The Best States to Retire in 2026: Where Your Retirement Income Isn’t Taxed

In retirement, your income mostly stops moving. The paycheck is replaced by Social Security, a pension if you have one, and withdrawals from a 401(k) or IRA — a largely fixed number. That flips the money question on its head: instead of chasing a bigger salary, the goal becomes keeping more of what you already have. Two levers decide that, and both are set by the state you live in — how much of your retirement income it taxes, and how much it costs to live there.

The good news for 2026: a large group of states tax none of it. In 14 states, not a dollar of Social Security, pension income, or 401(k)/IRA withdrawal is touched by the state — either because there's no state income tax at all, or because the state has one but fully exempts retirement income. Here's the full list, ranked by what a typical single retiree actually spends to live there each month.

On the numbers you can control, Mississippi tops the list: it taxes no retirement income and has the lowest cost of living of the tax-free group, at about $2,518 a month for a single retiree's essentials. with Iowa, South Dakota, Wyoming close behind. At the other extreme, Washington is also tax-free on retirement income but costs about $3,553 a month — proof that "no tax" and "cheap to retire" are not the same thing. Of the 14 tax-free states, 7 also sit below the national-median retiree cost of living.

The five states most people miss

Everyone knows the no-income-tax states. The quieter win is a handful of states that do levy an income tax on working people but carve retirement income out almost entirely: Illinois, Iowa, Michigan, Mississippi, Pennsylvania. If you earn a wage there you'll pay state tax like anyone else — but once your income is Social Security, a pension, and retirement-account withdrawals, the state bill can drop to zero. Two of these are recent: Illinois has long exempted retirement income, and Michigan's multi-year repeal of its retirement tax is fully phased in for 2026. It's a reminder that a state's reputation as "high-tax" for workers can be completely different from its treatment of retirees.

Taxes are only half the decision

A zero-tax state that's expensive can lose to a modest-tax state that's cheap. That's why the ranking above sorts by cost, not just the tax label — for a fixed retirement income, a lower cost of living does exactly what a tax break does: it leaves more money in your pocket at the end of the month. The states that win on both counts — no tax on retirement income and a below-average cost of living — are the genuinely strong retirement value, and Mississippi leads them for 2026.

Where retirement income is taxed hardest

At the opposite end sit states that tax most or all of your retirement income. Leading the list is Minnesota, where Social Security may get a break but pensions and 401(k)/IRA withdrawals are largely taxed as ordinary income — on top of a higher cost of living. The five least retirement-friendly states on our combined measure:

• Minnesota — about $3,040/mo to live, and taxes most retirement income.
• Vermont — about $2,961/mo to live, and taxes most retirement income.
• New Mexico — about $2,758/mo to live, and taxes most retirement income.
• California — about $3,919/mo to live, and taxes most retirement income.
• Oregon — about $3,307/mo to live, and taxes most retirement income.

None of this means you shouldn't retire in a high-tax state — family, climate, and healthcare often matter more than the tax code. But if two places are otherwise a tie, the difference in what your retirement income is worth can run into thousands of dollars a year.

See exactly how any state taxes Social Security, pensions, and 401(k)/IRA withdrawals — and the nest egg you'd need there — on its retirement page, or put two states head to head in the comparison tool.

Methodology

"Doesn't tax retirement income" means the state taxes none of the three streams — Social Security, pension income, and 401(k)/IRA withdrawals — in tax year 2026, sourced from Kiplinger, AARP, and state Departments of Revenue and shown with an as-of date on each state's retirement page. Cost of living is a typical single retiree's monthly essentials (about 85% of a working single adult's), scaled by BEA Regional Price Parities. Treatment can depend on age, income, and whether a pension is public or private — check your state's page and rules for specifics. This is informational, not financial advice. See our methodology.