The Financial Benefits (and Downsides) of Retiring in Pennsylvania
If you’re looking for palm trees, white sand, and bottomless piña coladas in your retirement, then the Keystone State might not be your best option. However, if you’re looking for friendly locals, four defined seasons, and beautiful state parks (we have 121 of them), then there are a lot of reasons to consider retiring in Pennsylvania.
Pennsylvania is a big state, yet towns and cities are often in close proximity to major tourist destinations for day-trips or long weekends. Travel to New York City, Washington DC, and Delaware beaches is relatively easy, and there are plenty of major airports nearby for when you’re planning longer getaways. Active retirees who love the outdoors can visit the numerous state and county parks in Pennsylvania, indulging in hiking, biking, horseback riding, fishing, and other recreational activities. In winter, there’s also skiing—try doing that in Florida!
But what about the financial side of retirement? While it’s obviously great to retire in a beautiful state with lots to do, it’s only a viable option if it makes financial sense. Well, there are a number of financial benefits inherent in settling down in Pennsylvania, so it’s worth taking an in-depth look at the state’s offerings when considering retirement.
A Good Tax Climate for Retirees
Granted, Pennsylvania’s climate isn’t exactly tropical, but its tax climate for retirees is first rate. Pennsylvania doesn’t tax pension income, whether from military, public, or private sources. It also doesn’t tax Social Security. When you withdraw funds from your employer-sponsored 401(k) or your Individual Retirement Account, you won’t pay state taxes on the withdrawn amounts.
Pennsylvania’s sales tax is 6%, but food and clothing are tax-exempt. In addition, so are prescription drugs and over-the-counter medications. The state’s income tax rate is just 3.07%, one of the lowest in the nation. The cost of living, outside of major cities like Philadelphia, is also relatively low. Cities like Harrisburg, Lancaster, and Allentown in particular score high when it comes affordability. Bethlehem fares even better, often being cited as one of the best places in the country to retire.
If you own your home, you may qualify for the state’s homestead exemption, which lowers your property taxes somewhat. Homeowners with income of less than $35,000 per year—with half of their Social Security income excluded from the calculation—may receive at least $650 in an annual rebate, with some qualifying homeowners receiving up to $975.
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Estate and Inheritance Tax Laws
More good news is that Pennsylvania doesn’t have an estate tax, although a federal estate tax will probably still have to be paid. But one of the few downsides to retiring in Pennsylvania is its inheritance tax laws—it is one of only six states that collects inheritance tax. What’s the difference between estate and inheritance tax? An estate tax is levied on the total value of a deceased person’s assets, and it is paid out of the estate. Inheritance tax, meanwhile, is paid by the beneficiary and will depend on the size of the specific inheritance.
Surviving spouses luckily aren’t subject to inheritance tax, and neither are inheritances left by a parent to a child under the age of 21. However, adult children are subject to a 4.5% inheritance tax, as are all lineal heirs, such as grandchildren. Siblings pay 12% tax on inheritances, and any other heir—with the exception of nonprofit charitable organizations—will pay 15%. The inheritance tax applies to tangible and intangible property owned by the decedent, ranging from real estate, automobiles, and jewelry to bank accounts, stocks, bonds, and mutual funds.
A High Retirement Ranking
WalletHub recently ranked Pennsylvania as the fourteenth best state for retirement. The state’s affordability ranking is 28, with its quality of life ranking very high at number four. On a slightly different note, Pennsylvania also ranks fifth for both the number of theaters per capital and the percentage of residents over age 65 (around 15% of the population). Clearly, Pennsylvania is striking the right cord with retirees.
Whether you plan to remain in Pennsylvania during retirement or move here from elsewhere, Citadel can help make your retirement plans a reality. Contact Citadel today and schedule a complimentary retirement consultation. Our advisors, available through CUSO Financial Services, L.P. (CFS*), will analyze your present financial situation, assess your retirement goals, and help you implement a retirement plan that meets your needs.
CFS does not provide legal or tax advice. Please consult a qualified tax or legal professional.
*Non-deposit investment products and services are offered through CUSO Financial Services, L.P. ("CFS"), a registered broker-dealer (Member FINRA/SIPC) and SEC Registered Investment Advisor. Products offered through CFS: are not NCUA/NCUSIF or otherwise federally insured, are not guarantees or obligations of Citadel, and may involve investment risk including possible loss of principal. Investment Representatives are registered through CFS. Citadel has contracted with CFS to make non-deposit investment products and services available to Citadel members. CUSO Financial Services, L.P. (CFS) does not provide tax or legal advice. For such guidance, please consult your tax and/or legal advisor.