12 Ways to Increase Rental Income From Your Vacation Home

Bought a vacation rental and wondering how to maximize your income from it?

First and foremost, shift into the mindset of an entrepreneur in the hospitality industry. You’re a businessperson now, and you need to think like one. In particular, focus on creating a strong product, marketing it, and building efficient business processes.

Ways to Increase Your Vacation Rental Income

Vacation rental properties rarely offer truly passive income. Even if you outsource property management, you still need to manage the manager. Instead, think of your vacation rental property as a side business you operate in addition to your full-time job.

Once you start approaching your vacation rental as a hospitality business, you can start optimizing that business to earn more revenue with less labor on your part.

1. Start With Strategic Finishes

After purchasing the property, your first project is putting it into marketable shape as quickly as possible. That includes any needed repairs, updates, and improvements. Don’t go overboard, but look for any obvious indicators of age in the property, including anything that looks dated or unattractive.

You should also be planning out your automation processes at this point, because they may impact your property updates. For example, you may decide to install a smart lock or key code lock on the front door (more on that later).

Think about any other smart home upgrades that may improve your marketing. Would guests feel more comfortable with a smart security system in place?

As you plan out your property’s finishes, keep resiliency in mind.

Aim to “tenant-proof” your property as much as possible, with scratch- and waterproof flooring such as luxury vinyl tile and door stoppers behind each door. Consider semi-gloss or glossy paint finishes to more easily wipe away scuffs, and use the same paint color throughout for easy touch-ups.

Your guests won’t be gentle with your property, so make it as indestructible as possible.

When your property repairs and updates are finished, it’s time to furnish and decorate it. You don’t need to buy furniture new; no guest expects to be the first person to have sat on the couch. But furniture needs to be tasteful and in good condition.

A word to the wise: Don’t decorate blandly. You are not operating a hotel, and one of the reasons guests choose to stay in a privately owned vacation home over a hotel is to get a more authentic experience. Tie in some local flavor and add a bit of your own personality.

Draw the line at political statements, though. I once stayed in an Airbnb filled with political posters and found them to be obnoxious and unprofessional.


2. Automate & Systematize Guests’ Stay

The less your guests must rely on you personally, the smoother their stay will be for both of you.

Find a way to automate guests’ check-in and checkout process, particularly their access to the unit. That could mean a smart door lock, a keypad lock, a lockbox, or keys left with a community office or doorman.

Note that smart door locks don’t have to cost an arm and a leg. You can buy the ULTRALOQ U-Bolt Pro for under $200, or go a little lower-tech with the AmazonBasics keypad lock for under $50.

Self-entry allows guests to arrive on their own schedule, rather than wasting both of your time in coordinating entry with you present.

But systematizing your renters’ stay doesn’t end at physical entry. You also need to plan for other frequent needs, such as gaining Wi-Fi access, and make them extremely intuitive and easy for your guests.

Create a concierge document that starts with bullets for the most common issues, such as the Wi-Fi network and password. You can then direct guests to longer explanations as needed. Consider a Google Document that you can both print physically for the unit and send a link digitally to guests before they arrive.

Automate this communication with guests. Create automated messages that go out to guests 48 hours before their arrival that include details like how to access the property, Wi-Fi information, and how to use any confusing appliances. Your concierge document can also include tips for local restaurants, attractions, and other entertainment.

As you systematize your vacation rental business, create policies for every contingency. That includes lost key policies and fees, late checkout procedures, pet policies and fees, your maid or cleaning service (which can be set up quickly through Handy.com), and backup contacts for times when you aren’t available.

In addition to operating a hospitality business, you also face standard landlord headaches like property repairs. Prepare for maintenance by building a network of contractors you can contact for immediate service, to minimize the risk of bad reviews and losing Airbnb guests over maintenance issues.


3. Perfect Your Pricing

One of the most fundamental building blocks for success as an Airbnb host is pricing.

To begin, ignore what long-term rental properties charge for monthly rents. Rather, look at them, but only to run a comparative cash flow analysis to determine which leasing model would generate more profit for your property.

Your competition as a vacation rental operator doesn’t include long-term rentals, but rather hotels and other comparable vacation units. Get a sense of what hotels and similar vacation rentals charge in your immediate area. Consider aiming for around 20% less on a nightly basis than nearby hotels.

Keep in mind that your pricing can and should rise as you establish yourself and your unit.

In the beginning, with few or no reviews, you’ll probably need to entice your first guests with bargain pricing. Once you establish legitimacy through reviews, you can raise your pricing to meet or slightly surpass nearby competitors. (More on building reviews shortly.)

Remember, pricing doesn’t end at your nightly rate. It also includes your cleaning fee, additional guest fees, pet fees, and any other fees you charge. By all means, charge a cleaning fee, but don’t use it as a backdoor gimmick to charge higher rates. Price it based on your actual cleaning fees, and keep your nightly rates transparent.


4. Incentivize Longer Stays

As with long-term rentals, the greatest labor and costs in managing short-term rentals come from turnovers. From cleaning to coordinating access with guests and answering their questions, it costs far more time and money to rent to 10 guests in a one-month period than to a single guest staying for an entire month.

What’s more, short bookings can actually cost you the more lucrative longer bookings. If someone rents your unit for one night, it prevents a prospective two-week guest from being able to book your unit for that block.

So, price accordingly. Charge a higher nightly rate for stays under a week, and then offer a discount for guests who stay at least seven days. Keep graduating that discount the longer they stay, up to a month.


5. Consider Pet-Friendly Policies — For a Price

Pet owners often have a hard time finding hotels and vacation rentals that accommodate their four-legged family members. That means a shortage of supply, which in turn creates an opportunity.

There’s certainly no shortage of demand. More than two-thirds of American households own a pet, according to the 2019-2020 survey by the American Pet Products Association.

Of course, pets cause more wear and tear on your rental property. That means you should charge extra for them to make it worth your while.

By accepting pets, you can not only collect more money on a nightly basis, but you can also attract more potential guests and achieve higher occupancy rates. And in the vacation rental business, profits come down to occupancy.

Young Woman Wearing Sweater Cuddling Pet Cat


6. Take a Multipronged Approach to Marketing

Putting together the perfect vacation rental listing is both an art and a science. Start your marketing with a killer rental listing.

First, hire a professional real estate photographer to take photos. It’s less expensive than you think, and it’s a one-time marketing expense that will continue paying off for years to come.

Photos should include several shots from different angles of each important room in the home. Pay particular attention to the kitchen, living spaces, bedrooms, and bathrooms. Show the photos to someone who has never been inside your property and ask them if they can visualize the layout and space.

Feature a few exterior shots as well, including the front of the property and any outdoor living spaces.

When filling out your listing profile, tick off each amenity, and select the bed sizes for each bedroom. Then in your written description, emphasize the property’s best features, and mention the most important amenities again.

If your location is a selling point, emphasize that as well. Include highlights like “Five-minute walk to the waterfront!” or “One block from the metro station!” Mention specific landmarks and tourist attractions nearby to boost your search rankings within vacation rental platforms — more on that momentarily.

Although Airbnb is the undisputed leader in the online vacation rental space, it is not the only player. Advertise your unit for rent on multiple platforms, including VRBO, Booking.com, and Craigslist. A previous player in this industry, HomeAway, was acquired by VRBO and merged in 2020.

But don’t stop there. Research ways you can market your vacation rental on social media, such as through local tourist groups on Facebook, or even paid Facebook ads.

The better your marketing reach, the higher your occupancy rate will be, which ultimately determines your bottom line.


7. Optimize for Search Rankings

Imagine your vacation rental is one of a hundred available in its neighborhood. A prospective guest logs into Airbnb and searches for units in that neighborhood — which ones does Airbnb display first, at the top of the page rather than buried at the end of that long list?

Vacation rental platforms have their own search algorithms, just like Google does. If you want your listings to appear first, you need to take pains to optimize for those algorithms.

First, listing platforms reward responsiveness. The faster you respond to inquiries, the higher the platforms will list your unit. Make it a priority to respond as quickly as possible, and if you can’t give prospects a precise answer immediately, at least reply back with a quick “I’ll check into that and follow up with you shortly.”

As with Google, click-through rate matters. That refers to the percent of users who see your listing title who actually click on it. So, boost your click-through rate by putting thought into your listing titles to make them irresistible. Your thumbnail photo also helps your click-through rate, so make it gorgeous.

Accept instant bookings, rather than requiring prospects to wait until you’ve manually reviewed them. Listing platforms include this as a search filter, so many prospects will never even see your listings if you don’t accept instant bookings.

Keep your calendar up to date. Airbnb rewards recency — the more recently your calendar was updated, the better.

Likewise, keep your listings up to date. Every two or three months, tweak your listings, perhaps to emphasize seasonal attractions in your area. This also makes a great time to review your listing for completeness within the listing platform, which also impacts your search rank.

“Completeness” refers to the percentage of available fields and selections that you’ve filled out. Even if you filled out every field before, they don’t remain static — listing platforms constantly add new features and options, and you need to stay current with them if you want your listings to appear before alternatives.

Be sure to mention local attractions in your listing description because some prospects search specifically for easy access to famous landmarks or other attractions. You want to make sure your listing appears front and center for those who do.

And, of course, the more positive ratings and reviews you have, the more platforms reward you with higher rankings.


8. Accrue Reviews ASAP

You can put together the best listing in the world, but if you have no reviews, guests will be reluctant to book with you.

Start with a simple two-pronged approach to scoring reviews. First, price your property competitively to beat your competition if you don’t have many reviews. Second, put together a guest follow-up strategy for securing reviews.

That strategy should include asking no fewer than three times for a review.

Mention it at the end of your checkout instructions message, then again in a post-checkout message thanking them for staying with you. Then leave a review for them as well, and message them to let them know you left a glowing review for them, and ask them if they would be willing to do the same if they enjoyed their stay.

Your goal is to reach 10 positive reviews as quickly as possible. When prospective guests see reviews in the double digits, they feel more confident in booking, and your occupancy rate will rise.


9. Create an Experience

As outlined above, you can and should automate your booking, check-in, and check-out processes as much as possible. Aim to make them so easy an 8-year-old could do it.

Send a series of messages out on an automated schedule. Spell out everything the guest needs to know about getting into your property and staying there comfortably.

Assemble a concierge document about how to use the various appliances in your unit, the best local restaurants, and standout local attractions. Mention both the famous nearby amenities they already know about and the insider scoop on local secrets.

For example: “Drop by the Bulldog for an iconic Amsterdam bar experience, but then walk over to Door 74, a tiny, hidden speakeasy with no signage and a Prohibition-era vibe.”

It’s those more unique guest experiences your renters will remember and rave about later both publicly in their reviews and privately to their friends.

Leave a bottle of wine or some other gesture that they wouldn’t receive at a hotel. You don’t need to spend much money on it, and half your guests won’t drink it anyway, but it makes a great first impression. Underneath it, leave a brief handwritten note welcoming them by name. And, of course, chocolates on the pillows don’t hurt either.

People remember the little things, the small touches that remind them why they chose an alternative to bland corporate hotels.

Bottle Of Wine Rose Red Woman Relaxing At Home Sofa Barefoot


10. Explore Co-Hosting

If you manage your own vacation rental, and other nearby units also serve as vacation rentals, start networking with the other neighboring owners. You can co-host for each other, or simply have one owner co-host for all the neighborhood units as a side hustle.

Co-hosts share property management responsibilities, such as communicating with guests, managing check-ins and checkouts, coordinating repairs, and more. See Airbnb’s explanation for a full list of responsibilities that co-hosts can perform. In compensation, the primary host can pay co-hosts a percentage of the nightly rate, a percentage of the cleaning fee, or both.

They can make an affordable and convenient way to outsource management, whether temporarily — for example, while you’re on vacation — or permanently. Or, if you live near the units yourself, co-hosting for neighboring vacation rentals offers an easy side gig to earn some extra money on other people’s properties.


11. Protect Yourself & Your Property

One way to protect your property is to physically make it damage-resistant, as mentioned above. But protection doesn’t end there.

Think carefully about the security deposit you charge. Charge as much as you think you can without scaring off guests.

Platforms such as Airbnb include some protections for hosts, and you should familiarize yourself with them. If you don’t use a platform and rent independently, look into other ways you can protect against damage, such as preauthorizing the guest’s card for an additional damage deposit, but not running the charge unless they cause damage.

But your guests aren’t the only people you need to worry about. If you buy the property with a family member, friend, or other partner, it inevitably causes conflict to one degree or another.

The most common disputes involve one partner wanting to use the property more often than the others, financial disputes over expenses, and disputes when one owner wants to sell and the others can’t afford to buy them out.

I’ve seen all of these disputes play out in my own family, and can attest firsthand to how vicious they can get — vicious enough to permanently poison relationships, even close family relationships.

Protect yourself by signing an agreement with your partners upon buying a property detailing exactly how you’ll split revenue, responsibilities, and access to the property, and spelling out the process you’ll follow if one partner wants to sell while others don’t.

A little foresight today can save a lot of stress and infighting tomorrow.

Further protect yourself with contingency plans in the event that laws or market conditions change.

Local regulation presents a real threat to vacation rental owners — cities like New York, San Francisco, and Santa Monica all but outlaw private properties being offered to short-term guests. Your city could change its regulations at any time, and you need a backup plan to protect against such seismic shifts.

Run the numbers to calculate how your property would create cash flow as a long-term rental, as one contingency plan. As another, look into leasing your property as a furnished corporate rental, for example, to travel nurses.

As a last resort, you can always sell the property, but it typically takes a few years for properties to appreciate enough to cover the closing costs from both the initial purchase and the eventual sale. But always have contingency plans in place, to protect against losses if conditions change.


12. Optimize Your Taxes

Vacation rental owners can benefit from both investment property tax breaks and small business tax breaks.

As a business owner, you can deduct expenses that you might otherwise have to itemize in order to take, allowing you to take the standard deduction while still deducting specific expenses. For example, you could potentially deduct for travel, home office, and charitable donations from your business, all while still taking the standard deduction. Just be careful not to get carried away and trigger an audit with the IRS.

Meanwhile, real estate investors get their own tax benefits. You can deduct costs from property management to maintenance, utilities to depreciation.

Beware, however, that a few cities — such as Santa Monica — require vacation rental owners to pay additional taxes. Make sure you include that expense when you run the cash flow numbers before you invest in a vacation rental in one of those cities.


Final Word

It’s a fun idea to own a vacation rental you can occasionally use yourself while earning some extra income.

But in many markets, it remains a competitive industry, and often property owners find themselves losing money at the end of the year without enough occupancy, particularly during slow seasons.

Always run conservative numbers when you calculate cash flow, and never lose sight of the fact that the property is an investment. Don’t get attached to any given property, or even to the idea. In real estate as well as stocks, emotion is the enemy of investing.

Even if the cash flow numbers work for a prospective vacation rental, run them for contingency plans such as using the property as a long-term rental. You never know when market conditions will change; look no further than the collapse of the travel industry in 2020 during the coronavirus pandemic and the energetic rebound in 2021.

Source: moneycrashers.com

Long-Term Rates Will Edge Higher

When the Federal Reserve signaled in June that it expects to raise short-term interest rates by the end of 2023—sooner than an earlier forecast—the response was immediate and fierce. The Dow Jones industrial average dropped more than 800 points, and the price of the 10-year Treasury note also dropped, increasing the yield to nearly 1.6%. Rates on 30-year mortgages rose above 3% for the first time since April.

The backdrop to all this worrisome news was rising inflation, which prompted some to recall the dark days of the early 1980s, when the Fed raised interest rates sharply to curb it. Back then, home buyers were lucky to lock in a 30-year mortgage for less than 12%.

But something strange has happened in the weeks since the Fed announcement: 10-year Treasury note yields have fallen back, and with them, rates for 30-year mortgages. As of July 15, the average rate for a 30-year mortgage was 2.88%.

Economists attribute the lull in mortgage rates to several factors, ranging from worries about whether the rise in the COVID-19 Delta variant could curb economic growth to a growing consensus that the inflation spike is a short-term phenomenon. “Investors are buying into the idea that a lot of the very strong inflation figures are due to transitory factors,” such as slowdowns in supply deliveries, says Matthew Speakman, an economist for real estate website Zillow.

Still, interest rates will eventually head higher (although nowhere near what we saw in the 1980s). Kiplinger is forecasting that the 10-year Treasury will rise to 1.8% by the end of 2021 and 2.3% by the end of 2022. The average rate for a 30-year mortgage is expected to rise to 3.3% by the end of 2021 and move up to 3.8% by the end of 2022.

That means home buyers, who are dealing with limited supply, probably don’t need to scramble to lock in a rate (see How to Win in a Red-Hot Housing Market).

Short-term interest rates, which determine rates on credit cards and home-equity lines of credit, are expected to remain near zero through 2022. That’s good news for borrowers—assuming they can get a loan. Several major banks, including Wells Fargo, JPMorgan Chase and Citibank, halted new home-equity lines of credit during the pandemic and have yet to resume their offerings.

Credit card issuers, on the other hand, are eager to sign up customers, particularly since many borrowers used their stimulus checks or savings on canceled vacations to pay off balances during the pandemic. Credit card rates are still much higher than rates on other loans—the average rate is about 16%—but many issuers are looking to entice new customers by expanding their rewards programs (see New Perks From Our Best Rewards Cards).

No relief for savers. Meanwhile, the only good news for savers is that rates on savings accounts, certificates of deposit and other safe parking places probably won’t fall any more, says Ken Tumin, founder of DepositAccounts.com. The average rate for bank online savings accounts is about 0.45%, and major brick-and-mortar banks are paying even less than that. Locking up your money in a CD won’t boost your yield: The average rate for a one-year CD is just 0.17%, and you’ll get only 0.31% on a five-year CD, according to Bankrate.com.

It’s not just interest rates that are keeping yields low, Tumin says. The personal savings rate soared during the pandemic as consumers lowered their spending and banked their stimulus checks for a rainy day. In the first quarter of 2021, bank loans accounted for only about 58% of deposits, says Tumin, down from 69.5% in 2020. That indicates banks have plenty of money to lend and will be in no hurry to raise rates to attract more deposits, even after the Fed hikes short-term rates.

There are steps you can take to earn a higher return on money you can’t afford to lose. Some high-yield rewards savings accounts offered by local banks and credit unions offer rates as high as 5%. The trade-off is that they typically cap the amount of deposits eligible for the high rate and require you to meet certain criteria, such as using the institution’s debit or credit card a certain number of times each month, having your paycheck direct deposited, and conducting all of your business online. For example, Consumers Credit Union (Illinois) pays 4.09% on up to $10,000 if you spend at least $1,000 a month on one of its credit cards, have direct deposit and meet other requirements.

Another option for money you don’t expect to need right away is a Series I savings bond. The composite rate on Series I bonds issued through October is 3.54%. The rate consists of a fixed rate—currently 0% on new bonds—and an inflation rate, which is based on the government’s consumer price index and adjusts every six months from the bond’s issue date (see Earn 3.54% With Series I Bonds).

A big raise for seniors

Inflation can be particularly tough on retirees who are living on a fixed income, but the recent price spikes have an upside. The Kiplinger Letter is forecasting that the annual cost-of-living adjustment for Social Security benefits for 2022 will be 6.3%, the biggest jump since 1982, when benefits rose 7.4%.

The projected increase reflects the rebound of consumer prices that were depressed during the pandemic. COLAs are calculated using the consumer price index for urban wage earners and clerical workers.

Source: kiplinger.com

11 Ways to Avoid a Financial Midlife Crisis

Midlife crises are expensive.

From flashy cars to trendy clothes and accessories to artificially trying to look younger with Botox or surgeries, midlife crises cost you both money and stress.

It’s not easy parting with the vigor, fitness, and attractiveness of youth. Nor is it easy to accept our own mortality on a visceral rather than conceptual level. As you navigate the middle years of your adulthood, try the strategies below to stop the emotional and financial bleeding, and inject some fresh vitality into your life.

What Is a Midlife Crisis?

The idea of a “midlife crisis” was first popularized by Freudian psychologists like Carl Jung in the early and mid-20th century. Because there’s no official diagnosis or definition for a midlife crisis, and it expresses itself in many different ways, it’s difficult to study scientifically.

Consider two different models for midlife crises. In the classic model, it takes the form of an acute emotional crisis, often triggered by a single event during adulthood such as a death, divorce, or job loss.

The American Psychological Association explains that emotional crises are usually marked by a “clear and abrupt change in behavior” and can manifest through depression, trauma, eating disorders, alcohol or substance abuse, self-injury, and suicidal thoughts. Sadly, the suicide rate among middle-aged adults is distinctly higher than other age groups, per the American Foundation for Suicide Prevention. Middle-aged white men see particularly high suicide rates, with men nearly four times as likely to die by suicide than women.

The other model for midlife crises is more protracted, expressed as a period of lower happiness or slow-burning depression. Studies such as a 2020 paper by Dartmouth’s David G. Blanchflower demonstrate a “happiness U-curve” over the course of adulthood, with happiness declining through our young adult and early middle years before bottoming out in middle age. Happiness levels then start to rise again, with older adults reporting greater satisfaction and well-being.

During midlife crises, adults tend to contrast the goals and dreams of their youth against their current life — and find it wanting. That can lead to thoughts like “I’ve wasted my youth,” or “What have I done with my life?”

It’s hard to imagine a worse feeling.

Signs and Symptoms of a Midlife Crisis

In response to these feelings, adults often start flailing for a lifeline — anything to make them feel young, successful, attractive, energized, or in control of their lives and destinies again.

Although a midlife crisis feels immensely personal while you’re experiencing it, you’re not alone. Over one-quarter of adults admit to experiencing a midlife crisis, according to the Midlife in the United States studies. Just imagine how many more people experience one and don’t talk about it.

The common signs that you or a loved one may be experiencing a midlife crisis can take a variety of forms. Some are physiological and psychological, including depression, changes in sleep patterns, and an uptick in substance use. This can produce effects ranging from trouble getting out of bed in the morning to maddening insomnia to abusing drugs or alcohol. (If you notice any of these symptoms, consider seeking the counsel of a doctor or therapist.)

A midlife crisis can also lead to changes in one’s attitudes and behaviors, such as a sudden obsession with physical appearance, an increased interest in status symbols, or infidelity. It often accompanies feelings of resentment or blame that can wreak havoc on personal and professional relationships, and may be characterized by feeling restless, apathetic, or unfulfilled.


Financial Impact of a Midlife Crisis

Midlife crises can ruin you financially.

Before letting yourself drift into a midlife crisis, think twice about the destruction you could sow. You can literally lose everything you own and hold dear.

Therapists are cheap by comparison.

Risk of Divorce

Few events in life are as traumatic — or expensive — as divorce. The divorce process itself can cost tens or even hundreds of thousands of dollars between attorney fees, home sale costs, and other expenses from separating all your legal assets. Which says nothing of ongoing costs like alimony or child support.

Everything you own goes under the microscope to be parsed and parceled. Anyone who tells you they came out ahead in a divorce clearly didn’t fight fair, because divorces inherently drain assets rather than build them. Only lawyers get rich off divorces.

As painful as life may feel in a midlife crisis, it can get worse. And often, “worse” looks like divorce.

Risk of Job Loss and Career Derailment

Those feelings of apathy and restlessness could cost you your job in addition to your marriage.

It’s common sense: depressed people who feel unfulfilled by their job simply won’t produce quality work. That means they won’t earn promotions, won’t secure glowing references to help them get a new job, and won’t be first on any friends’ or colleagues’ list to recommend when new opportunities arise.

That’s assuming they don’t get fired, of course. Or worse, flamboyantly quit and “go out in a blaze of glory.”

All of these outcomes can make it extremely hard to find a new job, especially a better job.

The Direct Cost of Splurges

Even people who don’t lose their jobs or spouses can still end up blowing absurd amounts of money on midlife crisis splurges.

Take your pick: sports and luxury cars, boats and yachts, motorcycles, flashy and expensive hobbies, outrageous vacations, vacation homes, cosmetic surgeries, overpriced designer clothes and accessories. The staples of midlife crises cost money, and a lot of it.

That’s money you could put toward building real wealth, toward your long-term financial goals that you’ve actually thought through rationally with your partner or financial advisor. Goals like, say, saving a down payment for your dream home, saving for retirement, or helping your children with their college costs.


Strategies for Preventing or Escaping a Midlife Crisis

Yes, every midlife crisis looks different. One person might take up with their much-younger secretary, while another goes down the rabbit hole of serial cosmetic surgeries.

But they all cost you, and usually in more ways than one.

The following strategies can all help you retain (or regain) control over your life, your happiness, and your personal finances. You’re not alone, no matter how it feels in the moment. Bring your life back into alignment with intentionality, and a focus on improving your personal relationships and progress toward long-term goals.

1. Talk Through It With Loved Ones and Professionals

Your spouse, family, friends, and other loved ones don’t know what you’re going through if you don’t tell them. Even if they suspect you’re falling into a midlife crisis, they don’t understand your perspective without you explaining it.

Try them. Be patient with them, just as you want them to be patient with you. They probably won’t fully understand it the first time you broach the topic, but that doesn’t mean you should never discuss it with them.

To meaningfully change your life, you need to bring the people who share that life with you on board with any changes. But it also helps to simply unload, to unburden yourself to a disinterested third party.

Talk to a counselor or other professional, not for advice per se — although they may offer sound ideas — but simply to get your grief and anxiety off your chest and out into the open. Left swirling inside of you, these emotions can build up pressure until they burst.

2. Retake Control With Lifestyle Design

Far too many people drift with the tides of life, falling into their jobs, their relationships, even the city where they live. It’s no wonder so many wake up one day and realize they’re living a life they don’t actually like.

Sit down and write out a description of your ideal life, starting with where you live, the kind of work you do, your family life, your social life, your hobbies, and every other detail you can put to paper. No holds barred, nothing off-limits — simply outline your perfect life.

Once you’ve written out the what, you can then start brainstorming the how. The process is called lifestyle design. It doesn’t happen overnight, but by steadily working toward a life you actually want to live, you’ll find fresh meaning and purpose.

3. Reevaluate Your Long-Term Goals

Similarly, your life should align with your long-term goals. When they no longer align, you start drifting in a direction you don’t truly want to go.

For example, my top financial goal is to reach financial independence within the next few years by building enough passive income to cover my living expenses. At that point, working becomes optional. I pursue passive income by budgeting a high savings rate (more on that momentarily) and funneling as much money as possible into investments. And despite feeling the occasional midlife pang, I can still sleep each night knowing that I ended the day closer to my goal than when I woke up that morning.

Whether you aim to buy a new home, retire early, help your kids with college, take dream vacations, or maybe even buy that dream sports car, take a second look at your long-term goals — then form a financial plan to reach them faster. And if you need some expert advice, don’t be afraid to reach out to a financial advisor or other financial professional.

4. Increase Your Savings Rate

Money can’t solve every problem — but it can solve many. And even when it can’t solve a problem entirely, it can usually help. For example, anyone can get sick or injured, but the more money you have, the better your health insurance and medical outcomes tend to be.

To paraphrase author Robert Kiyosaki: I’ve been happy and rich, I’ve been happy and broke, I’ve been unhappy and rich, and I’ve been unhappy and broke; and I can assure you that being unhappy and rich is still a lot better than being unhappy and broke.

So how do you build wealth faster? By growing the gap between what you earn and what you spend: your savings rate.

I don’t know what tomorrow will bring, but I do know that more wealth will better prepare me and my family for it. And I can also tell you firsthand that when I feel those midlife pangs, such as thoughts like “My old college roommates earn more than I do,” I find some comfort in my frugal but high-savings lifestyle.

5. Become Debt-Free

While you don’t necessarily have to pay off your home loan or even your car loan in full, you should definitely not carry any unsecured debts by the time you reach middle age.

First and foremost, that includes paying off your credit cards in full every month. But beyond credit card debt, it also includes student loans, personal loans, and any other unsecured loans.

Stop paying high interest rates on consumer debt. It’s awfully hard to achieve financial stability and build an emergency fund — much less build retirement savings in your IRA or 401(k) — when you have high-interest debt repayments hanging around your neck each month.

When you become debt-free, you suddenly start thinking offensively instead of defensively. It frees you to focus on building wealth, passive income streams, and perhaps even replacing your full-time salary with investment income. You gain a welcome feeling of control over your finances and your future, which does wonders in fending off midlife crises.

6. Consider a Career Change (Carefully)

Quitting in a blaze of glory might look great in movies, but it won’t do your career any favors. Of course, that doesn’t mean you should stay in that unfulfilling job either.

As part of your foray into lifestyle design, spend some time brainstorming careers that better fit your passions, strengths, and long-term goals. Bear in mind that the jobs you grow up hearing about — teacher, cop, accountant, and so forth — make up a minority of the actual jobs available today. Many of the jobs in today’s workforce didn’t exist five years ago, and you may never have heard of them.

Consider meeting with a career counselor to take a career aptitude test and discuss options. Although often not cheap, you walk out with a slew of ideas that had never previously occurred to you — ideas that could well fit you better than your current job.

And, of course, they might also offer a higher salary or better benefits.

In my post-college life, I’ve been a mortgage loan officer, a real estate investor, an Internet marketer, an e-commerce executive, a founder of an online startup, and a freelance writer. Twenty years ago, I would have raised an eyebrow if you’d told me I’d end up doing any one of those jobs.

For fun, explore alternatives like jobs that provide free housing and jobs that let you live anywhere. If you need a dash of adventure, becoming a digital nomad can certainly do the trick.

Just don’t lose your spouse in the process. Talk through major career or lifestyle changes with your partner before charging forward without their knowledge or support.

7. Consider a Side Hustle

Not everyone going through a midlife crisis is ready to change careers just yet. But they may still want something more from their working life, both financially and emotionally.

In that case, consider starting a side hustle while you figure out what you want to do with your career. You can turn a hobby of yours into a business and keep it fun if you like.

Starting a business doesn’t have to mean selling off all your assets and pouring it all into inventory and a commercial lease. To keep your startup costs low and build cash flow quickly, consider starting an online business.

All the while, you can keep working your day job while you decide what you want to do with the rest of your life.

8. Find a Mentor or Coach

Don’t try to reinvent the wheel on your own. Ask for guidance from people who have done what you want to do, and who can show you all the shortcuts.

Beyond helping you skip costly mistakes and detours, mentors and coaches can also help you ask the right questions. They have the benefit of both experience and outside perspective, and can see angles that you can’t while in the thick of your day-to-day struggles. “I know you think you want X, but from what you’ve told me, it sounds like Y would actually be a better fit for you.”

Mentors and coaches also help you feel less alone. They can take you by the hand and guide you back to the path you actually want to walk through this life.

9. Embrace Adventure — Constructively

My wife and I may not earn enormous salaries like some of our friends do, but we lead a life of adventure, travel, and endless opportunities.

We spend 10 months per year overseas. It took some work to move abroad, between my wife finding a job as an international school counselor and me establishing income streams I can earn from anywhere. But we did it because we didn’t want to follow the same trajectory of white picket fences and overpriced mortgages that we saw our friends following.

It was one of the best decisions we ever made. We live in a country with a low cost of living, enjoy free housing and outstanding health care, and get to visit an average of 10 countries each year.

But we did it together, and we planned it carefully. We put in the work, rather than one of us just running off one day in the throes of a full-blown personal crisis.

You don’t need to go as far as moving abroad to inject some adventure into your life. Start smaller if you like, and if you’re worried about money, explore these ways to travel the world for free.

10. Take Care of Yourself Physically

Once when I was going through a depressive period, my father told me to do three things: get eight hours of sleep every night, eat healthier, and work out every day. “Go through the motions of being healthy, and one of these days you’ll wake up and realize you feel better both physically and emotionally.” As usual, he was right.

Your body and mind form a feedback loop. One of the easiest ways to jumpstart an emotionally healthier loop is to force yourself into a physically healthier routine.

It doesn’t have to cost you more money. You can eat healthy on a budget, and work out at home with no expensive equipment or gym memberships. Neither do you need expensive or habit-forming sleep aids, with all the natural sleep remedies available.

Finally, consider quitting drinking. Alcohol is expensive, both in terms of your wallet and your health. Worst of all, it correlates strongly with depression: everything in your life looks worse after you’ve been drinking.

As a byproduct of living healthier, you might just find you feel younger, too.

11. Volunteer More

How many hours do you volunteer each month?

Countless studies show that volunteering improves personal happiness levels, lowers rates of depression, and generally boosts our sense of well-being — see this study from BMC Public Health for an example.

That says nothing of all the unselfish reasons to volunteer like, say, giving back to the world.

There are plenty of ways to volunteer locally, but if you want to combine volunteering with travel, try out these ideas to volunteer abroad for free travel.


Final Word

Less than a year ago, I was clinking giant steins at Oktoberfest. Today I have a baby and have crossed into my 40s. I’ve spent more than a few nights wondering what happened to the excitement of my younger days.

Middle-aged adults can find comfort in research from the Institute for Human & Machine Cognition demonstrating a silver lining to midlife crises. Most people who experience them come out the other side with a greater sense of curiosity about the world around them — and where they fit into it. Armed with a better understanding of themselves and their place in the world, middle-aged adults emerge more thoughtful, worldly, and compassionate than their younger selves.

As fun as it is to be young and fit and glamorous, growing wiser and wealthier with age comes with its own rewards. If the price you pay for them is letting go of the trappings of youth, just remember you’re going to lose them regardless. You might as well relinquish them gracefully, and embrace the perks of more mature adulthood.

Source: moneycrashers.com

Top 4 Things I Love About Dave Ramsey Baby Steps (And 4 Things I’d Change)

Dave Ramsey has helped thousands of people around the world through the 7 Baby Steps for financial peace and freedom.

The process works.

His book titled the Total Money Makeover has had some impressive sales numbers. The book has sold over 5 million copies and has been on the Wall Street Journal Best-Selling list for over 500 weeks. (That data is from August 2017, over 4 years ago, so it’s sold more by now.)

So, we know that the 7 Baby Steps work. There’s a lot to love above the process, and we will address 4 of those attributes here. We will also cover 4 things that we think could be updated this year (as it has been almost 30 years since the Baby Steps were created).

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7 Baby Steps really do work. There are three great reasons why the plan actual works:

a. The Baby Steps Force You To Get Gazelle Intense When It Comes To Paying Off Debt

I’ll mention this later, but I really appreciate that Dave Ramsey keeps the emergency fund smaller to force you to be gazelle intense. Having such a small emergency fund of $1000 really does force you to get out of debt faster because having too much money in the bank can cause you to stagnate. 

b. Dave Strongly Encourages Your Behavior Modification

Too many financial gurus don’t give it to you straight. They may tell you that you need to invest in real estate or cryptocurrency.  It often feels like a lie that you can achieve financial freedom without putting in a lot of work.

Dave Ramsey comes off as blunt many times, but he forces people to confront that the debt is often our fault (with some exceptions). His bluntness, along with the Baby Steps, forces you to self-reflect.

c. The Plan Is Simple And Shows How You Need To Focus On One Step At A Time

I’ll mention this more below, but it’s evident that his focused intensity on the Baby Steps plan helps you stay focused on the task. You complete the first 3 steps consecutively and the following 4 steps concurrently in a prioritized order. 

You don’t have to multitask. Also, you don’t need to think about another step. You just need to focus on the step at hand.

2) Dave Ramsey Is Right That You Need A Plan

Dave Ramsey has many helpful quotes. One of my favorite of Dave Ramsey’s quotes is, “You must plan your work and then work your plan”. 

Too often we go through life without a plan, but we expect that everything is going to work out just fine. I remember the first time I budgeted.  I thought that I spent a certain amount of money on eating out each month, only to realize that number was much higher.

We need plans. It could be a debt payoff plan to stay on top of your debt. It could also be a budget to understand your income and expenses. Or it could be a plan to pay off your home early as per Baby Step 6.

Dave Ramsey understood that which is why the Baby Steps plan is so useful. You stick to the plan and you get out of debt. Voila.

3) The Baby Steps Get Progressively More Challenging

One thing I noticed early was that the Baby Steps seems to get progressively more challenging. This helps build momentum. It is much easier to save $1000 than to pay off your house early. By starting and taking baby steps, the baby steps themselves actually don’t feel very babyish. 

Paying off your home early per Baby Step 6 feels much more like a big kid step, but it’s still just a Baby Step like the others. It’s impressive how Dave structured these baby steps.

4) The Community Around Dave Ramsey Baby Steps Is Incredible

You don’t have to look far to realize that the community around Dave Ramsey is incredible. You can take a Financial Peace University class at your local church. These classes are excellent to encourage you and help keep you accountable while you eliminate debt. You’ll learn the baby steps inside and out with others in your community. 

You can also be a part of a vibrant Dave Ramsey Facebook Community. Personally, I am a part of many of these communities where I receive a ton of encouragement when sharing wins and losses in the process of debt elimination.

There’s a lot to love about the Dave Ramsey Baby Step method.

Now, let’s cover a few things that could use a refresh.

1) Can Creating A Budget Be Baby Step #1?

I am a budget fanatic. I would love to see a Baby Step dedicated to budgeting. Why? Because budgeting helps you understand where every dollar goes. I used “every dollar” like that on purpose because Dave Ramsey himself created a budget app called EveryDollar for that very purpose.

What better way to understand how much money you have to put towards your emergency fund than starting with a budget.

I am not sure why Dave doesn’t start with a budget, but I would be keen to start the Baby Steps with creating one.

2) Dave Ramsey’s Emergency Fund May Need A Refresh

Dave Ramsey’s emergency fund calls you to save $1,000 in Baby Step 1. Is $1,000 enough? It really depends. 

First, adjusted for inflation, $1,000 in 1990 is now worth $2,043.26 per the US Inflation Calculator.

Dave Ramsey's emergency fund needs to be larger due to inflation

There’s a plethora of questions you can ask yourself when considering whether the emergency fund is big enough, such as:

  1. How much debt do you have to pay off?
  2. Do you own a home?
  3. How old is your car?
  4. How many kids do you have?
  5. Do you have insurance?

Another question I like to ask is, “where do you live?”. Personally, my family and I live in the Bay Area, California where the cost of living tends to be quite high. $1,000 wouldn’t get us very far.

3) Is The Snowball Method The Best Way To Pay Off Debt?

As a refresh, the debt snowball method means that you line up your debts from smallest to largest and pay your monthly extra to your smallest debt first then snowball into higher debts. The debt avalanche method is where you line up your debts from the highest interest rate and use your monthly extra to pay off the highest interest first. The savvy debt method is where you pay off 1-2 of your smallest balances first via snowball before reverting to the avalanche method to save the most in interest.

Dave Ramsey loves the debt snowball method. It has worked for many people, so why wouldn’t he? He feels the opposite for the debt avalanche where he mentions that it doesn’t work.

The challenge is that you could lose thousands in interest if your smallest debts also have the smallest interest rates. This can be possible because higher debt amounts carry a higher risk to the lenders, meaning potentially higher interest rates.

You can see how much the snowball method loses in comparison through this debt payoff calculator which compares interest paid from snowball to savvy methods. For reference, we are comparing 4 debts: $23,000 at 22%, $18,000 at 19%, $12,000 at 9% and $8,000 at 7% interest rate. The monthly payment is $1,825.00

debt snowball versus other debt payoff methods

In this example, you would lose over $3,500 in interest by choosing the snowball method.

Does that mean that the snowball method is always worse? Absolutely not. The snowball method may provide the psychological benefit that you need to exterminate your debt.

You choose the debt payoff app and debt payoff method that is best for you.

4) Should You Follow Dave Ramsey’s Advice And Pay Off Your House Early Or Invest?

Dave Ramsey loves mutual funds and paying off your home early. My question is what if your mutual funds are making so much more in interest than paying off your home would save you?

Wouldn’t the prudent thing be to continue to pay off your home and then get the higher interest from investing in mutual funds?  It’s not a one size fits all solution, but it is something to consider.

There are also often benefits of not paying off your home early such as interest paid being tax-deductible. That said, you would really need to determine whether you would make more money from mutual funds than saving from interest payments to determine what’s best for you.

What Do You Think About The Baby Steps?

The Dave Ramsey Baby Steps have helped thousands around the globe. What do you like about the Baby Steps? Do you agree or disagree with what we would change in 2021?

4 things I love about Dave Ramsey's baby steps and 4 things I'd change

Top 4 Things I Love About Dave Ramsey Baby Steps (And 4 Things I'd Change)

Source: biblemoneymatters.com

Shield Your Portfolio From Inflation

Investors fear inflation in the same way Superman dreads a pile of kryptonite. Just as the mysterious substance weakened the Man of Steel, a persistent rise in prices can diminish the strength of an investment portfolio. Inflation eats into returns and reduces the buying power of assets in investment accounts, such as 401(k)s. “Inflation has a scary connotation,” says Axel Merk, president and chief investment officer of Merk Investments.

Rising prices are especially scary for retirees with larger holdings of lower-return assets, such as cash and bonds. If inflation rises 3% every year, for example, a retiree who has enough saved today to spend $50,000 a year would need just over $67,000 a year by 2031 and more than $90,000 per year by 2041 to fund the same lifestyle, according to an analysis by Kendall Capital.

Wall Street is certainly scared of inflation, at least in the short run. The reopening of the economy has created a boom as pandemic headwinds subside, with price hikes driven by supply-chain bottlenecks and product shortages at a time when pent-up consumer demand has been fueled by government stimulus checks. Following a 40-year period during which inflation was mostly in hibernation, the nation is living through the biggest spike in prices in more than a decade for stuff such as gas, groceries and used cars.

In June, the consumer price index, the government’s main measure of inflation, saw a year-over-year increase of 5.4%, the largest rise since 2008. The prices that suppliers charge businesses (so-called producer prices) also rose in June at the fastest annual pace since 2010, and employers are boosting worker pay amid a tight labor market. Fund managers now say inflation is the biggest market risk, a Bank of America Securities survey found.

The $64,000 question (which was worth $60,726 a year ago, according to the government’s inflation calculator): Is higher inflation temporary, or is it here to stay? Federal Reserve chief Jerome Powell insists that the forces driving prices higher will wane and projects that inflation will fall back to around 2% in 2022. Powell downplays a repeat of 1970s-style inflation, when the CPI topped 13%, saying, “It’s very, very unlikely.” Most investment pros agree. Still, Kiplinger expects inflation to reach 5.5% by December, compared with December of 2020, and to average 4.3% for 2021 overall.

It’s worth noting that the stock market’s average annual gain of 10% has outpaced inflation over the long run. But don’t let your guard down. Historically, inflation spikes (such as the current episode), during which the CPI suffers one-month increases of 0.5% or more for at least three months in a row, have been a headwind for stocks, according to Bespoke Investment Group. In five of the previous seven such spikes since 1973, the S&P 500 index declined, suffering a median drop of 7.8%.

And don’t dismiss a common secondary effect of inflation: rising interest rates. Upward price pressures eventually prompt the Fed to increase borrowing costs and dial back bond-buying programs to cool a too-hot economy, a policy shift that can weigh on asset prices and spark volatility. In June, the Fed indicated that rate hikes could come next year, sooner than the 2024 start date it forecast in March.

The best inflation strategy is to hope for the best but plan for the worst. Judging from past inflationary periods, the investments below should provide a hedge against a persistent period of rising prices. (Prices are as of July 9.)

Classic inflation plays

Fight higher inflation directly by buying Treasury inflation-protected securities. The appeal of TIPS is that in inflationary periods, they “pay out more in interest and increase in value,” says Morningstar portfolio strategist Amy Arnott. The principal value (the initial price you pay for the bond) adjusts higher when inflation, measured by the CPI, increases. The interest you receive also rises because it’s based on the adjusted principal. You can purchase TIPS directly from Uncle Sam at www.treasurydirect.gov or invest in Schwab U.S. TIPS ETF (symbol SCHP, $63), a low-cost way (the expense ratio is 0.05%) to own a broad basket of TIPS.

Gold has a reputation for retaining its value when the dollar declines or loses purchasing power. Although the precious metal gets kudos as an inflation hedge, its performance during inflationary times is mixed. Gold tends to perform best during bouts of extreme inflation, such as in the 1970s when oil prices soared. It fares less well during more muted inflationary periods.

“Gold seems to outperform when chaos reigns supreme,” says Thomas Tzitzouris, managing di­rector at Strategas, an in­dependent research firm. And gold’s performance turns “poor … almost instantaneously at first sight of tighter [Fed] policy,” Tzitzouris warns. Still, earmarking a small portion of your portfolio to gold makes sense as an insurance policy in case the inflation dragon reappears and the Fed waits too long to tame it.

To get exposure to gold bullion itself, consider iShares Gold Trust (IAU, $34), which tracks the daily price movement of the yellow metal. Or you might invest in gold-mining stocks, says Merk. When the price of gold is rising, he says, the profits of gold miners increase because the cost of getting the gold out of the ground remains fixed. Mining company Newmont (NEM, $64) is a pro-inflation stock recommended by BofA.

Bitcoin has been growing in popularity as an inflation hedge, held out as an alternative to gold. But it’s best for investors who have a speculative bent and are able to stomach massive volatility, and it should be limited to the smallest of slices of your portfolio. Most brokerages don’t allow clients to buy bitcoin directly, but you can gain exposure through Coinbase, a crypto exchange, on the Robinhood trading app or via products such as Grayscale Bitcoin Trust (GBTC, 28).

Property prices and rents charged by landlords typically go up during inflationary periods, making real estate a popular investment if you want to outrun inflation. Over the past 30 years, an index of U.S. real estate investment trusts posted bigger gains than the S&P 500 in five of the six years when inflation was 3% or higher, according to data from fund company Neuberger Berman. Consider Vanguard Real Estate ETF (VNQ, $105). It owns publicly traded REITs including Crown Castle, which leases communications infrastructure such as cell towers, and Equinix, which specializes in data centers.

Dan Milan, managing partner at Cornerstone Financial Services, is bullish on Simon Property Group (SPG, $130). Simon’s upscale malls, he says, have held up better and can command higher rents than lower-end malls. Investment firm Stifel is bullish on self-storage REITs, such as CubeSmart (CUBE, $49) and Extra Space Storage (EXR, $173).

line graph of inflation increasing over the past year or soline graph of inflation increasing over the past year or so

Stocks and commodities

Stock sectors that tend to do well when the economy is booming—and inflation is often rising—include energy (think big oil companies); industrials (heavy machinery, building products and aerospace firms); and materials, or companies that provide commodity-related materials to businesses (such as suppliers of chemicals, steel and other metals).

To gain exposure to a broad range of raw material producers, consider Materials Select Sector SPDR (XLB, $83). Top holdings include chemical company Dow and paint maker Sherwin-Williams. Michael Cuggino, president and portfolio manager of Permanent Portfolio, recommends copper producer Freeport-McMoRan (FCX, $37). Goldman Sachs analysts cite paint producer PPG Industries (PPG, $171) and Scotts Miracle-Gro (SMG, $183), which sells lawn, garden and pest control products, as firms with pricing power and a history of turning a large slice of revenues into profits.

Top holdings in the Energy Select Sector SPDR ETF (XLE, $53) include oil giant ExxonMobil, oilfield services provider Schlumberger and energy exploration firm Pioneer Natural Resources. A good option for industrial companies is Fidelity MSCI Industrials Index ETF (FIDU, $55), which owns heavy machine manufacturers such as Caterpillar and John Deere.

To take advantage of rising demand and prices for commodities such as oil and gas, gold, corn, soybeans, sugar, wheat, and copper, consider Invesco Optimum Yield Diversified Commodity Strategy No K-1 ETF (PDBC, $20). It’s the biggest, most liquid fund of this kind, has a reasonable expense ratio of 0.59%, skips the troublesome K-1 form at tax time and is outpacing 96% of its peers so far this year.

The ideal companies to own in any sector are ones that can pass along higher costs to customers because of strong demand for their products, says Milan, at Cornerstone. That “helps companies protect their profits,” he says. Stocks that Goldman Sachs analysts say check those boxes include Advance Auto Parts (AAP, $213), whose sales of auto parts to do-it-yourselfers and professional mechanics will benefit from commuters returning to work and Americans hitting the nation’s roads to travel again; Etsy (ETSY, $195), which Goldman Sachs says turns 74% of its total revenues into profit (the highest gross margin of the consumer discretionary stocks listed in Goldman’s “high pricing power” screen) from its e-commerce site that sells unique handmade and vintage items; and Procter & Gamble (PG, $137), which owns brands such as Pampers and Tampax and has already announced coming price hikes for some products to offset rising commodity costs.

Indirect beneficiaries

Inflation can be insidious for bond investors, whose fixed interest payments increasingly lose purchasing power and whose bond prices often decline as interest rates rise in response to inflation. Investing in business bank loans that have interest rates that reset higher when market rates rise is a good strategy for avoiding that dynamic.

Unlike fixed-rate loans, which always pay the same coupon (or income), floating-rate debt allows the bond holder to earn more when rates rise. These loans are typically made to firms with less-than-pristine credit, which means the risk of default is higher. A couple of choices to consider are Invesco Senior Loan ETF (BKLN, $22), a member of the Kiplinger ETF 20 (see more on the ETF 20), and T. Rowe Price Floating Rate (PRFRX).

During periods of rising inflation since 2000, small-company stocks have outperformed large-cap shares, according to the Wells Fargo Investment Institute. Small companies tend to shine when the economy is growing rapidly, as it is now. Plus, they currently have better profit-growth prospects and trade at cheaper valuations relative to large-cap shares, according to investment bank UBS. Consider Kip ETF 20 member iShares Core S&P Small-Cap ETF (IJR, $112).

To better capitalize on the growth that stocks provide, Milan touts companies that regularly boost the size of their dividends. The bigger the increase over time, the greater the chance of outpacing inflation, he says. He likes home improvement retailer Home Depot (HD, $322), which recently hiked its dividend by 10%. It’s a member of the Kiplinger Dividend 15 list of our favorite dividend stocks. Milan also favors snack and soda giant PepsiCo (PEP, $149), which currently yields 3.5%.

Finally, given that in­flation is a bigger issue in the U.S. than abroad, make sure you’re diversified overseas. Gina Martin Adams, chief equity strategist at Bloomberg Intelligence, is bullish on emerging-markets stocks, particularly in commodity-producing nations such as Brazil and Russia. “Commodity-sensitive emerging markets are a good place to hide,” she says. Baron Emerging Markets (BEXFX) has exposure to both Brazil and Russia; it’s a member of the Kiplinger 25, the list of our favorite actively managed, no-load mutual funds.

chart of cost of living of different commonly purchased itemschart of cost of living of different commonly purchased items

Source: kiplinger.com

9 States with No Income Tax

Everyone hates paying taxes. So why don’t we all live in one of the nine states without an income tax? Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, Washington and Wyoming don’t tax earned income at all. If you’re retired, that also means no state income tax on your Social Security benefits, withdrawals from your IRA or 401(k) plan, and payouts from your pension. That sounds pretty darn good to me!

But, of course, no state is perfect. The states without an income tax still have to pay for roads and schools, so residents still have to pay other taxes to keep the state running (like sales, property and estate taxes). And sometimes those other taxes can be on the high end. New Hampshire and Texas, for example, have some of the highest property taxes in the country. So, if you’re thinking of moving to a state without an income tax, continue reading to see some of the other taxes you’ll have to pay in those states. Maybe the state you’re in right now won’t look so bad.

Average combined state and local sales tax values are for 2021 and were compiled by the Tax Foundation. Property tax data is from 2019 and is based on information from the U.S. Census Bureau. Overall tax ratings are from the State-by-State Guide to Taxes on Middle-Class Families.

1 of 9

Alaska

picture of Alaska wildernesspicture of Alaska wilderness

Overall Rating for Taxes: Most Tax-Friendly

State Income Taxes: None.

Sales Tax: Alaska is one of five states with no state sales tax. However, localities can levy sales taxes, which can reach 7.5%. Higher rates are found in locations that lack a property tax. But, according to the Tax Foundation, the statewide average is only 1.76%.

Property Taxes: In Alaska, the median property tax rate is $1,182 per $100,000 of assessed home value. That’s slightly above the national average.

Inheritance and Estate Taxes: There is no inheritance tax or estate tax.

2 of 9

Florida

picture of Florida palm trees at sunsetpicture of Florida palm trees at sunset

Overall Rating for Taxes: Most Tax-Friendly

State Income Taxes: None.

Sales Tax: 6% state levy. Localities can add as much as 2%, and the average combined rate is 7.01%, according to the Tax Foundation. The combined rate is middle-of-the-road when compared to other states.

  • Groceries: Exempt
  • Clothing: Taxable
  • Motor Vehicles: Taxable (additional county tax on first $5,000 of purchase price may apply)
  • Prescription Drugs: Exempt

Property Taxes: In Florida, the median property tax rate is $830 per $100,000 of assessed home value. That’s also pretty average when compared nationally.

Inheritance and Estate Taxes: There is no inheritance tax or estate tax.

3 of 9

Nevada

picture of the Las Vegas strippicture of the Las Vegas strip

Overall Rating for Taxes: Most Tax-Friendly

State Income Taxes: None.

Sales Tax: 6.85% state levy. Localities can add as much as 1.53%, and the average combined rate is 8.23%, according to the Tax Foundation. That’s a pretty high combined rate.

  • Groceries: Exempt
  • Clothing: Taxable
  • Motor Vehicles: Taxable
  • Prescription Drugs: Exempt

Property Taxes: Nevada’s median property tax rate is $533 per $100,000 of assessed home value, which is one of the lowest rates in the U.S.

Inheritance and Estate Taxes: There is no inheritance tax or estate tax.

4 of 9

New Hampshire

picture of New Hampshire small townpicture of New Hampshire small town

Overall Rating for Taxes: Mixed Tax Picture

State Income Taxes: New Hampshire doesn’t tax earned income, but currently there’s a 5% tax on dividends and interest in excess of $2,400 for individuals ($4,800 for joint filers). The tax on dividends and interest is being phased out, though. The rate will be 4% for 2023, 3% for 2024, 2% for 2025, and 1% for 2026. The tax will then be repealed on January 1, 2027.

Sales Tax: New Hampshire has no state or local sales tax.

Property Taxes: The median property tax rate in New Hampshire is $2,050 per $100,000 of assessed home value. That’s the third-highest rate in the country.

Inheritance and Estate Taxes: There is no inheritance tax or estate tax.

5 of 9

South Dakota

picture of Mount Rushmorepicture of Mount Rushmore

Overall Rating for Taxes: Tax-Friendly

State Income Taxes: None.

Sales Tax: 4.5% state levy. Localities can add as much as 4.5%, and the average combined rate is 6.4%, according to the Tax Foundation. That’s a below average combined rate.

  • Groceries: Taxable
  • Clothing: Taxable
  • Motor Vehicles: Exempt from ordinary sales tax, but taxable under special 4% excise tax
  • Prescription Drugs: Exempt

Property Taxes: The median property tax rate in South Dakota is $1,219 per $100,000 of assessed home value. That’s above the national average.

Inheritance and Estate Taxes: There is no inheritance tax or estate tax.

6 of 9

Tennessee

picture of pyramid building in Memphispicture of pyramid building in Memphis

Overall Rating for Taxes: Most Tax-Friendly

State Income Taxes: None. (A tax on interest and dividend income existed before 2021.)

Sales Tax: 7% state levy. There’s also an additional state tax of 2.75% on sales of single items that applies to the portion of the sales price from $1,600 to $3,200. Localities can add up to 2.75%, with an average combined state and local rate of 9.547%, according to the Tax Foundation. That’s the highest combined rate in the nation. Local taxes are limited, though: Only the first $1,600 of any single item is taxable.

  • Groceries: Taxable (4% state rate; additional local taxes may apply)
  • Clothing: Taxable
  • Motor Vehicles: Taxable (7% basic rate, plus 2.75% state tax on sales price between $1,600 and $3,200; additional local taxes may also apply)
  • Prescription Drugs: Exempt

Property Taxes: The median property tax rate for Tennessee homeowners is $636 per $100,000 of assessed home value, which is below the national average.

Inheritance and Estate Taxes: There is no inheritance tax or estate tax.

7 of 9

Texas

picture of cowboy riding a horsepicture of cowboy riding a horse

Overall Rating for Taxes: Mixed Tax Picture

State Income Taxes: None.

Sales Tax: 6.25% state levy. Localities can add up to 2%, with an average combined rate of 8.19%, according to the Tax Foundation. Texas’ combined rate is well above the U.S. average.

  • Groceries: Exempt
  • Clothing: Taxable
  • Motor Vehicles: Taxable
  • Prescription Drugs: Exempt

Property Taxes: The median property tax rate in Texas is $1,692 per $100,000 of assessed home value. That’s tied for the seventh-highest rate in the country.

Inheritance and Estate Taxes: There is no inheritance tax or estate tax.

8 of 9

Washington

picture of Seattle skylinepicture of Seattle skyline

Overall Rating for Taxes: Most Tax-Friendly

State Income Taxes: None.

Sales Tax: 6.5% state levy. Municipalities can add up to 4% to that, with the average combined rate at 9.29%, according to the Tax Foundation. Washington’s combined rate is the fourth-highest in the nation.

  • Groceries: Exempt
  • Clothing: Taxable
  • Motor Vehicles: Taxable (6.5% ordinary rate, plus additional 0.3% tax)
  • Prescription Drugs: Exempt

Property Taxes: The Washington median property tax rate is $929 per $100,000 of assessed home value, which is close to the midpoint when compared to other states.

Inheritance and Estate Taxes: An estate tax is imposed by Washington on estates exceeding $2.193 million (the exemption threshold is subject to adjustment each year for inflation). Tax rates range from 10% to 20%. The state offers an additional $2.5 million deduction for family-owned businesses valued at less than $6 million.

9 of 9

Wyoming

picture of Wyoming mountain rangepicture of Wyoming mountain range

Overall Rating for Taxes: Most Tax-Friendly

State Income Taxes: None.

Sales Tax: 4% state levy. Municipalities can add up to 2% to that, with a combined rate of 5.39%, according to the Tax Foundation. The combined rate is the eight-lowest in the U.S.

  • Groceries: Exempt
  • Clothing: Taxable
  • Motor Vehicles: Taxable
  • Prescription Drugs: Exempt

Property Taxes: In Wyoming, the median property tax rate is $575 per $100,000 of assessed home value, which is tied for the tenth-lowest in the nation.

Inheritance and Estate Taxes: There is no inheritance tax or estate tax.

Source: kiplinger.com

33 States with No Estate Taxes or Inheritance Taxes

The Tax Cuts and Jobs Act raised the federal estate tax exemption considerably. Before the tax reform law, it was $5.49 million per person for 2017. It’s up to $11.7 million for 2021 ($23.4 million for a married couple). So, now, even fewer taxpayers have to worry about federal estate taxes when they die. However, if your goal is to leave as much as you can to your heirs, then you should also pay attention to the state you choose for retirement.

Twelve states and the District of Columbia levy their own estate taxes, sometimes called death taxes, and some have much lower thresholds than the federal government. In addition, six states have inheritance taxes. Maryland, whose nickname is the Free State, has both.

The good news for retirees focused on estate planning: There are 33 states that have neither estate taxes nor inheritance taxes. Take a look.

1 of 33

Alabama

A lone fisherman seen from above fly fishing in AlabamaA lone fisherman seen from above fly fishing in Alabama

Overall Rating for Taxes on Retirees: Tax-friendly.

Sales Tax: 4% state levy. Localities can add as much as 7.5% to that, and the average combined rate is 9.22%, according to the Tax Foundation.

  • Groceries: Taxable
  • Clothing: Taxable
  • Motor Vehicles: Taxable (2% state rate; additional local taxes may apply)
  • Prescription Drug: Exempt

Income Tax Range: Low: 2% (on up to $1,000 of taxable income for married joint filers and up to $500 for all others). High: 5% (on more than $6,000 of taxable income for married joint filers and more than $3,000 for all others).

Some Alabama municipalities also impose occupational taxes on salaries and wages.

Taxes on Social Security: Benefits are not taxed.

Property Taxes: In Alabama, the median property tax rate is $395 per $100,000 of assessed home value.

For more information on these and other Alabama state taxes, see the Alabama State Tax Guide for Retirees.

2 of 33

Alaska

A lake and mountains in Alaska at sunrise or sunsetA lake and mountains in Alaska at sunrise or sunset

Overall Rating for Taxes on Retirees: Mixed tax picture.

Sales Tax: Alaska is one of five states with no state sales tax. However, localities can levy sales taxes, which can reach 7.5%. Higher rates are found in locations that lack a property tax. But, according to the Tax Foundation, the statewide average is only 1.76%.

Income Tax Range: No state income tax.

Taxes on Social Security: Benefits are not taxed.

Property Taxes: In Alaska, the median property tax rate is $1,182 per $100,000 of assessed home value.

For more information on these and other Alaska state taxes, see the Alaska State Tax Guide for Retirees.

3 of 33

Arizona

Dozens of cactus seen in an Arizona desert at sunsetDozens of cactus seen in an Arizona desert at sunset

Overall Rating for Taxes on Retirees: Most tax-friendly.

Sales Tax: 5.6% state levy. Localities can add as much as 5.6% to that, but the average combined levy is 8.4%, according to the Tax Foundation.

  • Groceries: Exempt from state tax, but local taxes may apply
  • Clothing: Taxable
  • Motor Vehicles: Taxable
  • Prescription Drugs: Exempt

Income Tax Range: Low: 2.59% (on up to $54,544 of taxable income for married filers and up to $27,272 for single filers). High: 4.5% (on $327,263 and over of taxable income for married joint filers and $163,632 and over for single filers).

Starting in 2021, Arizona imposes a 3.5% surtax on taxable income over $500,000 for joint filers and over $250,000 for single taxpayers. However, the surtax can’t increase the overall top rate above 4.5% (which effectively nullifies the surtax for the 2021 tax year).

Beginning in 2022, a two-bracket tax rate structure will be adopted. The rates will be 2.55% (on up to $54,544 of taxable income for joint filers and up to $27,272 for single filers) and 2.98% (on over $54,54 of taxable income for joint filers and on over $27,272 of taxable income for single filers). The rates will decrease to 2.53% and 2.75%, respectively, if certain state revenue amounts are reached. The state will then adopt a single flat rate of 2.5% if another state revenue amount is reached.

Taxes on Social Security: Social Security benefits are not taxed by the state.

Property Taxes: In Arizona, the median property tax rate is $617 per $100,000 of assessed home value.

For more information on these and other Arizona’s state taxes, see the Arizona State Tax Guide for Retirees.

4 of 33

Arkansas

The Junction Bridge in Little Rock Arkansas at duskThe Junction Bridge in Little Rock Arkansas at dusk

Overall Rating for Taxes on Retirees: Most tax-friendly.

Sales Tax: 6.5% state levy. Localities can add as much as 5.125%, and the average combined rate is 9.48%, according to the Tax Foundation.

  • Groceries: Taxable (0.125% state rate; additional local taxes may apply
  • Clothing: Taxable
  • Motor Vehicles: Taxable (6.5% state rate, or 7% in Texarkana, on purchase price of $4,000 or greater; effective January 1, 2022, 3.5% state rate on used motor vehicles priced from $4,000 to $10,000)
  • Prescription Drugs: Exempt

Income Tax Range: Low: 2% (on taxable income from $4,500 to $8,899 for taxpayers with net income less than $22,200), 0.75% (on first $4,499 of taxable income for taxpayers with net income from $22,200 to $79,300), or 2% (on first $4,000 of taxable income for taxpayers with net income over $79,300). High: 3.4% (on taxable income from $13,400 to $22,199 for taxpayers with net income less than $22,200), 5.9% (on taxable income from $37,200 to $79,300 for taxpayers with net income from $22,200 to $79,300), or 6.6% (on taxable income over $79,300 for taxpayers with net income over $79,300).

Beginning in 2021, the top rate for taxpayers with net income over $79,300 will be 5.9% (on taxable income over $8,000). A “bracket adjustment” of between $40 and $440 is subtracted from the amount of tax due for taxpayers with net income from $79,301 to $84,600.

Taxes on Social Security: Social Security benefits are not taxed by the state.

Property Taxes: In Arkansas, the median property tax rate is $612 per $100,000 of assessed home value.

For more information on these and other state taxes, see the Arkansas State Tax Guide for Retirees.

5 of 33

California

A California beach and pier as seen at sunsetA California beach and pier as seen at sunset

Overall Rating for Taxes on Retirees: Tax-friendly.

Sales Tax: 7.25% state levy. Localities can add as much as 2.5%, and the average combined rate is 8.82%, according to the Tax Foundation.

  • Groceries: Exempt
  • Clothing: Taxable
  • Motor Vehicles: Taxable
  • Prescription Drugs: Exempt

Income Tax Range: Low: 1% (on up to $17,864 of taxable income for married joint filers and up to $8,932 for those filing individually). High: 13.3% (on more than $1,198,024 for married joint filers and $1 million for those filing individually).

Taxes on Social Security: Social Security benefits are not taxed by the state.

Property Taxes: In California, the median property tax rate is $729 per $100,000 of assessed home value.

For more information on these and other California state taxes, see the California State Tax Guide for Retirees.

6 of 33

Colorado

A skier blast through snow powder skiing down a Colorado mountain with bright sunshine behind him on a Colorado mountainA skier blast through snow powder skiing down a Colorado mountain with bright sunshine behind him on a Colorado mountain

Overall Rating for Taxes on Retirees: Most tax-friendly.

Sales Tax: 2.9% state levy. Localities can add as much as 8.3%, and the average combined rate is 7.72%, according to the Tax Foundation.

  • Groceries: Exempt
  • Clothing: Taxable
  • Motor Vehicles: Taxable
  • Prescription Drugs: Exempt

Income Tax Range: Colorado has a flat income tax rate of 4.55% (the approval of Proposition 116, which appeared on the November 2020 ballot, reduced the rate from 4.63% to 4.55%). The state also limits the how much its revenue can grow from year-to-year by lowering the tax rate if revenue growth is too high. For example, in 2019, this resulted in a rate reduction to 4.5%.

Denver and a few other cities in Colorado also impose a monthly payroll tax.

Taxes on Social Security: Up to $24,000 of Social Security benefits taxed by the federal government, along with other retirement income, can be excluded for Colorado income tax purposes ($20,000 for taxpayers 55 to 64 years old).

Beginning in 2022, the $24,000 cap is removed for federally taxable Social Security benefits, which effectively makes all federally taxed Social Security income deductible for taxpayers 65 and over.

Property Taxes: In Colorado, the median property tax rate is $494 per $100,000 of assessed home value.

For more information on these and other Colorado state taxes, see the Colorado State Tax Guide for Retirees.

7 of 33

Delaware

The twin spans of the Delaware Memorial Bridge as seen during the evening hoursThe twin spans of the Delaware Memorial Bridge as seen during the evening hours

Overall Rating for Taxes on Retirees: Most tax-friendly.

Sales Tax: No state or local sales tax.

Income Tax Range: Low: 2.2% (on taxable income from $2,001 to $5,000). High: 6.6% (on taxable income above $60,000).

Wilmington also imposes a city tax on wages.

Taxes on Social Security: Social Security benefits are not taxed by the state.

Property Taxes: In Delaware, the median property tax rate is $562 per $100,000 of assessed home value.

For more information on these and other Delaware state taxes, see the Delaware State Tax Guide for Retirees.

8 of 33

Florida

Palm trees and grass circle a Florida lake in daylightPalm trees and grass circle a Florida lake in daylight

Overall Rating for Taxes on Retirees: Tax-friendly.

Sales Tax: 6% state levy. Localities can add as much as 2%, and the average combined rate is 7.01%, according to the Tax Foundation.

  • Groceries: Exempt
  • Clothing: Taxable
  • Motor Vehicles: Taxable (additional county tax on first $5,000 of purchase price may apply)
  • Prescription Drugs: Exempt

Income Tax Range: Florida has no state income tax.

Taxes on Social Security: Social Security benefits are not taxed by the state.

Property Taxes: In Florida, the median property tax rate is $830 per $100,000 of assessed home value.

For more information on these and other Florida state taxes, see the Florida State Tax Guide for Retirees.

9 of 33

Georgia

A cityscape of Savannah, Georgia, at sunsetA cityscape of Savannah, Georgia, at sunset

Overall Rating for Taxes on Retirees: Tax-friendly.

Sales Tax: 4% state levy. Localities can add as much as 4.9%, and the average combined rate is 7.33%, according to the Tax Foundation.

  • Groceries: Exempt from state tax, but local taxes may apply
  • Clothing: Taxable
  • Motor Vehicles: Exempt from state tax, but local taxes may apply
  • Prescription Drugs: Exempt

Income Tax Range: Low: 1% (on the first $1,000 of taxable net income for married couples filing jointly; on the first $750 for individual filers; and on the first $500 for married couples filing separately). High: 5.75% (on the first $1,000 of taxable net income for married couples filing jointly; on the first $750 for individual filers; and on the first $500 for married couples filing separately).

Taxes on Social Security: Social Security benefits are not taxed by the state.

Property Taxes: In Georgia, the median property tax rate is $875 per $100,000 of assessed home value.

For more information on these and other Georgia state taxes, see the Georgia State Tax Guide for Retirees.

10 of 33

Idaho

A lone senior hiker is seen in the mountains of IdahoA lone senior hiker is seen in the mountains of Idaho

Overall Rating for Taxes on Retirees: Tax-friendly.

Sales Tax: 6% state levy. Localities (typically resort communities) can add as much as 3%, but the average combined rate is just 6.02%, according to the Tax Foundation.

  • Groceries: Taxable
  • Clothing: Taxable
  • Motor Vehicles: Taxable
  • Prescription Drugs: Exempt

Income Tax Range: Low: 1% (on taxable income up to $3,136 for married joint filers and up to $1,568 for individual filers). High: 6.5% (on taxable income of $23,520 or more for married joint filers and $11,760 or more for individual filers). (Note: Dollar amounts may still need to be adjusted for inflation for 2021.)

Taxes on Social Security: Social Security benefits are not taxed by the state.

Property Taxes: In Idaho, the median property tax rate is $633 per $100,000 of assessed home value.

For more information on these and other Idaho state taxes, see the Idaho State Tax Guide for Retirees.

11 of 33

Indiana

An open Indiana barn at sunsetAn open Indiana barn at sunset

Overall Rating for Taxes on Retirees: Not tax-friendly.

State Sales Tax: 7% state levy. No local taxes.

  • Groceries: Exempt
  • Clothing: Taxable
  • Motor Vehicles: Taxable
  • Prescription Drugs: Exempt

Income Tax Range: Indiana has a flat rate of 3.23% of state adjusted gross income after modifications. Counties also levy income taxes.

Taxes on Social Security: Social Security benefits are not taxed by the state.

Property Taxes: In Indiana, the median property tax rate is $810 per $100,000 of assessed home value.

For more information on these and other Indiana state taxes, see the Indiana State Tax Guide for Retirees.

12 of 33

Kansas

Combines at work at sunset during the wheat harvest, Shields & Sons Farming in Goodland, Kansas Combines at work at sunset during the wheat harvest, Shields & Sons Farming in Goodland, Kansas

Overall Rating for Taxes on Retirees: Least tax-friendly.

Sales Tax: 6.5% state levy. Localities can add as much as 4%, and the average combined rate is 8.7%, according to the Tax Foundation.

  • Groceries: Taxable
  • Clothing: Taxable
  • Motor Vehicles: Taxable
  • Prescription Drugs: Taxable

Income Tax Range: Low: 3.1% (on $2,501 to $15,000 of taxable income for single filers and $5,001 to $30,000 for joint filers). High: 5.7% (on more than $30,000 of taxable income for single filers and more than $60,000 for joint filers). Kansas also has an “intangibles tax” levied on unearned income by some localities.

Taxes on Social Security: Social Security benefits are exempt from Kansas income tax for residents with a federal adjusted gross income of $75,000 or less. For taxpayers with a federal AGI above $75,000, Social Security benefits are taxed by Kansas to the same extent they are taxed at the federal level.

Property Taxes: In Kansas, the median property tax rate is $1,369 per $100,000 of assessed home value.

For more information on these and other Kansas state taxes, see the Kansas State Tax Guide for Retirees.

13 of 33

Louisiana

Close up of a man playing trumpet on Bourbon Street in New Orleans, Louisianaon sunny day.Close up of a man playing trumpet on Bourbon Street in New Orleans, Louisianaon sunny day.

Overall Rating for Taxes on Retirees: Tax-friendly.

Sales Tax: 4.45% state levy. Localities can add as much as 7%, and the average combined rate is 9.55%, according to the Tax Foundation.

  • Groceries: Exempt from state tax, but local taxes may apply
  • Clothing: Taxable
  • Motor Vehicles: Taxable
  • Prescription Drugs: Exempt from state tax, but local taxes may apply

Income Tax Range: Low: 2% (on $12,500 or less of taxable income for individuals, $25,000 for joint filers). High: 6% (on more than $50,000 of taxable income; $100,000 for joint filers).

(Note: On October 9, 2021, Louisiana voters will decide whether to cap the maximum rate at 4.75% starting in 2022. If that ballot initiative is approved, Louisiana’s lowest personal income tax rate will be 1.85% and it’s highest rate will be 4.75% beginning in 2022. In addition, each personal income tax rate will be reduced beginning February 1, 2024, and each February 1 thereafter through 2034, if the prior fiscal year’s actual individual income tax collections exceed the actual tax collections for the fiscal year ending June 30, 2019, adjusted annually by the growth factor provided for in the state constitution.)

Taxes on Social Security: Social Security benefits are not taxed by the state.

Property Taxes: In Louisiana, the median property tax rate is $534 per $100,000 of assessed home value.

For more information on these and other Louisiana state taxes, see the Louisiana State Tax Guide for Retirees.

14 of 33

Michigan

Lake Michigan waves crash over a pier at Muskegon Channel South Pier Lighthouse in Muskegon, MichiganLake Michigan waves crash over a pier at Muskegon Channel South Pier Lighthouse in Muskegon, Michigan

Overall Rating for Taxes on Retirees: Not tax-friendly.

Sales Tax: 6% state levy. No local taxes.

  • Groceries: Exempt, but prepared food is taxable
  • Clothing: Taxable
  • Motor Vehicles: Taxable
  • Prescription Drugs: Exempt

Income Tax Range: Michigan has a flat tax rate of 4.25%. Cities can levy income taxes as well, on both residents and non-residents (who are taxed 1/2 the rate of residents).

Taxes on Social Security: Social Security benefits are not taxed by the state. Although taxpayers born after 1952 can claim a $20,000 deduction ($40,000 for joint filers) in lieu of the Social Security exemption and other tax breaks.

Property Taxes: In Michigan, the median property tax rate is $1,448 per $100,000 of assessed home value.

For more information on these and other Michigan state taxes, see the Michigan State Tax Guide for Retirees.

15 of 33

Mississippi

The early morning light shines through at the Noxubee Wildlife Refuge in MississippiThe early morning light shines through at the Noxubee Wildlife Refuge in Mississippi

Overall Rating for Taxes on Retirees: Tax-friendly.

Sales Tax: 7% state levy. Only two localities, Jackson (1%) and Tupelo (0.25%) add to that. According to the Tax Foundation, that makes for an average combined rate of 7.07%.

  • Groceries: Taxable
  • Clothing: Taxable
  • Motor Vehicles: Taxable (5%)
  • Prescription Drugs: Exempt

Income Tax Range: Low: 3% (on taxable income from $3,001 to $5,000). High: 5% (on taxable income over $10,000).

Taxes on Social Security: Social Security benefits are not taxed for married couples with a federal adjusted gross income less than $100,000 and single taxpayers with an AGI of less than $85,000. Taxpayers who exceed those income limits may qualify for a partial exemption on their benefits.

Property Taxes: In Mississippi, the median property tax rate is $787 per $100,000 of assessed home value.

For more information on these and other Mississippi state taxes, see the Mississippi State Tax Guide for Retirees.

16 of 33

Missouri

The Gateway Arch in St. Louis, Missouri as seen in a cityscape at sunsetThe Gateway Arch in St. Louis, Missouri as seen in a cityscape at sunset

Overall Rating for Taxes on Retirees: Mixed tax picture.

Sales Tax: 4.225% state levy. Localities can add as much as 5.763%, and the average combined rate is 8.25%, according to the Tax Foundation.

  • Groceries: Taxable (1.225% state rate; additional local taxes may apply)
  • Clothing: Taxable
  • Motor Vehicles: Taxable
  • Prescription Drugs: Exempt

 Income Tax Range: Low: 1.5% (on taxable of income of $107 or more). High: 5.4% (on more than $8,584 of taxable income).

Kansas City and St. Louis also impose an earnings tax.

Taxes on Social Security: Social Security benefits are not taxed for married couples with a federal adjusted gross income less than $100,000 and single taxpayers with an AGI of less than $85,000. Taxpayers who exceed those income limits may qualify for a partial exemption on their benefits.

Property Taxes: In Missouri, the median property tax rate is $930 per $100,000 of assessed home value.

For more information on these and other Missouri  state taxes, see the Missouri State Tax Guide for Retirees.

17 of 33

Montana

Two women fly-fishing in the Gallatin River beneath the mountains in Cameron, MontanaTwo women fly-fishing in the Gallatin River beneath the mountains in Cameron, Montana

Overall Rating for Taxes on Retirees: Tax-friendly.

Sales Tax: No state sales tax. Resort areas such as Big Sky, Red Lodge and West Yellowstone have local sales taxes.

Income Tax Range: Low: 1% (on up to $3,100 of taxable income). High: 6.9% (on taxable income over $18,700). Starting in 2022, the top rate will be 6.75% on taxable income over $17,400. Then, beginning in 2024, the income tax rates and brackets will be substantially revised (there will only be two rates – 4.7% and 6.5%).

Taxes on Social Security: Social Security benefits are taxable. The method used to calculate the taxable amount for Montana income tax purposes is similar to the method used for federal returns. However, there are important differences. As a result, the Montana taxable amount may be different than the federal taxable amount. (Beginning in 2024, Social Security benefits will be taxed by Montana to the same extent they are taxed at the federal level.)

Property Taxes: In Montana, the median property tax rate is $831 per $100,000 of assessed home value.

For more information on these and other Montana state taxes, see the Montana State Tax Guide for Retirees.

18 of 33

Nevada

High angle view on the skyline of Reno, Nevada, at duskHigh angle view on the skyline of Reno, Nevada, at dusk

Overall Rating for Taxes on Retirees: Most tax-friendly.

Sales Tax: 6.85% state levy. Localities can add as much as 1.53%, and the average combined rate is 8.23%, according to the Tax Foundation.

  • Groceries: Exempt
  • Clothing: Taxable
  • Motor Vehicles: Taxable
  • Prescription Drugs: Exempt

Income Tax Range: Nevada has no state income tax.

Taxes on Social Security: Social Security benefits are not taxed by the state.

Property Taxes: In Nevada, the median property tax rate is $533 per $100,000 of assessed home value.

For more information on these and other Nevada state taxes, see the Nevada State Tax Guide for Retirees.

19 of 33

New Hampshire

The historic fishing village of Portsmouth, New HampshireThe historic fishing village of Portsmouth, New Hampshire

Overall Rating for Taxes on Retirees: Not tax-friendly.

Sales Tax: No state or local sales tax.

Income Tax Range: New Hampshire doesn’t have an income tax. However, currently there’s a 5% tax on dividends and interest in excess of $2,400 for individuals ($4,800 for joint filers).

(Note: The tax on dividends and interest is being phased out. The rate will be 4% for 2023, 3% for 2024, 2% for 2025, and 1% for 2026. The tax will then be repealed on January 1, 2027.)

Taxes on Social Security: Social Security benefits are not taxed by the state.

Property Taxes: In New Hampshire, the median property tax rate is $2,050 per $100,000 of assessed home value.

For more information on these and other New Hampshire state taxes, see the New Hampshire State Tax Guide for Retirees.

20 of 33

New Mexico

Heavy wooden gates open at the pilgrimage site of El Santuario de Chimayo, a National Historic Landmark in Chimayo, New MexicoHeavy wooden gates open at the pilgrimage site of El Santuario de Chimayo, a National Historic Landmark in Chimayo, New Mexico

Overall Rating for Taxes on Retirees: Not tax-friendly.

Sales Tax: 5.125% state levy. Localities can add as much as 4.313%, and the average combined rate is 7.84%, according to the Tax Foundation. New Mexico’s tax is a gross receipts tax that covers most services.

  • Groceries: Exempt
  • Clothing: Taxable
  • Motor Vehicles: Exempt from ordinary sales tax, but taxable under special 4% excise tax
  • Prescription Drugs: Exempt

Income Tax Range: Low: 1.7% (on up to $5,500 of taxable income for single filers and $8,000 for joint filers). High: 4.9% (on taxable income over $16,000 for single filers and over $24,000 for married couples filing jointly).

Beginning with the 2021 tax year, the top rate will be 5.9% on taxable income over $210,000 for single filers and over $315,000 for joint filers.

Taxes on Social Security: Social Security benefits are taxed to the same extent they are taxed at the federal level.

Property Taxes: In New Mexico, the median property tax rate is $776 per $100,000 of assessed home value.

For more information on these and other New Mexico state taxes, see the New Mexico State Tax Guide for Retirees.

21 of 33

North Carolina

A North Carolina lake with a lone boater seen at sunsetA North Carolina lake with a lone boater seen at sunset

Overall Rating for Taxes on Retirees: Mixed tax picture.

Sales Tax: 4.75% state levy. Localities can add as much as 2.75%, and the average combined rate is 6.98%, according to the Tax Foundation.

  • Groceries: Exempt from state tax, but 2% local tax may apply
  • Clothing: Taxable
  • Motor Vehicles: Exempt from ordinary sales tax, but taxable under special 3% highway-use tax
  • Prescription Drugs: Exempt

Income Tax Range: Low: 1.1% (on up to $40,125 of taxable income for singles and up to $67,050 for married couples filing jointly). High: 2.9% (on taxable income over $440,600).

Taxes on Social Security: Social Security benefits are not taxed by the state.

Property Taxes: In North Carolina, the median property tax rate is $773 per $100,000 of assessed home value.

For more information on these and other North Carolina state taxes, see the North Carolina State Tax Guide for Retirees.

22 of 33

North Dakota

American Bison grazing on the prairieAmerican Bison grazing on the prairie

Overall Rating for Taxes on Retirees: Mixed tax picture.

Sales Tax: 5% state levy. Localities can add as much as 3.5%, and the average combined rate is 6.96%, according to the Tax Foundation.

  • Groceries: Exempt
  • Clothing: Taxable
  • Motor Vehicles: Exempt from ordinary sales tax, but taxable under special 5% excise tax
  • Prescription Drugs: Exempt

Income Tax Range: Low: 1.1% (on up to $40,125 of taxable income for singles and up to $67,050 for married couples filing jointly). High: 2.9% (on taxable income over $440,600).

Taxes on Social Security: Social Security benefits are not taxed for joint filers with a federal adjusted gross income of $100,000 or less and other taxpayers with a federal AGI of $50,000 or less. For taxpayers exceeding these thresholds, Social Security benefits are taxed by North Dakota to the same extent they are taxed at the federal level.

Property Taxes: In North Dakota, the median property tax rate is $986 per $100,000 of assessed home value.

For more information on these and other North Dakota state taxes, see the North Dakota State Tax Guide for Retirees.

23 of 33

Ohio

A farm in Ohio as seen at sunsetA farm in Ohio as seen at sunset

Overall Rating for Taxes on Retirees: Not tax-friendly.

Sales Tax: 5.75% state levy. Localities can add as much as 2.25%, and the average combined rate is 7.22%, according to the Tax Foundation.

  • Groceries: Exempt
  • Clothing: Taxable
  • Motor Vehicles: Taxable
  • Prescription Drugs: Exempt

Income Tax Range: Low: 2.765% (on taxable income from $25,001 to $44,250). High: 4.797% (on taxable income over $110,650).

Cities and school districts in Ohio can also impose local income taxes.

Taxes on Social Security: Social Security benefits are not taxed by the state.

Property Taxes: In Ohio, the median property tax rate is $1,478 per $100,000 of assessed home value.

For more information on these and other Ohio state taxes, see the Ohio State Tax Guide for Retirees.

24 of 33

Oklahoma

Renovated building in downtown Guthrie, OklahomaRenovated building in downtown Guthrie, Oklahoma

Overall Rating for Taxes on Retirees: Mixed tax picture.

Sales Tax: 4.5% state levy. Localities can add as much as 7%, and the average combined rate is 8.95%, according to the Tax Foundation.

  • Groceries: Taxable
  • Clothing: Taxable
  • Motor Vehicles: Taxable (1.25%), and 3.25% excise tax applies
  • Prescription Drugs: Exempt

Income Tax Range: Low: 0.5% (on up to $1,000 of taxable income for single filers and up to $2,000 for married joint filers). High: 5% (on taxable income over $7,200 for single filers and over $12,200 for married joint filers).

Starting in 2022, the lowest rate will be 0.25% and the highest rate will be 4.75%.

Taxes on Social Security: Social Security benefits are not taxed by the state.

Property Taxes: In Oklahoma, the median property tax rate is $869 per $100,000 of assessed home value.

For more information on these and other Oklahoma state taxes, see the Oklahoma State Tax Guide for Retirees.

25 of 33

South Carolina

The pineapple fountain in Charleston, South Carolina at historic Waterfront ParkThe pineapple fountain in Charleston, South Carolina at historic Waterfront Park

Overall Rating for Taxes on Retirees: Most tax-friendly.

Sales Tax: 6% state levy. Localities can add as much as 3%, and the average combined rate is 7.47%, according to the Tax Foundation.

  • Groceries: Exempt
  • Clothing: Taxable
  • Motor Vehicles: Exempt from ordinary sales tax, but taxable under special 5% (up to $500) infrastructure maintenance fee
  • Prescription Drugs: Exempt

Income Tax Range: Low: 3% (on taxable income over $3,070). High: 7% (on taxable income over $15,400).

Taxes on Social Security: Social Security benefits are not taxed by the state.

Property Taxes: In South Carolina, the median property tax rate is $545 per $100,000 of assessed home value.

For more information on these and other South Carolina state taxes, see the South Carolina State Tax Guide for Retirees.

26 of 33

South Dakota

The 19th century historic downtown of Deadwood, South DakotaThe 19th century historic downtown of Deadwood, South Dakota

Overall Rating for Taxes on Retirees: Mixed tax picture.

Sales Tax: 4.5% state levy. Localities can add as much as 4.5%, and the average combined rate is 6.4%, according to the Tax Foundation.

  • Groceries: Taxable
  • Clothing: Taxable
  • Motor Vehicles: Exempt from ordinary sales tax, but taxable under special 4% excise tax
  • Prescription Drugs: Exempt

Taxes on Social Security: Social Security benefits are not taxed by the state.

Income Tax Range: South Dakota has no state income tax.

Property Taxes: In South Dakota, the median property tax rate is $1,219 per $100,000 of assessed home value.

For more information on these and other South Dakota state taxes, see the South Dakota State Tax Guide for Retirees.

27 of 33

Tennessee

Neon signs on Lower Broadway at night in vibrant downtown Nashville, TennesseeNeon signs on Lower Broadway at night in vibrant downtown Nashville, Tennessee

Overall Rating for Taxes on Retirees: Most tax-friendly.

Sales Tax: 7% state levy. There’s also an additional state tax of 2.75% on sales of single items that applies to the portion of the sales price from $1,600 to $3,200. Localities can add up to 2.75%, with an average combined state and local rate of 9.547%, according to the Tax Foundation. Local taxes are limited, though: Only the first $1,600 of any single item is taxable.

  • Groceries: Taxable (4% state rate; additional local taxes may apply)
  • Clothing: Taxable
  • Motor Vehicles: Taxable (7% basic rate, plus 2.75% state tax on sales price between $1,600 and $3,200; additional local taxes may also apply)
  • Prescription Drugs: Exempt

Income Tax Range: Tennessee has no state income tax. But dividends and some interest are subject to the Hall Tax at a 1% rate. The first $1,250 in taxable income for individuals ($2,500 for joint filers) is exempt. 2020 is the last year for the tax, which is being phased out. Also, the tax is waived if you’re over 100.

Taxes on Social Security: Social Security benefits are not taxed by the state.

Property Taxes: In Tennessee, the median property tax rate is $636 per $100,000 of assessed home value.

For more information on these and other Tennessee state taxes, see the Tennessee State Tax Guide for Retirees.

28 of 33

Texas

Cowboys and cowgirl in silhouette at sunrise in Weatherford, Texas.Cowboys and cowgirl in silhouette at sunrise in Weatherford, Texas.

Overall Rating for Taxes on Retirees: Least tax-friendly.

Sales Tax: 6.25% state levy. Localities can add up to 2%, with an average combined rate of 8.19%, according to the Tax Foundation.

  • Groceries: Exempt
  • Clothing: Taxable
  • Motor Vehicles: Taxable
  • Prescription Drugs: Exempt

Income Tax Range: Texas has no state income tax.

Taxes on Social Security: Social Security benefits are not taxed by the state.

Property Taxes: In Texas, the median property tax rate is $1,692 per $100,000 of assessed home value.

For more information on these and other Texas state taxes, see the Texas State Tax Guide for Retirees.

29 of 33

Utah

One person looks out over the canyon of Canyonlands National Park in Utah during sunsetOne person looks out over the canyon of Canyonlands National Park in Utah during sunset

Overall Rating for Taxes on Retirees: Mixed tax picture.

Sales Tax: State levy is 4.85%, but mandatory 1% local sales tax and 0.25% county option sales tax are added to the state tax (for a 6.1% total rate). Plus, localities can add up to an additional 2.95%, making the average combined state and local rate 7.19%, according to the Tax Foundation.

  • Groceries: Taxable (1.75% state tax, plus mandatory 1.25% in local and county taxes)
  • Clothing: Taxable
  • Motor Vehicles: Taxable
  • Prescription Drugs: Exempt

Income Tax Range: Utah has a flat tax of 5%.

Taxes on Social Security: Social Security benefits are included in Utah taxable income to the same extent they’re taxed at the federal level. However, beginning in 2021, a nonrefundable tax credit is available for Social Security benefits. The credit is calculated by multiplying the Utah income tax rate (currently 4.95%) by the amount of Social Security benefits included in federal adjusted gross income (AGI). The total credit amount is reduced by $.025 for each dollar by which the taxpayer’s modified AGI exceeds $25,000 for a married person filing a separate tax return, $30,000 for a single filer, and $50,000 for a married couple filing a joint return or a head-of-household filer. Taxpayers can’t claim both the Social Security credit and the general $450 credit for retirees.

Property Taxes: In Utah, the median property tax rate is $575 per $100,000 of assessed home value.

For more information on these and other Utah state taxes, see the Utah State Tax Guide for Retirees.

30 of 33

Virginia

View from a residential street in Old Town Alexandria, Virginia, featuring early 1800s townhousesView from a residential street in Old Town Alexandria, Virginia, featuring early 1800s townhouses

Overall Rating for Taxes on Retirees: Tax-friendly.

Sales Tax: 5.3% state levy, which includes a 1% tax allocated to local governments. Some local governments also impose additional taxes of up to 1.7%, making the average combined state and local rate 5.75%, according to the Tax Foundation.

  • Groceries: Taxable (1.5% state rate, plus 1% local tax)
  • Clothing: Taxable
  • Motor Vehicles: Exempt from ordinary sales tax, but taxable under special 4.15% excise tax
  • Prescription Drugs: Exempt

Income Tax Range: Low: Low: 2% (on up to $3,000 of taxable income). High: 5.75% (on taxable income over $17,000).

Taxes on Social Security: Social Security benefits are not taxed by the state.

Property Taxes: In Virginia, the median property tax rate is $804 per $100,000 of assessed home value.

For more information on these and other Virginia state taxes, see the Virginia State Tax Guide for Retirees.

31 of 33

West Virginia

Sunrise from high atop Dolly Sods Wilderness area in West Virginia with Sunbeams and reflectionsSunrise from high atop Dolly Sods Wilderness area in West Virginia with Sunbeams and reflections

Overall Rating for Taxes on Retirees: Mixed tax picture.

Sales Tax: 6% state levy. Municipalities can add up to 1% to that, with an average combined rate of 6.51%, according to the Tax Foundation.

  • Groceries: Exempt
  • Clothing: Taxable
  • Motor Vehicles: Taxable
  • Prescription Drugs: Exempt

Income Tax Range: Low: 3% (on up to $10,000 of taxable income). High: 6.5% (on taxable income of $60,000 or more).

West Virginia municipalities can also impose city service fees on people working in the city.

Taxes on Social Security: In 2020, 35% of Social Security benefits taxed by the federal government are excluded from taxable income for single taxpayers with federal adjusted gross income of $50,000 or less ($100,000 or less for joint filers). In 2021, 65% will be excluded for qualifying taxpayers. After 2021, qualifying taxpayers can exclude all Social Security benefits.

Property Taxes: In West Virginia, the median property tax rate is $571 per $100,000 of assessed home value.

For more information on these and other West Virginia state taxes, see the West Virginia State Tax Guide for Retirees.

32 of 33

Wisconsin

Red sandstone cliffs at the Apostle Islands National Lakeshore, Lake Superior, in winter. Lake is frozen and two small figures walking on the ice emphasize the height of the cliffs.Red sandstone cliffs at the Apostle Islands National Lakeshore, Lake Superior, in winter. Lake is frozen and two small figures walking on the ice emphasize the height of the cliffs.

Overall Rating for Taxes on Retirees: Least tax-friendly.

Sales Tax: 5% state levy. Municipalities can add up to 1.75% to that, with the average combined rate at 5.43%, according to the Tax Foundation.

  • Groceries: Exempt
  • Clothing: Taxable
  • Motor Vehicles: Taxable
  • Prescription Drugs: Exempt

Income Tax Range: Low: 3.54% (on up to $11,450 of taxable income for singles or up to $15,960 for married couples). High: 7.65% (on taxable income over $263,480 for singles or over $351,310 for married couples).

Taxes on Social Security: Social Security benefits are not taxed by the state.

Property Taxes: In Wisconsin, the median property tax rate is $1,684 per $100,000 of assessed home value..

For more information on these and other Wisconsin state taxes, see the Wisconsin State Tax Guide for Retirees.

33 of 33

Wyoming

Aspen grove in fall colors with snow covered mountains in the background, Grand Teton National Park, WyomingAspen grove in fall colors with snow covered mountains in the background, Grand Teton National Park, Wyoming

Overall Rating for Taxes on Retirees: Most tax-friendly.

State Sales Tax: 4% state levy. Municipalities can add up to 2% to that, with a combined rate of 5.39%, according to the Tax Foundation.

  • Groceries: Exempt
  • Clothing: Taxable
  • Motor Vehicles: Taxable
  • Prescription Drugs: Exempt

Income Tax Range: Wyoming has no state income tax.

Taxes on Social Security: Social Security benefits are not taxed by the state.

Property Taxes: In Wyoming, the median property tax rate is $575 per $100,000 of assessed home value.

For more information on these and other Wyoming state taxes, see the Wyoming State Tax Guide for Retirees.

Source: kiplinger.com