Will Your Social Security Benefits Be Less Depending on Where You Live?

Once you reach 62, you can apply for the Social Security benefits you have worked for for many years. Shutterstock

Once you reach 62, you can apply for the Social Security benefits you have worked for for many years. By using a Social Security benefits calculator, you may have already figured out how much you can expect to get each month once you retire.

If you depend on these benefits to be a significant part of your retirement income, you need to know that you may get less than you think. There are nine states that tax Social Security benefits, meaning you will get less if you live in one of them.

The Government’s Tax on Your Benefits

Before the states can tax your benefits, you may discover that the federal government could also take a chunk of them. Besides the taxes, once you apply for Social Security, if you are younger than your full retirement age, you are limited as to how much income you can make.

Once you make over the 2024 limit of $22,320, the government will reduce your benefits by $1 for every $2 earned over the limit. NerdWallet reveals this limit will be raised to $23,400 in 2025. It means that half of what you earn over the limit will be withheld from your monthly benefits.

The rules on income limits change once you enter the year you reach your full retirement age. In the months before your birthday month, you can earn up to $59,520 per year in 2024, or $4,960 per month. Bankrate says that this limit will be increased in 2025 to $62,160 per year or $5,180 per month. Every dollar you earn above that limit will cause your benefits to be reduced by $1 for every $3 above the limit.

Some States Tax Your Benefits

Each state decides whether to tax your Social Security income, and they set their income limits. Some states also tax other forms of retirement income, such as pension plans, required minimum distributions, and more.

There are however fewer states taxing Social Security benefits than there have been in the past few years. Now, there are only nine states that tax your benefits. They include Colorado, Connecticut, Minnesota, Montana, New Mexico, Rhode Island, Utah, Vermont, and West Virginia.

Taxing your benefits means you may get less than you expect. The new 2025 cost-of-living (COLA) increase may put you into a new tax bracket or cause your income to go above the threshold limit for the year.

Other Taxes to Consider

If you are considering downsizing and retiring in another state, it is a good idea to find out if they tax retirement benefits before moving. Even if they do not, states without this tax will likely make up for it in other taxes, such as property or sales tax, which may be higher than where you live now. The cost of living in the new state may also be higher than where you live now.

Consider the Costs of Health Care

When considering your overall costs during retirement, you must consider possible healthcare costs. Medical costs vary by state, as does long-term care (LTC), with Alaska, Connecticut, Hawaii, Massachusetts, and Minnesota being much higher than other states. RetireGuide states that the national average for LTC is $108,405 per year. Alaska is much higher than other states, costing as much as $378,100 per year.

The least expensive states for LTC are Louisiana, Alabama, Missouri, Arkansas, and Mississippi. The cost of a nursing home (average 2021 prices) with a private room for one year will cost $80,300 in Arkansas, $72,700 in Louisiana, and $71,200 in Missouri. Like other medical costs, these prices increase every year.

Assisted-living costs for a private room range from about half to two-thirds of the cost of nursing home care. In-home health care runs a little more than assisted living in most places.

Medicare does not pay for the cost of long-term care, but may cover up to 100 days of service after you have a hospital stay. Medicaid will cover LTC, but it will be necessary to significantly reduce your income and deplete most of your resources to get the benefit.

Other Factors to Consider

If you plan on moving to another state to retire, consider factors such as job opportunities if you intend to keep working. TheBoomerInsight indicates that job markets are not very strong in some states, but may be strongest in Florida and Texas.

Also, consider how the climate may affect your Social Security benefits if you mainly depend on them. In recent years, more extreme climate events, such as excessive heat (Phoenix and Texas, e.g.), hurricanes (Florida and North Carolina), floods, and wildfires (California), can pose a threat to your limited income.

Beware of COLA Scammers

The Social Security Administration (SSA) has released a warning to Americans receiving Social Security benefits that a scam is occurring concerning the 2025 COLA benefits. The scam notifies benefit recipients that they must submit further information to receive the COLA increase.

It is a scam: it is an attempt to obtain more personal information from you. Benefit recipients automatically receive the COLA increase, and they do not need to do anything to get it. Letters from the SSA will be sent out in December, notifying recipients of the increase.

People dependent on Social Security should consider how the increase in COLA may impact their income. Although it is not a significant increase, it may negatively affect you.

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