By Matthew Theal, CFP®
Southern California is a great area to live in when you are working and raising a family. We have excellent schools, major metro centers (Los Angeles and Orange County), and an incredible climate. Southern California is one of the few places in the world where you could go to the beach during the day and hit the slopes in the evening. Not to mention, real estate prices seem to only tick down temporarily during recessions.
That said, it doesn’t make sense for a lot of people to retire in Southern California. There are multiple reasons why:
- The cost of living is high for a retiree living on a fixed income.
- State taxes are some of the highest in the nation.
- The state has shifted a lot politically over the past 10 years, and a lot of people don’t like the shift.
- Southern California is fast-paced, with lots of traffic.
Simply put, it’s not an ideal area for many people to spend their golden years.
Most people who want to stay in California will give similar reasons: My children live here, my grandchildren live here, and finally, I have lived here my whole life.
Those are excellent reasons to stay in the state. For people who aren’t tied to California, we have put together resources that will help you make a move to another state. We have links to podcasts and blogs below.
One question we often get is, which is better for me to retire in—Arizona or Nevada?
We have put together a comparison to help you decide.
Why Choose Arizona or Nevada?
There are many states you could choose to retire in. The two most popular that we see are Arizona and Nevada. I believe the main reason is they are close to Southern California, so it’s relatively easy for people with family to travel back and forth.
Other states are great for retirement. I would say Texas is also popular and should be considered, as well as Florida. That said, because we are on the West Coast, it doesn’t seem that a lot of people want to retire in Florida.
We will focus on four comparisons for today: climate, taxes, cost of living, and recreation.
For the most part, both Arizona and Nevada offer dry, sunny days and cool and refreshing evenings. Both Arizona and Southern Nevada (where Las Vegas is) have pretty much the same climate: hot desert air, dry with little to no humidity.
Where the two states differ is Nevada does have some mountain valleys from the Sierra Nevada. This could be nice for retirees as it gives a change of scenery from the mostly brown desert of Arizona and Southern Nevada. It does get much colder during the winter in the northern part of the state.
Taxes are a bit tricky, and you should always check with your accountant and financial advisor before you make a decision to move based on taxes. There are three main types of taxes: federal, state, and local. That said, remember, you will always pay federal taxes. For today, we are comparing state taxes.
Arizona exempts Social Security and some pensions from taxation. There’s no inheritance, gift, or estate tax. However, you will pay state income taxes on withdrawals from qualified retirement accounts (401(k), IRA, Thrift Savings Plan, 403(b), etc.).
Nevada has no state income tax or inheritance tax, making it the ideal state for someone who has a high income in retirement or a substantial 401(k) or IRA that they will be forced to distribute at 70.5.
Cost of Living
Both Arizona and Nevada have a meager cost of living compared with national averages. When we discuss the cost of living, we mean prices for property, food, gas, and other necessities.
According to the retirement community website 55 Places, Arizona has a cost of living that is 5% below the national average. The state also offers many active adult communities where you need to have reached a certain age to move in.
Nevada also has active adult communities and a low cost of living. That said, if you retire near Las Vegas, you may experience higher prices than other parts of the state.
Arizona and Nevada both offer great entertainment options for outdoor lovers. If you hate the beach, you might find Arizona and Nevada to be more attractive than Southern California!
The largest city in Arizona is Phoenix, and it has professional sporting teams, restaurants, museums, and art galleries. The state is also home to the Grand Canyon and Red Rock State Park for adventure seekers. On top of those attractions, Arizona has a ton of golf courses!
In Nevada, Las Vegas is its largest city and most popular destination. The city offers everything Phoenix has with the addition of entertainment and gambling! Besides the gaming life, Nevada has lots of water attractions: Lake Mead, Hoover Dam, and Lake Tahoe. The state boasts golf courses, as well.
Nevada and Arizona are two possible states to retire in, although I think Nevada is the better option. There are no state taxes, the climate is more diverse, and there’s more entertainment if you are close to Lake Tahoe or Las Vegas.
Which state would you choose to retire in? Let us know!
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