When it comes to choosing a retirement destination, the big challenge is whittling down the possibilities. One critical factor to consider: how much of a bite local taxes will take out of your nest egg. This year we went in search of the tax-friendliest small cities in the country—places big enough to have the amenities that retirees prize, such as access to great health care and recreation, but still affordable and compact enough to be manageable. Starting with states that have the lowest overall tax burdens, we zeroed in on locales that offer breaks on income, Social Security, pension, estate, and other taxes. These 12—a winner and runner-up in each region of the country—rose to the top.
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Best in the Northeast: Bethlehem, Pa.
|AT A GLANCE (POP. 75,393)|
|Population over age 55||31%|
|Median home price||$153,000|
|Average property tax||$4,082|
|Top income tax rate||3.07%|
There was a time when you couldn’t talk about Bethlehem without mention of Bethlehem Steel. Once the nation’s second-largest steel producer, it shuttered its hometown mill in 1995, marking the end of an industrial era.
More than 20 years later the city has managed to reinvent itself while holding on to its history. The 10- acre mill site, now called SteelStacks, is an arts venue for concerts, film screenings, and festivals, including Musikfest, a 10-day event that is one of the country’s largest free music happenings.
Bethlehem, Pa.: Why It Wins
While it scores high on charm, Bethlehem also stands out by many practical measures. Retirees get plenty of income tax breaks, including no state tax on SocialSecurity benefits or retirement accounts of any kind. While local property tax rates are higher than average, the sales tax is among the lowest in the nation. Health care is superb. St. Luke’s University Hospital, a level 1 trauma center, has been recognized as one of the nation’s top cardiovascular hospitals.
Tom Stine and his wife, Lenore, both 60, traded their large house in the country for a townhouse near the redeveloped 1,800-acre Bethlehem Steel site. “The south side of the river is very bohemian,” says Stine, citing Lehigh University and an eclectic mix of restaurants. On the north side is the historic district, with cobblestone streets and buildings dating back to the mid-1700s.
what else is great:
The city has benefited from an influx of artists and professionals as well as retirees. “Bethlehem has grown because of a resurgence of people who want to live in walkable and safe downtowns,” says Don Cunningham, who was mayor when the steel mill closed and is now CEO of the Lehigh Valley Economic Development Corp.
Residents can easily get by with one car, thanks to a compact layout and network of cycling and pedestrian paths. “I don’t drive for weeks at a time,” Stine notes. That said, it’s a short jaunt to the Pocono Mountains, less than an hour to the north, or the New Jersey Shore a couple of hours east. New York City, 80 miles away, is also an easy day trip.
Buyers interested in new construction may be frustrated, but some 250 apartment units are currently being built.
Northeast Runner-up: Nashua, N.H.
MONEY’s first No. 1 Best Place to Live, way back in 1987 (and No. 16 on this year’s list), Nashua still has plenty to offer: low taxes, affordable housing, and the ambiance of a quintessential New England town. It’s also ideal for exploring the White Mountains, Atlantic Coast, and nearby Boston.
The Granite State levies no sales tax. Income tax is limited to 5% on dividends and interest, though residents 65 and older get a $1,200 exemption; there is no Social Security or pension tax.
Best in the Southeast: Hollywood, Fla.
|AT A GLANCE (POP. 147,472)|
|Population over age 55||32%|
|Median home price||$198,000|
|Average property tax||$3,995|
|Top income tax rate||0%|
In the 1920s developer Joseph Young arrived in Florida with a vision of turning the pine forests and marshland 20 miles north of Miami into a “dream city,” with wide boulevards, grand hotels, and a promenade stretching along the Atlantic Ocean.
A devastating hurricane and the Great Depression were major setbacks for Young, who died in 1934, but the foundation was laid for the place he called Hollywood. Between 1955 and 1975, the population grew from 23,000 to more than 120,000. Mid-century beach bungalows and ocean-view condos from that era continue to attract new buyers.
“It’s the location, the style, the lifestyle, the beach, the architecture— all contribute to Hollywood’s appeal,” says Lloyd Feinberg, a real estate agent and lifelong local resident.
Hollywood, Fla: Why It Wins
One word—“affordability.” Relative to other seaside towns, Hollywood’s home prices seem like a throwback: Think spacious one-bedroom condos and single-story homes for less than $200,000, compared with the Miami Beach median of $360,000. Florida levies no income or estate tax, and offers a homestead exemption of up to $50,000.
In November, Herb Schloss, 76, bought a 2,000-square-foot condo overlooking a golf course and relocated from New Jersey, in part to be closer to his significant other, Roberta, and his daughter.
“What I’m saving on taxes practically pays for the condo,” says Schloss, who was chief financial officer of a beverage distribution company. No kidding. The top income tax rate in the Garden State is a whopping 8.97%.
WHAT ELSE IS GREAT:
Retirees looking for culture will find it in spades, whether at events in ArtsPark at Young Circle or along the 2.-mile-long Hollywood Boardwalk. At the city’s northern end, the 1,500-acre Anne Kolb Nature Center is a popular sanctuary. Many of the spots are accessible via water taxi or the Hollywood Trolley.
While there is plenty to do in Hollywood, its location between Fort Lauderdale and Miami is a boon for retirees looking to explore the area—or get away. Port Everglades is one of the busiest cruise ports in the world, and the Miami and Fort Lauderdale airports are nearby.
Life at the beach comes with the risk of hurricanes—and at the very least, higher-than-average premiums for homeowners insurance.
Southeast Runner-up: Greenville, S.C.
This small city in the foothills of the Blue Ridge Mountains melds Southern warmth with a thriving downtown—and tops it off with a serious foodie scene. There are more than 100 restaurants within a mile of Greenville’s city center. A vast network of walking and cycling paths makes it easy to work off those calories.
South Carolina’s income tax ranges from 3% to 7%, but there are generous exemptions for retirees, as well as property tax breaks for those age 65 and older.
Best in the South: Sugar Land, Texas
|AT A GLANCE (POP. 87,205)|
|Population over age 55||35%|
|Median home price||$356,250|
|Average property tax||$8,210|
|Top income tax rate||0%|
Sugar Land traces its early history to—you guessed it—sugar. It was a 19th-century sugar plantation that evolved into a company town for employees of the Imperial Sugar refinery and was incorporated as a city only in 1959.
The refinery closed in 2002, and today the 26-acre site is being transformed into Imperial Market, a redevelopment project that will include shops, offices, restaurants, a boutique hotel, a children’s museum, and a cinema.
Sugar Land, Texas: Why It Wins
Sugar Land offers a relatively low cost of living with a high quality of life. The healthy business base—major employers include Minute Maid and First Data—translates to some of the lowest property taxes in a state where such taxes can run high. But there is no income tax, and homeowners 65 and older get an added $10,000 above the standard $12,000 homestead exemption.
WHAT ELSE IS GREAT:
The opening of Sugar Land Town Square in the mid-2000s gave the city a much-needed downtown hub. It’s now home to city hall, restaurants, and stores. A new performing arts venue, the Smart Financial Centre, will open early next year. Add to that a Triple A ballpark, acres of green space, and top-notch health care, and it’s no surprise the over-50 population has grown 20% since 2010.
Carol Cooper, 74, arrived two years ago following the sudden death of her husband and loss of her grandson, who was killed in Afghanistan. “I moved here to help my daughter heal, and to help me heal,” says Cooper, who lived most of her life in Washington State. She already knew about Sugar Land’s temperate weather, walkable neighborhoods, and proximity to Houston, less than 20 miles north. What she didn’t expect: just how quickly she would meet neighbors and make friends.
“People opened their arms to me,” Cooper says. She has since joined a book club, started volunteering at a senior center, and even taken up line dancing.
The prolonged slump in oil prices is starting to affect some pockets of the area economy. Of course, for new buyers that could mean more bargaining power in the housing market.
South Runner-up: Chattanooga, Tenn.
The “Scenic City” owes its nickname to its location on the Tennessee River Gorge. A host of improvements have turned Chattanooga into a destination for people of all ages. Highlights range from a 13-mile Riverwalk to 10-gigabit-per-second Internet for all residents and businesses.
Retirees have a new perk coming down the pike: This year the state repealed its estate tax and announced plans to cut its Hall tax on investment income from the current 5% to nothing by 2022.
Best in the Midwest: Iowa City, Iowa
|AT A GLANCE (POP. 72,042)|
|Population over age 55||23%|
|Median home price||$187,000|
|Average property tax||$3,553|
|Top income tax rate||8.98%|
When famous authors plan their North American book tours, the schedule often reads like this: New York, Los Angeles, Chicago … Iowa City. As the only Unesco City of Literature in North America, Iowa City’s writerly roots run deep. The University of Iowa Writers’ Workshop, founded in 1936, counts 17 Pulitzer Prize winners and six U.S. poets laureate among its alumni, many of whom return for workshops or the annual Iowa City Book Festival, a six-day celebration of the printed word held every fall.
Iowa City, Iowa: Why It Wins
Like most of our top retirement destinations, Iowa City punches above its weight in arts, entertainment, and sports offerings. Unlike some others, it has a relatively hefty state income tax, but low property taxes and breaks on Social Security and pension income help offset it, making this one of the tax-friendliest places in the Midwest.
Linda Farkas, 64, relocated to Iowa City from Milwaukee in 2007 with her husband, Ed, 62. Before the move, friends back in Milwaukee questioned whether the couple would be starved for culture. Then they came to visit the Farkases in their high-rise downtown condo, from which they walk everywhere.
“Now they keep coming back,” says Linda, who was a banker and sits on several boards. One big draw: the influence on the city of the University of Iowa, with its 33,000 students. “You have this concentration of people from all over the world who are doing amazing things,” she says.
WHAT ELSE IS GREAT:
Massive flooding of the Iowa River in 2008 did devastating damage throughout the city, but the rebuilding has brought some major upgrades, including the new Hancher Auditorium a world-class performance venue with seating for 1,800 people.
The floods also helped uncover more of the Devonian Fossil Gorge, where visitors can get a close look at a 375-million-year-old seafloor and fossils of tropical sea life. Today’s water lovers flock to the 5,000-acre Coralville Lake for fishing and paddling.
The chilly winter temps—January lows average 14Åã F—and distance to major metro areas can be a drag. Des Moines (and its airport) is about two hours away.
Midwest Runner-up: Rapid City, S.D.
Rapid City defies most of the stereotypes about the heartland. Flat? The city is the gateway to the Black Hills and six national parks and monuments, including Mount Rushmore. Its culture is as interesting as its topography. Life-size bronze statues of every past U.S. President dot the historic downtown. One place where Rapid City fits the Midwest mold? Affordable home prices.
There is no income tax, and sales tax rates are relatively low.
Best in the Mountains: Reno, Nev.
|AT A GLANCE (POP. 239,532)|
|Population over age 55||26%|
|Median home price||$268,250|
|Average property tax||$1,735|
|Top income tax rate||0%|
Reno suffers from a bit of an image problem (and the Comedy Central series Reno 911! didn’t help). Yet this city in the Sierra Nevada foothills is fast becoming a recreational and cultural sweet spot.
“Reno is just amazing,” says John Williams, 69, who with his wife, Julie, 68, settled here last year after more than a decade of living in the higher elevations (and harsher winters) of the Lake Tahoe area. The weather is a boon, with more than 250 days of sunshine and just 25 inches of snow. Reno is also great for exploring Northern California; San Francisco is four hours away, and Yosemite National Park is just three hours down the road.
Reno, Nev.: Why It Wins
Reno offers all the services of a major city, like a modern regional airport and excellent health care, in an affordable package. There is no state income tax, and property taxes—based on just 35% of a home’s market value—are low compared with most states, which assess based on full value. While Reno home prices have been on the rise in recent years, they remain affordable for the mountains and neighboring California, with a median well below $300,000.
WHAT ELSE IS GREAT:
These days gambling is hardly the only game in town. “We have a fine symphony and Broadway series, but we’re also close to skiing and hiking,” says Williams, a classical pianist who worked in symphonies around the country. “I just got back from the National Championship Air Races, and the week before that it was the Great Reno Balloon Festival,” he says.
Artown, a monthlong art festival in July, features nearly 500 events, most of them free. The festival kicked off more than two decades ago, with the goal of helping to revitalize the city’s downtown. Since then the area has continued to develop. The Riverwalk District, overlooking the Truckee River and Whitewater Park, a favorite with kayakers, is a hub of local activity.
The housing market is increasingly competitive, driven in part by healthy job growth. While that’s good news for the economy, it means inventory is tight for new buyers.
Mountains Runner-up: Santa Fe, N.M.
Artist Georgia O’Keeffe made this Southwestern town her muse and life’s work. In Santa Fe, it’s still all about color and landscape. While an abundance of trails lead into the red-hued Sangre de Cristo Mountains, 250 galleries in three art districts— Canyon Road, Downtown, and Railyard Arts—offer a lifetime’s worth of exploration.
Personal income tax rates are as high as 4.9%, but up to $8,000 of retirement income is deductible for those age 65-plus.
Best in the West: Spokane, Wash.
|AT A GLANCE (POP. 215,572)|
|Population over age 55||27%|
|Median home price||$152,000|
|Average property tax||$1,888|
|Top income tax rate||0%|
Walk along the Centennial Trail as it winds through downtown, beside the Spokane River, and you get a sense of why people retire here. Spokane supports big-city amenities, but Washington’s second-largest metro area is free of the gridlock and gray skies that send many Seattleites east to Washington’s high desert.
Proximity to the river and outdoor recreation make this an ideal place to pursue an active retirement. Golfers can choose from four municipal courses, while skiers have easy access to the slopes. Paved bike and walking trails traverse the city.
Spokane, Wash.: Why It Wins
One of Spokane’s top retirement draws is the absence of a state income or inheritance tax (there is tax on estates of more than $2 million). Housing is affordable, with median home prices around $150,000 and below-average property tax rates, which help offset the relatively high local sales tax of 8.7%.
Access to health care is another selling point. The Elson S. Floyd College of Medicine at Washington State University will welcome its inaugural class in 2017, contributing to an already booming regional medical hub that includes Providence Sacred Heart Medical Center and Children’s Hospital, Mann-Grandstaff VA Medical Center, and the Community Health Association of Spokane.
WHAT ELSE IS GREAT:
“There’s always something interesting going on here,” says Wayne Sheehan, 76, who moved to Spokane from Texas in 2014 with his wife, Marilu, 75. Perhaps one of the biggest “somethings” is the 40-year-old Bloomsday Run in May, with more than 50,000 people participating in the 12-kilometer race.
The mixed-use urban neighborhood of Kendall Yards has been an instant hit with homebuyers. The 77-acre complex, with a mix of single-family houses, townhouses, and condos, is a testament to Spokane’s commitment to development around the principles of art, green space, and sustainability.
Lifelong learning opportunities abound at Gonzaga and Eastern Washington universities, and culture vultures can get their fill at a number of performing arts centers, including the recently renovated Bing Crosby Theater, named for one of Spokane’s best-known native sons.
At four hours east of Seattle, Spokane can feel somewhat remote. There are 10 daily nonstop flights out of the city, but eastern routes go only as far as Minneapolis, and there are no international departures.
Correction: An earlier version of this story had an incorrect location for the Elson S. Floyd College of Medicine.
West Runner-up: Bend, Ore.
Just east of the Cascade Mountains, Bend is known for craft breweries, a hopping downtown, and an abundance of outdoor fun—thanks in part to 260 clear or mostly sunny days a year. That recreational bounty has paved the way for superb health care and cultural activities to match.
Oregon taxes retirement income at a higher rate than other places on this list, though it does not tax Social Security benefits. There is no sales tax, and property taxes are reasonable.