You can have far more income to spend if you live in one of the best states for retirement income taxes verses one of the worst. Is it worth relocating? You never know until you start looking. The question is, what do you look for?
You must consider far more than just income taxes. For example, Pennsylvania has an income tax, but you get to exclude all pension, social security and IRA distributions.
Each state will have its own unique set of retirement tax rules; compare states and you may decide a move is worth it, or you may decide it is best to stay put.
Get details on retiree taxes in any state with this Kiplinger online interactive tool. While viewing their U.S. map you can click on any state for details, or use the drop down menu to see states with pre-selected criteria such as the “18 most pension friendly states”. This is tool is a fantastic resource.
This article aptly points out that choosing a state just based on the fact that it has low-to-no income taxes is not always the best choice for a retiree. You have to look at property taxes, income taxes, sales taxes, and the taxation of pensions and social security. All of these factors need to be considered together; a low tax rate in one area could be offset by high taxes in another. You should also be concerned about differences within a state - sales, income, and property taxes differ significantly among cities in the same state. This article by TopRetirements.com is a great read for someone considering a relocation after retirement.
US News came out with a top 10 most tax-friendly towns list in late 2008. They said, "We sifted through more than 2,000 U.S. places to find locales that have relatively low taxes but also offer amenities important to retirees like a reasonable cost of living and fine recreational and cultural choices. Many of the low-tax retirement havens have no state sales tax, like Billings, Mont., or no state income tax, like Sioux Falls, S.D. There's nothing like zero tax to make your retirement dollars go further."