3. Alabama

If you are worried that Alabama is going to tax your Social Security, you can now set those fears aside. The Yellowhammer State does have an income tax; however, they do not include the income generated through Social Security benefits as part of the taxable income of their residents.

It may happen in other states that you put off moving until you retire because the income tax is too high, but it is not something you have to worry about in Alabama. The statewide tax follows the principle of federal taxes, which abide by a marginal income tax structure. The state taxes will not include the taxes that are included by localities, but otherwise, you can expect an income tax of anywhere between 2% and 5%.

What you should be careful of is the sales tax: while the general state-wide sales tax is only 4%, the localities impose their own additional sales tax, which drives the total tax to a staggering 9%. These are balanced by the low rate when it comes to property taxes (part of the lowest in the whole nation) and by the fact that they do not tax Social Security, which is the prime reason why retirees are considering this state as a relocation destination.

If you want to learn more about taxes and to prevent the tax on income from affecting your retirement, make recommend you to read more about the subject in this book here!