state you reside in, and very different subsidies or price limits. Our ACA shopping has been pretty fruitless in VA while my buddy in CA actually has good options and subsidy possibilities.

  10. Hi Joe,
    I’ll play devils advocate since I’m in a similar position… Live in the ‘burbs in portland, and work at a company that you’re all too familiar with… I’m actually working on my will right now, and have been looking at the estate tax… Here’s my take:
    1) At some point, people who can bear the tax burden should… Big corporations optimize for their local tax cuts, and so does everyone else… Personally, I wish portland area public schools were better and the state universities were top-tier… That’s only going to happen if theres a tax base to support it.
    2) Over the next 30 years, how many times do you think your portfolio will drop 10-15% in value? Are you as concerned about that? Sure, when we die, we will pay 10-15% in estate taxes, but if your heirs invest what they get wisely, it should recover in a similar way.

    • I don’t think the estate tax is the way to go. CA and WA have top tier state universities and their estate tax structures are a lot better. IMO, OR should update our tax structure to be more similar to CA. Maybe reduce income tax to around 5% and add sales tax. But we all know that will never happen.
      As for #2, that’s a good point.

  11. As a NY state resident cost of living is highly dependent on where you live. It is a much much bigger and varied state than most think. NYC and surrounding areas does indeed have a high cost of living. But there are huge swaths of rural and non-mega cities that are very affordable. Look at Buffalo as far as cities and the Adirondacks for more rural. Especially when you factor in property cost. Also a lot of property taxes are highly variable depending on where you live. What school district you live in can vary your taxes immensely. And then there huge variations between what city/village/town/county combination you live in. Not to mention discounts for various things.

    All in all I think as others are pointing out things are much more varied than just state to state. To really decide where the best place to live even in just the strictly financial sense you need to drill down at least to the county. And possibly even to the down the city/village/town. And weigh what you get for those taxes.

    And people need to remember, many states have huge variation from mega-cities to rural farmland to deserts to mountains, etc.

    • Thanks for your input. It’s similar to Oregon. Portland is a lot more expensive than other locations.
      I think that’s mainly due to the high housing price, though. The tax burden would be just 1-3% more if the housing price is similar to cheaper areas, I think.
      The estate tax and income tax are statewide. So it still isn’t the best state to retire to, IMO.

  12. Joe, Oregon does have what is known as a Beneficiary Deed (Oregon calls it a Transfer on Death Deed I think). I highly recommend this above a will for real estate. It is cheap, and allows you to avoid probate which is expensive. A Will is a good back up plan for real estate. Bank accounts have a POD (Payable on Death) you can list secondary beneficiaries after your spouse, and same with financial accounts which have a TOD (Transfer on Death). The biggest problem with Wills are they frequently disappear. Sometimes they are lost, and other times a beneficiary who doesn’t like it makes it purposely lost. Courts frequently presume that a lost will (even if you have a copy) means the testator destroyed it thereby revoking it. Life insurance typically does not pass through a Will. I know you have some crowdfunding real estate. Most of these allow for a TOD, but not all. These are the assets most people will spend money to probate if necessary. And if set up correctly, then probate is not required. Having a Will can cover you if you mess up on setting up a current asset or a future one when you just were not thinking about your estate.

    I live in Arkansas, and I would probably put it in the middle. Not good, but not bad. There is no inheritance tax in Arkansas. However, property taxes and sales tax and income tax are probably average.

  13. Thanks for this post. This reminds me to complete our will and probably need to start on estate planning too. I live in WA and I thought it’s not too bad. No income tax so it worked while we were working and groceries are not taxed either. I thought that our property tax is high but it’s not as bad as OR, but 20% on estate tax above $2.193MM. Yikes – we definitely need to talk to a lawyer. Would love to get your tips on “What to ask a lawyer regarding estate planning?”

    • Sorry, I made a mistake. WA has a graduated estate tax rate. Starting at 10% and goes up to 20%.
      Unfortunately, I don’t have any tips. We were hard-pressed trying to keep up. I’ll think about it a bit.

  14. That’s really interesting about Oregon. For whatever reason, I would have thought it would not be considered a bad state to retire in (financially). Do some digging into moving to CA – once you move there, it can be extremely difficult to change states and travel. I understand that CA is extremely aggressive in chasing after folks who go that direction.

    As far as our state goes, one of the reasons we changed our state of domicile to Texas was that they don’t have state tax there. That said, I know the property taxes can be pretty high there – especially where my brother lives. Not owning a home there gives us the best of both worlds there. I had to look it up, but it appears TX doesn’t have an estate tax either so that’s a bonus.

    And I guess the cost of living is good when you live in Panama for most of the year! 😉

    • Moving out of CA to another state isn’t a tax problem if you REALLY move out of state. Especially if you’re a regular person. If you move to another state and leave “nothing” behind in CA (no checking account, no personal real estate, no storage unit, no job etc) and don’t spend an inordinate amount of time here there’s not a problem.

      Now if you’re Elon Musk and move to TX but still spend months out of year in CA and would otherwise owe CA tons of money, yes they’re looking for you.

  15. This was a very informative post, Joe. Thanks. Yea CA where I live I super expensive. And you’ve noted CA in this article. Some areas out here are cheaper than others, but this is just a good state to make money, not so good to retire in. There are some pretty good public services though because our taxes are higher. We plan to change residences to Nevada when we hit FIRE. The Lake Tahoe Nevada area is a gorgeous place were eyeing and it’s not far from our Bay Area friends and family.

  16. great post here, joe. ny state is pretty horrible across the board for all taxes and being in a small city we don’t even get the high salary benefit of the ny city area. if i had to try and distill the biggest two key points for me it would be these. 1. you really have to enjoy where you live as best you can. you mention family proximity and just overall enjoyment of an area and that really is huge for us, even if it costs a little more. 2. you mention setting up a trust and i think that is a great way to go. there is also medicaid availability if you need long term care and a trust largely takes care of that (i think). we don’t have any kids so we’ll not likely set one up. our heirs can just take the hit and enjoy the scraps left over. i do know the sooner the better is a good idea as there is a long “look back” period.

    • I agree. We need to find a place that’s a good fit for us. I wouldn’t want to live where people are anti-immigrant, for example. I looked into trust more and it’s not that great. You avoid the upfront taxes, but the income is taxed heavily. It’s best to pass down the estate to the beneficiary if possible. So live in a state with large exemption would be best for us.

      • Would you be able to share your research on trusts? My understanding is that it will be the same or better than a will from the tax perspective. And the trust gives a lot more power and control over what happens. Trust is the way to go. The only downside to the trust is it requires time and effort up front to set up. (It also costs money, but it avoids probate which also costs money, so from a cost perspective probably a wash.)

        • I’m still learning about trust. I’m not an expert, but here is what I learned.

          If your net worth is over $2 million, you probably should talk to an estate planner. Life insurance payout will count as part of the estate. If someone passes away, a trust will be created and part of the estate can be sheltered to minimize estate tax. I think this is an irrevocable trust. Actually, I’m not sure. I need to check with the lawyer.

          We talked a bit about creating a living trust (revocable trust), but I don’t think it’s worth it at this level of net worth.
          Also, the lawyer said you need to update the trust as you acquire properties and investments. Most people tend to leave things out as time passes, then it gets messy.

          Lastly, I think trust is taxed more than an individual. I’m not sure, though. There might be some tax disadvantages in the long term.

          • You should do more research on trusts. Living trusts are not taxed. From a tax perspective, they are a disregarded entity and are not separate from the person setting up the trust (the grantor or settlor or trustor… so many terms!). Basically, the idea is that in a living trust, you still retain full control and can take property out, put it back in, change the terms, or revoke the trust completely. It basically devolves to you. But it does help avoid the messiness of probate and is a huge benefit.

            Other benefits even with a living trust is anonymity. I named my living trust after my real property address “1234 Main Street Trust” vs. the more common “The John and Jane Smith Living Trust”. Even though it’s revocable, most people just assume it’s an irrevocable trust from the name. And you can see how naming the living trust after yourself provides no anonymity.

            When you talk about taxes on trusts, that’s for the irrevocable trusts. Once you set those up, you no longer retain control and it is indeed treated as its own entity. The irrevocable trust will get its own tax EIN. Any income earned by that trust will be taxed at the trust rate, which ramps up much faster than individual rates. But if the income is minimal, say dividends, it may still be beneficial. Also, there’s no law against setting up 15 irrevocable trusts, all with the same beneficiary (say, your son) and then gifting each of those 15 trusts $15,000 each per spouse per year tax free. That’s $450K you’ve just transferred out of your estate.

            Check with your lawyer, but not all trusts are the same type and they are very powerful.

          • Thanks for your input. I’ll check with the lawyer to make sure it’ll be an irrevocable trust.
            It’s somewhat confusing to me.
            Also, naming the living trust after an address is a good trick. Maybe I can name it RB40 Trust or something like that.

  17. I think you have to put Rhode Island back on the list for the estate tax. According to Smart Asset (

    “Rhode Island Estate Tax for Married Couples

    The Rhode Island estate tax is not portable between spouses. This means that when both members of a married couple die, only a single exemption of $1,537,656 applies, not double that figure.”

    So in the hypothetical example of the car accident, 1.5M-ish would be taxed. The same article has a chart that I may be misreading, but it seems like 8.8% would be taxed, or around a $132K tax bill (on the remaining 1.5M of the estate).

    Rhode has about and average of 3.5% of income tax (it’s progressive), 7% sales tax, and property tax of $1,533 per $100,000). So for your example ($100,000 income) it would be: $3,500 (income) + $4,600 property ($300K house) + $3,500 sales ($50,000 at 7%) – or $11,600 (11.6%)

    The Cost of Living in my area of Newport, RI is about 14% lower than NYC according to the calculator. It is 3% MORE than Seattle (which I consider to be relatively HCOL from what I’ve read.)

    In total, I think Oregon is worse, but I think that RI could place.

    This is great financial analysis. However, when I tackled the question on my blog, I focused on the quality of life: few natural disasters but great nature, decent medical facilities, little or no consideration for good jobs or schools (you aren’t working and the kids have moved out). Rhode Island checks a lot of boxes.

    • Thank you for the update! I missed that the RI estate tax is the same for married and single. That makes a big difference if both spouses die at the same time. The portability issue also exists for OR if one person dies first. That’s why we need a trust if one of us goes first.
      I put RI back on the list. The tax would be around $71,000 for a $3 million estate.

  18. Makes moving 10 miles North to Washington look pretty appealing doesn’t it?

    Yeah Oregons state income tax is surprisingly regressive. The 9% rate starts quite low and all but poor people are paying 9% on most of their income. People would think states like California would have higher rates but their brackets are more progressive and low and middle income CA income tax rates are lower.

    Your property tax rate is awful. Mines half that.

    I’m pretty sure you could avoid that Oregon estate tax bill given your cited figures. I don’t think life insurance is taxed for one. (could be wrong but fairly sure its not counted).

    • Our lawyer said life insurance is included in the estate. That would push a lot of people over pretty quickly. I’m sure a lot of people have a $1 million policy. Right, our property tax is very high. Luckily, our assessed value is pretty reasonable. Newer homes are taxed a lot more, I think. Our next-door neighbor pays more than 2x in property tax. It’s a bigger home, but still pretty crazy.

      • I don’t think that is right, because your estate shouldn’t generally be the beneficiary of the policy. I’m not usually one to argue with lawyers, but Google backs me up. You should ask him to explain why this is not the case for your situation.

        Our Next Life has a post called “Don’t Write Off High-Cost States for Early Retirement” that is worth considering.

        I’ve recently became pretty convinced that property tax systems that systemically tax new homes at assessed market values, while older homes taxes remain much lower, are deeply unfair. California Prop 13 is famous for this. I benefit from it a bit already, but I think it needs some serious reform.

        • It’s pretty confusing, but life insurance is part of the estate. It’s not subject to income tax. Also, the spouse is exempt from estate tax. However, it is part of your estate. It doesn’t matter who the beneficiary is for estate tax purposes. It’ll be taxed if the estate over the exemption.

          Here is a pretty good explanation.

          We want to travel internationally for several years. In that case, I don’t see why we should pay high taxes when we don’t even live in the state. When we come back, we’ll try several locations to see if they’re a good fit. CA is in the card because we have families there and the weather is great.

          I’m not sure about the property tax system there. Here the assessed value goes up if the home is remodeled or getting some work done.

  19. I had assumed that CA would top the list for various reasons but I think we need to crunch a lot more numbers to see how much it affects our standard of living. Arguably for us, since this is our baseline, it almost doesn’t matter since we’re already paying the higher costs and so many of our friends and family are here. There’s a high non-monetary cost for me of having to rebuild a life and community from scratch to factor in. If we left the state, I would need to move to a place where we had at least one or two friends within very close proximity. I don’t like having to start entirely from new, it took me a decade to build any kind of community here in the Bay Area.

    • Actually, CA is not so bad for a family with moderate income and net worth.
      We’d pay less state and local tax if we move to CA. Oregon is terrible.
      I don’t even know why Californians move to Oregon. I guess at the higher income level, it’d make more sense.

        • And they aren’t thinking about things like inheritance or estate taxes when they move. And maybe never bc they’ll be dead when it happens.

      • Yeah, CA income taxes aren’t so bad at all if you only make $100k or so. It starts hitting hard at $250k or so, but not many retirees pull in that much in income.

        Palm Springs has been nice during the Pandemic. I have been going out there about once a month, although I skipped the summer, which is super hot.

  20. Hi Joe, very good topic. I hate taxes, no matter what taxes. The inheritance tax, estate tax are the worst. The government even don’t let it go for the people who died. How horrible is that? Double tax, triple tax people, while they just squander people’s hard-earned money away. In 2013, Ohio got rid of inheritance tax and estate tax, and Governor Kasich did a good job.

    • That’s great. I saw Ohio on some older list.
      Oregon is really bad with the estate tax. I don’t think people realize how easy it is to go over $1 million. It’s not hard once you include life insurance and a house.

  21. I live in Maryland. My 72-year-old widower father lives in Maryland. My in-laws used to live in Maryland… but now live just over the border in Pennsylvania. ?

    We have enough — and our parents and siblings have enough — that it’s not a big concern; her folks worked lucrative careers with terminal degrees for thirty years, and my dad has a cushy CSRS pension, but I’d be absolutely shocked if either estate comes to more than two or three million… and I hope they spend it way down and enjoy life first. And when it’s our time to worry about that sort of thing, who knows where we’ll be or what the political and economic climates will present as options.

    Do life insurance payouts count against the value of an estate for tax purposes?

    • Your in-laws should talk to an estate planner. It looks like the PA inheritance tax has no exemption at all.
      So you’ll have to pay 4.5% on any amount. The estate includes everything, house and life insurance too.

  22. Hi Joe, Tough topic due to all the possible permutations. I believe the correct answer is: “It depends”. For example, both my wife and I are Massachusetts residents and each of us receives a federal pension. In MA, federal pensions and social security are not taxed at the state level, so we save thousands each year in taxes. We have also lived in the same large house in a relatively inexpensive town (with a great school system) and have paid reasonably fair real estate taxes for nearly 30 years. It is only close to or in the big cities like Boston and resort areas like Cape Cod or the Berkshires that the cost of living is sky high. But where we live our cost of living is quite tolerable, while our lifestyle and amenities are excellent. Of the costs that you have listed, the one that raises our blood pressure is the estate tax with a threshold of only 1 million. So for us, we believe that Massachusetts has been one of the best places we could have lived after we achieved FIRE.

    • Thank you for your input. I didn’t know MA doesn’t tax federal pensions and social security. That’s a great benefit.
      We need to visit and check it out. My brother went to Harvard so I visited Boston once. Didn’t get to explore that much.
      Have you talked to an estate planner? They can help you set up a trust to minimize the estate tax.
      I think it gets complicated pretty fast.

  23. Well, I live in Washington State and it’s generally not too bad. Property taxes might be a bit higher than in Oregon however.

    As far as moving to the other side of the river — There’s a good reason why Home Depot and all the furniture/appliance stores are *just* on the Oregon side of the river. Vancouver residents have the advantage of paying no income tax, and being very close to a no-sales tax region. Food isn’t taxed in Washington either, so it’s pretty easy for retirees to live a fairly low-tax life.

    It’s certainly a strategy Mrs. Tako and I are considering.

    • WA has a 20% estate tax when you go over the exemption of $2 million per person.
      That’s the highest rate in the US. I think you guys will get there pretty soon. You might already be there if you have 2 life insurance policies. Of course, it’d be great if you are closer to us. We can visit in person.

      • Actually that 20% is only the top level. That’s only when your estates is over $9 million per person! Most people pay a lot less, with the first $2 million falling under the exclusion.

        After that first $2 million, the next $1 million is subject to a 10% tax. So its really not that bad unless you’re extremely wealthy.

  24. The PA situation is more complex then you have written. You see PA taxes money going into a 401k and not coming out. The exact opposite of other states. So it’s possible to move there and effectively get the money out of your retirement accounts state tax free.

    I wouldn’t move there due to climate, and you would want to move before death or gift tax away. But it gives credence to nothing is as simple as it seems.

    • Really?! That’s very interesting. You still have to pay Federal tax, though. I don’t think it’ll be a huge consideration at this level, $3-5 million. The inheritance tax rule is horrible, though. Even a son has to pay 4.5%. That’s a big deal.
      It still seems the state/local tax is quite high compare to other states.

  25. As you know Joe I’ve done a lot of these state comparison analyses. This one would get complex, and considering full state taxes across the board get complex quickly. Take Maryland for instance (I was born there and lived there for 30 years). As you said they have both inheritance and estate taxes. But when you look at their state income tax rate, it looks relatively benign – however there’s also a county or “local” tax in MD for every county and some of them are outrageous! So depending on which county you consider it can be almost double. Maryland also has tons of other small taxes that add up like snack taxes etc. I’m sure MD should be on the ‘worst’ list but there are so many factors to consider.

    The reason I haven’t tried a post on this is because exactly that, a real analysis that tries to be comprehensive would be very hard and take a ton of time. And in some states it depends on the county. This is a good post though and one should always consider inheritance and estate taxes when retiring.

    • I just checked the MD county tax and it doesn’t look that bad, from 2.5 to 3.2%. Our local tax varies too. Portlanders pay 1-2% more than other Oregonians in property tax. Of course, the cost of housing is more expensive in Portland as well.
      I don’t think MD is that bad. However, if the estate is over $10 million with no direct descendent, the death tax will be big.
      You’re right. It’s hard to compare across so many locations. That’s why I just try to put a list of worst states here. At least, we can try to avoid these places.

  26. A very informative article. I didn’t know about the various taxes in the U.S. and how these taxes vary from state to state.

    Here in Canada, I live in the province Alberta where there is no estate, inheritance, of sales tax. All other provinces have a sales tax. There is a Federal sales tax (GST) of 5% applied in all provinces.

    On an income of $100,000 in Alberta, I as a single person would have to pay a total of around $27,000 in income taxes (includes Federal and Provincial). Even so, I believe that Alberta still has the lowest tax burden of all provinces.

    Having said that, I wish I had a lot more money so that I could to Honolulu for at least half of the year and spend a lot of money there and pay a lot of taxes there.

    • That’s not bad at all. I think we pay more than 27% in Oregon. We have federal tax, state income tax, and property tax.
      The online calculator says we pay around 30% in taxes. That’s not including property tax. Although, we have some deductions we can take advantage of. So we pay closer to 20% in federal and state tax.
      And you guys have healthcare.

  27. You already have CA covered 🙂 2 points since you plan to move here.
    1) CA is very aggressive with taxes. If you exit and still spend sufficient time in CA they will come after you. CA FTB has been known to ping cellphone towers and go through your garbage to extract their taxes. Not canceling your library card or golf association are also triggers.
    2) Exit tax in CA: A person subject to the tax who chooses to leave the state will still be subject to it for ten years, at a sliding scale, amounting to a 1.80 percent exit tax.

    • The Exit Tax hasn’t been passed, yet, as far as I know. And there is language that it is unconstitutional. I really don’t think that a state can legally collect tax on someone who left up to 10 years ago. If California does it, then the rest of the states will follow and no one will ever be able to make money and move again. California is an awful state to live in COL and tax wise, but you can’t beat the weather.


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