Settling Down

If you are trying to decide where to hang your retirement hat, TopRetirements.com suggests you forget about Connecticut. 

For the second year, the website has published a list of the 10 worst states to retire in. The 2012 list is based on five considerations: fiscal health, property taxes, income taxes, cost of living and climate.

Connecticut was ranked first on the “Worst States to Retire” list. TopRetirements.com attributes the state’s poor showing to its high property and income taxes. According to the website, most pension income in Connecticut is taxable. The state also had the third-highest tax burden of any in 2009. Rounding out the top 10 are:

Illinois. Its pension funding, deficit spending, unemployment and foreclosure rates are among the worst in the country. The state began to address its problems last year when it raised income tax rates. Although Illinois does not tax most pensions or Social Security, other earnings and investment income are taxed at a fairly high rate due to its 5% flat tax rate.

Rhode Island. The state has severely underfunded pension/health liabilities and budget deficits. It has the fifth-highest median property taxes paid.

Vermont. Vermont has an especially high median property and income tax, with a top-10 cost of living.

Massachusetts. A retiree living here would face property taxes among the nation’s highest. Even though Social Security income is exempt, income taxes can be high because of the flat rate applied to other earnings. Most government pensions are exempt, but private sector ones are taxed. Also, the cost of living in Massachusetts is high.

New Jersey. The median property tax in this state is the steepest in the U.S., at $6,579. New Jersey also has the greatest tax burden, a large budget deficit issue and a very high cost of living. The state has both an estate and an inheritance tax. One advantage to living in New Jersey is that the state excludes most pension and Social Security income for couples making less than $100,000.

Minnesota. A retiree couple living in Minnesota would receive the fourth-highest income tax, thanks to the absence of any pension or Social Security exceptions in the state. Property taxes are just below the top 10. Minnesota also has a large budget deficit issue.

New York. The Empire state has the fourth-highest median property taxes and one of the largest tax burdens. It does, however, offer generous exemptions for Social Security and pensions, along with a high standard deduction. The cost of living in New York is one of the highest.

Maine. The property taxes in Maine are much lower than in New York; however, a retiree couple here would be taxed $1,000 more for income taxes. The cost of living is much less expensive in Maine, which is a plus.