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Many people consider relocating when they retire to reduce their cost of living and make their savings last longer. When weighing the pros and cons of moving to another state, it’s important to consider the total tax burden there, including state and local taxes on retirement income, property tax, even sales tax. Some areas with a lower tax burden have a higher overall cost of living, which can cancel out any savings.

Below we look at the best states to retire in for taxes and how to tell if moving will be worth it.

Most Tax-Friendly States for Retirement

A number of states exempt Social Security income from state taxes. A smaller number offer a tax break on other retirement income, such as IRAs and 401(k) plans, private pensions, interest, dividends, and capital gains.

These are the 10 tax-friendly states for retirees, according to Kiplinger:

1.    Mississippi

2.    Tennessee

3.    Wyoming

4.    Nevada

5.    Florida

6.    South Dakota

7.    Iowa

8.    Pennsylvania

9.    Alaska

10.    Texas

But before you complete that change of address card, you’ll want to look at the bigger picture.


💡 Quick Tip: How much your home is worth impacts your property taxes, homeowners insurance, and net worth. Online tools can help you easily estimate home value whenever you need it.

Factors to Consider When Choosing the Best State to Retire In

When choosing where to retire, it’s wise to first consider issues like safety, access to healthcare, distance to friends and family, or living near other people of retirement age.

Make a list of features that are important to you in a retirement locale, and consider whether any of them could indirectly impact your cost of living, such as being close to friends and family.

Then look at the total cost of living in an area: housing, food, transportation, cultural activities, and other expenses. These retirement expenses generally have a bigger impact on one’s lifestyle than taxes.

Finally, to determine whether a state is tax-friendly for retirees, look at the following:

Does the State Tax Social Security?

Generally, Social Security income is subject to federal tax. But some states also tax Social Security above a certain income threshold, while other states offer tax exemptions for individuals in lower tax brackets.

The states that tax some or all Social Security benefits are Colorado, Connecticut, Kansas, Minnesota, Missouri, Montana, Nebraska, New Mexico, Rhode Island, Utah, Vermont, and West Virginia.

Does the State Tax Pensions?

Many states tax income from pensions, but 14 states do not. These states are: Alabama, Alaska, Florida, Hawaii, Illinois, Mississippi, Nevada, New Hampshire, Pennsylvania, South Dakota, Tennessee, Texas, Washington and Wyoming.

And these 13 states do not tax income from 401(k) plans: Alaska, Florida, Illinois, Iowa, Mississippi, Nevada, New Hampshire, Pennsylvania, South Dakota, Tennessee, Texas, Washington, and Wyoming.

Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, Washington, and Wyoming have no state income tax.

Recommended: Tax-Friendly States That Don’t Tax Pensions or Social Security Income

Other Taxes That Affect Retirees

When choosing the best state for you to retire in, it’s a good idea to look into sales tax and property taxes too. States that don’t charge sales tax are Alaska, Delaware, Montana, New Hampshire, and Oregon. On the other hand, New Hampshire has very high property taxes, reducing the benefit of no sales tax.

Recommended: When to Start Saving for Retirement

States to Avoid When Retiring

Choosing the best state to retire in sometimes means making compromises. If safety and healthcare access are top priorities, for instance, you may not get your ideal weather. But for many retirees, a high cost of living is a deal-breaker.

Here are the 10 states with the highest annual cost of living, according to a 2023 analysis conducted by GOBankingRates:

1.    Hawaii: $124,486

2.    Massachusetts: $100,325

3.    California: $92,829

4.    New York: $90,821

5.    Alaska: $83,995

6.    Maryland: $83,058

7.    Oregon: $81,786

8.    Vermont: $77,904

9.    Connecticut: $77,235

10.    New Hampshire: $76,766

Recommended: Avoid These 12 Retirement Mistakes

The Best States to Retire in 2024

As noted above, the best state to retire in will depend on an individual or couple’s budget, lifestyle, and values. But recent trends may help point you in the right direction.

These are the top 10 states that retirees are moving to, according to United Van Lines’ annual National Movers Study:

1.    Wyoming

2.    Delaware

3.    South Carolina

4.    Florida

5.    Maine

6.    Arizona

7.    New Mexico

8.    South Dakota

9.    West Virginia

10.    Alabama

If cost of living is your sole concern, the following are the 10 least expensive states, according to Bankrate:

1.    West Virginia

2.    Mississippi

3.    Iowa

4.    Alabama

5.    Missouri

6.    Oklahoma

7.    Indiana

8.    Kansas

9.    Wyoming

10.    Arkansas

States with the Lowest Tax Burden

An area’s total tax burden is the sum of all property taxes, sales taxes, excise taxes (which affect the price of goods), and individual income taxes. Below are the states with the lowest total tax burden for retirees.

States With the Most Millionaires

One way to measure the overall desirability of an area is the number of millionaires who live there. After all, millionaires can afford to live in states that have high-quality healthcare, nice weather, and diverse cultural offerings. These are not the cheapest states in terms of cost of living or taxes, but their popularity may help non-millionaires reevaluate their must-haves vs. nice-to-haves.

Does It Make Financial Sense to Relocate in Retirement?

For workers who already live in a state with moderate taxes, near family, and have a lifestyle they enjoy and can afford, there may not be any compelling reason to move. But for those looking to make a change or lower their retirement expenses, it may make financial sense to relocate.

Just remember that housing, food, transportation, and other expenses usually have a bigger impact on one’s retirement lifestyle than taxes.

Pros and Cons of Relocating for Tax Benefits

Lower taxes alone may not be enough to motivate someone to pick up and move house. Other factors should also support the decision.

Pros of Relocating for Tax Benefits

•   Potentially lower cost of living

•   Discovering a community of like-minded retirees

•   Possibly ticking off other boxes on your list

Cons of Relocating for Tax Benefits

•   Other living costs may cancel out the tax benefits

•   Moving costs are high, and the stress can be tough

•   Need to find another home in a seller’s market

💡 Quick Tip: We love a good spreadsheet, but not everyone feels the same. An online budget planner can give you the same insight into your budgeting and spending at a glance, without the extra effort.

The Takeaway

The best state to retire in for tax purposes depends on an individual’s budget, lifestyle, and values. Some states with lower taxes for retirees can have higher housing and transportation costs, canceling out any tax benefit. A financial advisor can help you decide if saving on taxes is worth the expense and trouble of relocating.

Take control of your finances with SoFi. With our financial insights and credit score monitoring tools, you can view all of your accounts in one convenient dashboard. From there, you can see your various balances, spending breakdowns, and credit score. Plus you can easily set up budgets and discover valuable financial insights — all at no cost.

FAQ

What are the 3 states that don’t tax retirement income?

Nine states don’t tax retirement plan income because they have no state income taxes at all: Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, Washington and Wyoming. Illinois, Iowa, Mississippi and Pennsylvania don’t tax distributions from 401(k) plans, IRAs, or pensions. Alabama and Hawaii don’t tax pensions, but do tax distributions from 401(k) plans and IRAs.

Which state is the best state to live in for tax purposes?

Alaska has the lowest overall tax rates.

Which states do not tax your 401k when you retire?

Alaska, Florida, Illinois, Iowa, Mississippi, Nevada, New Hampshire, Pennsylvania, South Dakota, Tennessee, Texas, Washington, and Wyoming do not tax 401(k) plans when you retire.

Photo credit: iStock/Jeremy Poland

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Tax Information: This article provides general background information only and is not intended to serve as legal or tax advice or as a substitute for legal counsel. You should consult your own attorney and/or tax advisor if you have a question requiring legal or tax advice.

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Psychological pricing tactics are strategies that trigger emotions among consumers and can encourage them to shop and spend more.

For example, perhaps you’ve seen deals where prices are marked down to figures that end in .99 cents rather than a whole number. Or you’ve seen items at the supermarket that say you should compare the price to a different size package to see how much you’re saving.

The psychological impact of these maneuvers can lead you to think you are getting a great deal and head to the cashier. But you may not really be snagging a bargain and could wind up paying more than you need to.
Ready to boost your knowledge about these practices? Here, you’ll learn:

•   What is psychological pricing?

•   What does psychological pricing encourage you to spend more?

•   How can you avoid overspending due to psychological pricing?

What Is Psychological Pricing?

Psychological pricing is a sales strategy that focuses on how pricing can impact you, the shopper, emotionally and psychologically. As different prices will have different effects, these tactics can influence your spending and saving habits and get you to dole out more money. By understanding and dodging these moves, you may be able to quit spending money so freely.

How Does Psychological Pricing Work?

One of the main reasons why psychological pricing is so effective is that consumers rarely know how much something should cost. Instead, they lean on cues, context, and the prices of similar items to clue them in on whether something is a bargain.

These tactics can fool your brain and often offer the illusion of a deal. Unless you are an expert in supply chain finance or are a human supercomputer who can assess the total costs and lifecycle of a product, it’s hard to gauge how much something should cost.

Marketers may count on that and use it to their advantage, tempting you to make an impulse buy, even when the price is perhaps not as appealing as it may seem.

15 Examples of Psychological Pricing Tricks

Here, you can learn some of the most common tactics that can be used to encourage consumers to overspend.

1. Charm Pricing

Ever wonder why the price of that shampoo is $4.99 and not $5.00? Enter charm pricing. This technique operates using the “left-digit” bias. This means that the digit that’s leftmost in a price will impact the consumer’s perceptions the most. In other words, the number that’s to the farthest left will “charm” you into thinking the price is lower than it actually is.

In turn, a retailer will use the numbers “5” and “9” instead of rounding up the price. For example: $495 versus $500 may make you believe the price is closer to $400 than $500. Another example: $8.99 versus $9 can make you think the price is closer to $8 and not $9. You might wind up overspending and feeling as if you are bad with money afterward.

2. Odd-Even Pricing

This kind of pricing, which favors using odd numbers, is along the same lines as charm pricing. The reasoning behind odd-even pricing is odd and even numbers affect one’s perception of the value of an item.

Interestingly, prices that end with odd numbers make the price of something seem less expensive. On the flip side, prices that end with an even number or that are rounded up to a whole number seem more expensive.

3. Decoy Pricing

With this pricing tactic, you’re led to a particular choice by being offered inferior options or ones that seem “not good enough” or “too pricey.” You can think of this as Goldilocks pricing, where the middle option seems the best deal or choice.

For example, you’re shopping online for dog biscuits for your furbaby Bailey. In doing a bit of comparison shopping, you find similar boxes of pumpkin doggie biscuits; in fact, there are three different options. The least-expensive option doesn’t seem like you’re getting the best quality or the most bang for your buck, and the most-expensive option seems like you’re going overboard. So you go for the mid-priced choice. If you hadn’t been offered those three options, you might have bought the lowest-price item and been perfectly satisfied. Now, you’ve wound up overspending.

4. Buying in Bulk

Warehouse membership clubs and discount retailers are filled to the brim with buying in bulk deals. For instance, “Buy 2, Get 1 Free” or “10 for $15.” Sure, you might be saving some dollars off of the manufacturer’s suggested price, but at the end of the day, you are spending more than if you just bought a single item.

Are you really saving on a $2.50 tube of toothpaste if you spent $40 and bought more than you need? Will you really be able to eat through that 24-pack of yogurts before they reach their expiration date?

5. Price Appearance

The design or look of prices can make a difference in how it’s perceived. For instance, prices that are in a smaller-sized font and don’t have the zeroes tacked onto the end may appear less expensive. For instance, “$40” can seem cheaper than “$40.00.” Longer prices can strike us as more expensive. Why’s that? Simply because it takes longer to read them.

6. Removing a Comma

Similar to the price appearance tactic, removing a comma from a higher-priced item can make the cost seem lower than if you included that little bit of punctuation. That’s because including a comma makes the price take longer to read. If you make something phonetically shorter (i.e., it takes less time for the brain to read and process), it may trick the brain to think the price is lower.

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7. Fake Time Constraints

These limited time offers are set up by the retailer to create a sense of urgency — all so you act quickly and part with your money. For example, you may see an offer that says, “50% off for this weekend only!” These constructed time constraints can have you moving quickly, at times impulsively, and get you to spend more.

8. Emphasis on Emotion or Nostalgia

By tapping into the allure and pull of nostalgia — an item that reminds you of your childhood or is associated with happy memories from the past — retailers can get you to part with your money. Because you long to relive those fond, happy times, you might not worry as much as the cost of something.

Similarly, tapping into a strong emotion, such as joy, family, adventure, and general warm — happy vibes, either through packaging, marketing, or brand messaging, can urge you to spend money.

9. Innumeracy

This psychological pricing tactic draws on what you might call “being bad with numbers.” Many consumers don’t have a grasp on basic mathematical principles to figure out what is a better deal when shopping. For instance, “buy one, get one free” sounds better to most folks than “two items at 50% off,” and they’ll often be convinced to buy by the first phrase.

10. Removing the Dollar Sign

Prices with dollar signs can make you feel a bit of fear or anxiety that comes with having to spend money — especially if it’s money you don’t have. Retailers often know this, so sometimes they will remove or reduce the size of the dollar sign to nudge you towards shelling out some bucks.

11. Bundling

This pricing tactic involves grouping a couple of items that go together and offering a slightly discounted price. For instance, you might see a men’s grooming kit that ends up being 25% less expensive than bought separately.

This strategy makes you feel as if you’re saving money, when in fact, you’re spending more than you need to — especially if you really only need one of the products included in the bundle. You may wind up walking out of the store with more than you intended to buy vs. using your credit card responsibly.

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12. Limits Per Customer

When limits are placed as to how much you can buy of a certain item, it tricks you into believing that the product is scarce and you’d better hurry and buy it. Or it might lead you to think the price is so low that the retailer can only offer so many at that price before they start losing money. Because of this, you might buy up to the limit so you don’t forgo a great bargain.

However, you have no proof that any of these assumptions are correct. It could just be clever marketing at work.

13. Showing the Real Price Next to the Sale Price

Also known as anchoring, this process involves showing the retail price next to a sale price to make it seem like a real bargain. For instance, seeing the sale price of $14.99 next to the full price of $19.99 can make you feel as if you are saving big (or perhaps bigger than you actually are).

By “anchoring” your decision based on the full price, the sale price will appear to be a great deal. You often see this tactic at discount grocery stores and off-price department retailers.

14. Showing the Daily Equivalence

You’ve probably come across this tactic. A company will break down the cost of a product or service per day, which makes the cost seem negligible. For instance, a $60 a month cloud storage service breaks down to $2 a day. Or a $15 a monthly streaming services subscription equates to a mere 50 cents a day.

By highlighting these daily costs, it can seem like you’re spending very little each day on a product or service. This might convince you to throw down some cash…and then regret making a bad financial decision.

15. Using Fake Reviews or User Generated Content

While there are obviously some ethical questions around this, using fake reviews can create the appearance that a product or service is getting a lot of buzz. And if something is popular, you might be enticed to jump on the bandwagon and see what everyone is talking about. It could make you buy something you don’t need, that’s overpriced, or that’s lower quality.

An influencer making a plug on a social media platform, along with viewer comments also raving about something, can also make an item seem valuable. Or some companies may reward customers with discounts if they share how great an item is. It gives you the impression that you must buy or will experience FOMO (fear of missing out), which can in turn lead to FOMO spending.

It’s wise to ask questions before making an impulse buy in this situation and to do your own research on trusted sites to evaluate products.

Can You Do Anything About Psychological Pricing Tricks?

While psychological pricing tricks are pervasive and can certainly dupe you into spending more, there are ways you can avert them:

•   Try the 30 day rule. What is the 30 day rule? If you see a pricey item you are tempted to buy but hadn’t budgeted for, make a note in your calendar for 30 days later. Write down what it is, its price, and where you saw it . Then wait 30 days. Chances are, the initial urge to purchase the items will have fizzled. If not, then you can feel reassured that it’s something you truly want and budget for it.

•   Consider the personal value of an item. Instead of fixating on the price tag of something, consider the value it would bring to your life. Is it something you would get a lot of joy from? Or something you could really use? Let that guide you vs. buying an item because it seems like a bargain or everyone else has it.

•   Figure out the number of uses of an item. If you plan on wearing a pair of jeans at least 30 times and they cost $90, that’s $3 per use. Is that something you can afford and would enjoy having? Then it might be worthwhile. But if it’s a $20 item and chances are it will most likely get shoved into the closet and ignored, that might end up being a waste of money.

•   Stick to a weekly budget. It’s no fun having to get your finances back on track after blowing your budget. Avoid that by keeping a weekly number in mind for your discretionary spending — think clothing, entertainment, eating out, hobby-related spending, and sundry items (vanilla lattes, a new conditioner, etc.). This can help you stay within your means. It could be helpful to have a separate bank account where you park your discretionary funds. It’s far easier to see exactly where your money is going that way.

The Takeaway

Psychological pricing tricks can certainly sway you to dole out more cash. That being said, if you are aware of them, you can use good judgment about these marketing tactics. That, in turn, can allow you to stay within your means, make the best financial decisions for your situation, and stay in control of your cash.

FAQ

Is psychological pricing illegal?

Psychological pricing typically isn’t illegal, though in some cases, the tactic could veer into some other murky territory that might not be legal. But for the most part, these pricing tricks are acceptable ways of getting consumers to believe they are getting a deal or that an item is in high demand.

Is psychological pricing immoral?

There are some instances where pricing tricks border on unethical territory. For instance, using fake reviews to make a product seem more popular than it really is and to generate hype is considered unethical.

Why is psychological pricing effective?

Psychological pricing is effective because it relies on your brain making snap judgments in spending situations. These tactics can steer you toward choosing a particular product or buying more that you may truly need.

Photo credit: iStock/recep-bg

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