Florida isn't just an attractive retirement destination for its climate, it's also very tax friendly.

Planning for a successful retirement requires more than choosing the perfect time to bid your boss farewell, arrivederci, or adios. Active adults that are preparing for this big day need to devote a good amount of time to research and organization before making a move. Otherwise, they may find themselves in the wrong neighborhood, city, or state, giving a lion’s share of their retirement income to taxes.

According to an October 2018 survey by the Nationwide Insurance Retirement Institute, 37 percent of retirees do not take tax rates into consideration when they are preparing to retire. These individuals can be losing out on monies that could total up to six years’ of income.

Many retirees simply do not understand the ins and outs of taxes after they retire. In fact, the survey also showed that over half of the respondents (recent and future retirees) said that they wished that they had a better understanding of the topic.

Sources of Retirement Income

For most retirees, Social Security serves as a primary source of income. Pensions are also used, but not all employers offer them. Annuities, IRAs, mutual funds, stocks, and savings accounts can also provide funds.

Not all retirees have enough savings to live carefree lives, many have to live on limited incomes. Many active adults continue to work well after retirement age, either because they want to or out of necessity. Whether you have a nice cushion or have to struggle with money issues more than you’d like, you probably don’t want to shell out more tax money than is necessary. Certain states are more retirement-friendly than others, especially when it comes to paying taxes.

Tax-Friendly States

Are there states that don’t tax retirement income? Yes, there are seven: Alaska, Florida, Nevada, South Dakota, Texas, Washington and Wyoming. Some states without this benefit can still be friendly, though. Many do not tax Social Security income, have low property taxes, and have tax-friendly deductions. According to SmartAsset, here are some of the most tax-friendly states for retirement:

1. South Dakota

No state income tax, all retirement income is tax-free. Sales tax is also low at 4.5 percent, and property taxes are moderate.

2. Florida

No state income tax, all retirement income is tax-free. There are also no inheritance or estate taxes. Sales and property taxes are comparable to national averages.

3. Georgia

Peach State retirees are not taxed on their Social Security benefits, and also receive a $65,000 deduction if they are aged 65 or more. There is also no estate or inheritance tax here.

4. Nevada

In addition to no state income tax, the property taxes are fairly low here.

5. Pennsylvania

Social security and retirement account income is exempt from taxes, as is pension income for residents ages 60 and over. The sales tax here is also low.

6. Wyoming

Also a top choice, with no income tax, and sales and property tax rate that are some of the lowest in the United States.

Not So Friendly

There are some states that may not provide all the ingredients for a happy retirement. Those that have little or no retirement tax advantages are worth discussing here.

1. California

It sure is beautiful, but retirees are fully taxed on income from pensions and retirement accounts. Although Social Security retirement benefits are not taxed, Cali has one of the highest sales tax rates in the U.S., at 7.25 percent.

2. Vermont

All retirement income is taxed at different rates, with the highest at close to nine percent. Property taxes are also very high here.

3. Minnesota

Retirees must pay taxes on all retirement income, including Social Security benefits. Sales tax is also high, at 6.875 percent.

4. Connecticut

All retirement income is taxed though for some senior citizens, Social Security is exempt. Connecticut also has some of the country’s highest property taxes.

5. Rhode Island

There are no deductions or exemptions for retirement income. Social Security benefits are also taxable on a federal level. There is an estate tax, and property taxes are high.

Finding the Right Balance

The majority of retirees may not be able to pick and choose what state to retire in, so it makes sense to factor in retirement taxes before making a decision. You may not be able to retire in one of the states that don't tax retirement income, but other things can be even more important.

Housing costs, being near family and friends, availability of good healthcare, weather, low crime rates, and being near what you love to do are all essential for a good quality of life. You might also be able to get more for your housing dollars in a state that is moderately tax-friendly to retirees. For most, finding the best balance is the right way to find long-term, stable happiness.