Differences in state-specific taxation of income in retirement are often overlooked. People tend to have a much better understanding of how states tax ordinary income during one’s working years than they do of taxation of retirement income.
The chart below is a nice summary of 2021 state-level tax policies produced by Tax Foundation:
As you can see, only 13 states tax Social Security income, so even states that may be thought of as having burdensome income taxes may not be as burdensome for retirees.
That said, there are some other state-specific nuances to consider. For instance, in Maine, we have a pension income deduction of up to $10,000. While Social Security is not directly taxed, it does use up the deduction, so receiving Social Security could cause otherwise deductible income to become taxable. This is one of many reasons why it often makes a lot of sense for Mainers to delay claiming Social Security until age 70.
