5 states that turned into a financial nightmare for retirees

Think you’ve saved enough to kick back and enjoy your golden years? Most Gen Xers don’t think so, and frankly, I see why. A 2025 Northwestern Mutual study shows that Gen X now believes they need a “magic number” of $1.57 million to retire comfortably. 

Kelly LaVigne from Allianz Life recently noted that 64% of people worry more about running out of money than dying. I spent some time digging into the numbers, and honestly, five specific states are making that fear a reality.

New Jersey and the property tax powerhouse

New Jersey consistently ranks first in the nation for the highest property taxes. Residents face a median annual bill of $9,541, a figure that eats through a fixed income faster than a teenager through a pizza. While the state plans to implement the “Stay NJ” credit in 2026 to offer some relief, the current 10.75% top income tax rate still pinches.

An AARP poll found that 83% of older residents cite these high costs as their main reason for wanting to move. New Jersey essentially forces you to rent your own home from the government. Who wants to spend their retirement fund just to keep the roof over their head?

New York and the estate tax cliff

New York loves to tax your success even after you pass away. For 2026, the state set its estate tax exemption at $7,350,000. That sounds generous until you realize New York employs a “cliff” provision. If your estate exceeds that limit by a measly 5%, the state wipes out the exemption and taxes the entire value from the very first dollar.

This sneaky rule can result in a tax bill exceeding $100,000 for families who are only slightly over the threshold. The state also hits you with an average sales tax of 8.26%. I found it shocking that New York saw the steepest numeric population decline last year as retirees fled for the “fiscal sanctuary” of the South.

California and the sunshine tax squeeze

California offers gorgeous weather, but the price tag will give you a heart attack. The median home price hit approximately $909,400 in early 2025. Trying to downsize here often feels like a losing game because high prices and insurance premiums swallow your equity. Homeowners in wildfire-prone areas now face skyrocketing disaster coverage costs.

Utility bills also bite hard, as California electricity rates sit nearly at the highest in the country. Regulators recently allowed major utilities to keep profit margins near 10% even though one in five customers struggles with debt. California also taxes most retirement income, like 401(k) withdrawals, at its regular rates, which can reach 13.3%.

Illinois and the property tax feedback loop

Illinois looks friendly on paper because the state exempts Social Security and pension income. Don’t let that mirage fool you. The state makes up for it with a median property tax rate of 1.92%, the highest in the U.S. In suburban Chicago, I’ve seen rates climb even higher, often exceeding 2.4%.

The state also maintains a strict $4 million estate tax exemption. While the federal limit jumped to $15 million under the One Big Beautiful Bill Act of 2025, Illinois refuses to adjust its threshold. Heirs often face a state tax bill of nearly $300,000 on a $6 million estate, a final “parting gift” from the state.

Connecticut and the social security trap

Connecticut sets up “income cliffs” that punish middle-class success. If a single filer’s adjusted gross income exceeds $75,000, the state starts taking a share of their Social Security benefits. This creates a nightmare scenario in which a required distribution from your IRA can push you “off the cliff,” leaving you with less money overall.

High electric bills also drain senior bank accounts, ranking second-highest in the nation. State records show that nearly one in every four pension dollars actually leaves the state because retirees move away to protect their savings. My neighbor just fled to North Carolina, and after seeing these stats, I can’t blame him.

Key Takeaway

• Gen X “Magic Number”: $1.57 million.
• Highest Property Tax: New Jersey ($9,541 median).
• Steepest Home Prices: California ($909,400 median).
• Strict Estate Tax: Illinois ($4 million exemption).

Before you pick a spot for your rocking chair, check the local tax code. Moving to a more affordable region could save you hundreds of thousands of dollars over a 20-year retirement. After all, you earned that money, you should be the one spending it!

Read the Original Article on Crafting Your Home.