Choosing where to spend your golden years is a major life decision. It will impact every part of your life, including your finances, lifestyle, and general quality of life. This is why you should consider all aspects of life for retirees. Smaller states may not be appealing at first glance, but you may be surprised just how well you can retire in places like Arkansas. In addition to the mild climate and beautiful scenery, the low cost of living is drawing more retirees every year.
Cost of Living
An important consideration in your retirement years is the cost of living of where you decide to settle down. Your savings will stretch a lot further in cities with a lower composite score. The national cost of living standard score is 100. If the score exceeds this number, then the cost of living is above average. On the other hand, any score below 100 signals a cost of living lower than the national average.
When compared to the rest of the United States, Arkansas has a much lower overall score than most states. The Natural State’s composite score was 88.3 for the last quarter of 2020, ranking it the 4th lowest in the nation. In fact, Arkansas scored well below the national average in all categories. They are as follows:
Although each marker indicates that Arkansas is lower by all measures, the cost of housing stands out from the rest. With a score of 76.1, housing will be much more affordable in Arkansas. To further illustrate this point, you only have to look at average home values. According to Zillow, Arkansas’ home value of $140,849 is nearly half the national average.
Tax Considerations[embedded content]
Before you choose any state as a final location, you need to familiarize yourself with their local tax laws. The amount of taxes will greatly impact your budget as well as your lifestyle. Choosing a state with more exemptions will stretch your savings, allowing you a more comfortable living.
Like most states, Arkansas has a state income tax. And much like the federal government, it is bracketed based on your income. The scale ranges from 0.9% to 6.9% for those households earning more than $75,000. However, the effective tax rate is approximately 4.2% for individuals and 6.2% for joint earners.
Furthermore, the state taxes are some of the highest in the nation. The Arkansas state tax is 5.5%. But, localities can also levy an additional 5.125%. While most places do not reach the maximum limit, the state average is 9.3% sales tax according to the Tax Foundation.
Although these figures make it appear tax-unfriendly, there are tons of exemptions that actually make it very affordable to retire well in Arkansas. First off, there are no estate, inheritance, or state property taxes. Since you only pay local property taxes, Arkansas is ranked among the top 10 states for lowest property taxes in the country. There is even a provision to maintain low taxation rates for the disabled and residents over 65. If you are in this group, the taxable assessed value on your home is capped at the previous year’s value. It only changes if you make improvements or sell your home.
Lastly, there are no taxes on Social Security benefits, military pensions, or railroad retirement benefits in the Natural State. You can also exclude up to $6,000 for local and state government, civil service, and private pensions. Pensions from other state governments are also included in this exemption. Moreover, the funds can be part of a public or retirement system. This is in addition to the exemptions allowed for IRA and 401K contributions as well.
Part-Time Job Opportunities
Many retirees do not plan to fully leave the work force. Instead, some choose to reduce their hours or find part time jobs. There are a number of reasons people choose to work during their retirement years. Whatever the reason, it is an effective way to supplement your income and stretch your retirement savings.
Depending what kind of work you are looking for, Arkansas has many employment opportunities. However, the state suffered high unemployment rates when the coronavirus began to spread in April 2020. To the state’s credit though, even when unemployment rates peaked at 10.8%, it was well below the national average of 14.7%.
Since the initial outbreak, employment rates seem to be stabilizing. As of December 2020, the unemployment returned down to 4.2%. This is barely 1% higher than the pre-pandemic numbers. While others states are showing increasing unemployment rates, Arkansas is trending in the right direction.
Keep in mind that even with this positive projection, nothing is certain. As we continue efforts to contain COVID-19, the situation remains fluid. So, it is best not to bank on part-time income as a means to support yourself through retirement in the immediate future.
Best Cities for Retirees in Arkansas
The city you choose to retire to is almost more important than the state. This decision will affect access to health care, amenities, entertainment venues, and your overall lifestyle.
If you prefer the convenience and fast-paced life of the big city, Little Rock has a lot to offer. With a population just under 200,000, there is a great deal of diversity and things to do. There are plenty of parks, restaurants, and museums to explore. Recently, more young professionals and families have also moved to the area as well.
The Hillcrest neighborhood in particular receives glowing reviews. This suburb of Little Rock offers all the conveniences of the big city with the charm of historical architecture for which it is famous.
However, if you are more interested in Arkansas’ planned communities, you should really take a look at Hot Springs Village. In the country’s largest gated community, you have access to lakes, biking and hiking trails, tennis courts, nine golf courses, and its own swimming pool. It has its own medical facilities and school system for those in the community as well.
How Much Money You Need to Retire Well in Arkansas
When put in a side by side comparison with other states, Arkansas is one of the most affordable places to live. Although sales and income taxes are relatively high, the tax exemptions on pensions and retirement income make it a viable option.
Based on calculations by gobankingrates.com, a person could retire well in Arkansas with approximately $55,910. This would cover all your necessary expenses and provide a buffer in case of emergency expenses. Based on these facts and figures, you do not need to be a millionaire to retire well in Arkansas.