As retirement gets closer, many of our Feds start thinking about where they want to live and what kind of life they want to build once they leave federal service. For some, the decision is based on being closer to family. Others dream of retiring somewhere with better weather, more space, or a more relaxed lifestyle.
While lifestyle goals are arguably the most important, choosing the right location can also make a big difference in how far your pension, TSP, and other savings go. In some cases, the difference between a tax-friendly retirement state and a tax-heavy one can add up to thousands of dollars each year. But you might be surprised to learn that moving to a state with no income tax doesn’t always mean bigger savings. In many cases, tax-free states make up for the lost revenue through higher property taxes, sales taxes, or other fees.
So how do you decide? For many, the key lies in finding a state that balances quality of life with long-term affordability.
Top Tax-Friendly States for 2025
When researching the best states for federal retirees, a few names consistently appear at the top of the list. These states either don't tax retirement income at all or offer significant breaks on federal pensions and TSP withdrawals. Here’s a look at some top choices in 2025.
Florida
Thanks to its warm climate and significant number of retirement communities, Florida is often cited as a top destination for those looking to enjoy their golden years. Florida ranks 4th in tax competitiveness, according to the Tax Foundation’s 2025 State Competitiveness Index. In addition to not having a state income tax, sales taxes here are lower than in many other southern states. Owner-occupied homes also have a property tax rate of just 0.71%.
Texas
Like Florida, Texas also has no state income tax. However, there are some potential financial drawbacks to living in the Lone Star State. For example, median home prices rose 30% from 2020 through 2024, and the state still has an estimated shortage of 320,000 housing units. With a 1.47% effective property tax rate on owner-occupied housing value and a combined state and local sales tax of up to 8.20%, the state ranks 7th overall in state tax competitiveness.
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Wyoming
Coming in as the number one most competitive state for taxes, Wyoming has no individual state income tax and a 5.44% average combined state and local sales tax rate. For owner-occupied homes, the effective property tax rate is just 0.55%. Wyoming residents also won't pay any state inheritance or estate tax.
Alabama
At first glance, Alabama might seem like a haven for retirees. The state doesn’t tax income from Social Security or federal pensions (including FERS/CSRS) distributions, and the effective property tax rate on owner-occupied housing is just 0.36%. But if you take a closer look, there are some drawbacks. For example, the state does tax TSP distributions. In addition, the combined state and local sales tax can run as high as 9.29%, which could have a significant impact on how far your dollars go.
Quality of Life and Cost of Living
When it comes to finding the perfect place to retire, taxes matter — but they’re only one part of the equation. You’ll also want to consider factors like the climate, risk of hurricanes and other natural disasters, housing costs, and proximity to family and friends.
Access to VA services or quality healthcare facilities can outweigh tax benefits. Many Feds also prioritize opportunities for recreation and community involvement, and the overall cost of living. As you weigh your options, think about how each location supports the lifestyle you want in retirement. A tax break won’t mean much if you’re uncomfortable in the climate or too far from the people and services that matter most.
Find the Best Fit for Your Federal Retirement
At the end of the day, there is no single best state for federal retirees. The decision is a very personal one, and the right fit depends on your lifestyle, priorities, and long-term goals. Taxes are part of the puzzle, but they’re not the whole picture.
Before you make a move, take time to review how everything fits together. Reach out to the team at Serving Those Who Serve at [email protected] to discuss your options and start creating a plan that works for you.
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 Serving Those Who Serve writers and not necessarily those of RJFS or Raymond James. Any information is not a complete summary or statement of all available data necessary for making an investment decision and does not constitute a recommendation. Investing involves risk and you may incur a profit or loss regardless of strategy suggested. Every investor’s situation is unique and you should consider your investment goals, risk tolerance, and time horizon before making any investment or financial decision. Prior to making an investment decision, please consult with your financial advisor about your individual situation. While we are familiar with the tax provisions of the issues presented herein, as Financial Advisors of RJFS, we are not qualified to render advice on tax or legal matters. You should discuss tax or legal matters with the appropriate professional. **
