Why Retiring Federal Employees Should Think Twice About Moving to a No-Income Tax State

Are states with no income tax always the best choice for federal retirees? These are some considerations.

Retirement planning can be a challenging and complex process, especially when it comes to determining the best place to live in your golden years. We talk to thousands of retiring federal employees every year, and one of the top questions we hear is, “Should I move to a state that won’t tax my pension income?”.  Our answer is always emphatically “Maybe… maybe not.” While it may seem like a no-brainer at first glance, we advise our clients to consider all the factors involved before making a decision.

One of the primary benefits of moving to a state with no state income tax is that you can potentially save a significant amount of money on your tax bill each year. For federal government employees with pension income, this can be a compelling reason to consider making a move. However, it’s important to keep in mind that just because a state doesn’t have an income tax, that doesn’t necessarily mean that it’s an overall cheaper place to live.

Cost of Living

The cost of living in certain states can be significantly higher than in others, which can eat away at any savings you might have retained from not having to pay state income tax.

Florida, for example, is one of the most expensive states in the entire country when it comes to housing costs, which can make it difficult to stretch your retirement dollars. High demand, short supply, and increased “snow-birding” following the pandemic have not helped to reduce mortgage costs as of late.

Additionally, many states with no income tax make up for that lost revenue by levying higher property taxes, sales taxes, or imposing other local taxes, which can take a significant bite out of your retirement income.

Quality of Life

Another consideration is the quality of life in the state you’re considering moving to. Just because a state has no income tax doesn’t mean that it’s a good fit for you and your family’s lifestyle or preferences.

Consider the pace of life in the state you’re considering moving to and whether that fits your and your spouse’s preferences. Will enough activities be going on to keep you engaged in the community and active in retirement? If you have children or grandchildren, will they be able to travel to spend time with you often? Are they capable of shouldering those travel expenses? If not, are you prepared to cover the cost of their travel?

If you’re moving primarily for tax reasons and you don’t genuinely want to live in that state, you may find that the tradeoffs aren’t worth it. Worse, you could end up feeling isolated and unhappy, which can take a toll on your mental and physical health in retirement.


In short, Feds thinking only “this place won’t tax my pension” could lead to an unhappy outcome. Ultimately, we recommend you only consider moving to a state with no income tax if it’s somewhere you genuinely want to live! The tax savings may be tempting, but it’s important to look at the bigger picture and consider all of the costs involved.

As with many financial planning decisions, there’s more than money involved here. Don’t let the proverbial “tax tail” wag the dog on this decision. Instead, focus on finding a place to live that meets your and your family’s needs, preferences, and budget. By taking a thoughtful and deliberate approach to retirement planning, you can ensure that you make the best decision for yourself and your financial future. Of course, our team is here if you’d like some help thinking it through. 

Katelyn Murray has been helping Feds and contractors build the retirement of their dreams for almost a decade. Her unique approach merges financial psychology with traditional wealth management expertise to create an integrated financial planning approach that helps clients make the most of the one resource they can’t get more of: time.

**Written by Katelyn Murray, Financial Advisor, ChFEBC℠ The information has been obtained from sources considered reliable but we do not guarantee that the foregoing material is accurate or complete. Any opinions are those of Katelyn Murray and not necessarily those of RJFS or Raymond James. Links are being provided for information purposes only. Expressions of opinion are as of this date and are subject to change without notice. Raymond James is not affiliated with and does not endorse, authorize, or sponsor any of the listed websites or their respective sponsors.