10 best cities for early retirement

Kiplinger

Early retirement is a dream for many, but the reality poses unique challenges. Foremost, because you'll enter retirement at a younger age, your nest egg will need to stretch further. Saving more will help, but many early retirees will be inclined to supplement savings with a paycheck from a part-time job or an encore career. In fact, 21% of nonretired Americans polled by Gallup expect part-time work to be a major source of retirement income.

With this in mind, we asked data aggregator FindTheBest to help us identify economically healthy cities where early retirees should be able to work (if they choose) and prosper during their second acts. We took into account unemployment rates, household incomes and living costs, especially for housing and health care. We also screened the states for tax-friendliness based on our Retiree Tax Map. While you might not qualify for all of these tax breaks immediately, they’ll come in handy as you age in place. Finally, we sought out cities with low crime and high concentrations of residents ages 45 to 64, so you can safely enjoy your early retirement with peers.

Also: Click here to check out our state-by-state guide to taxes on retirees.

Take a look at our 10 best cities for early retirement (methodology at the bottom):

10. Honolulu

City population: 345,610

Percentage of population age 45 to 64: 27.2% (U.S.: 26.2%)

Crime rate: 3.96 crimes per 100 residents (U.S. average: 4.01)

Cost of living: 49% above the national average

State's retiree tax picture: Mixed

Hawaii's capital can be a paradise for early retirees with plump nest eggs. There's a high concentration of people ages 45 to 64, and the local economy is strong. Unemployment hovers around 4% thanks to jobs generated by tourism and area military installations. But paradise comes at a price. Honolulu is one of the most expensive U.S. cities to live in. Housing is the biggest culprit, providing all the more reason to downsize in retirement. Health-care costs, by comparison, are surprisingly reasonable. There's a 4% state sales tax — Honolulu residents pay 4.5% due to a 0.5% surcharge to fund mass transit — but prescription drugs are exempt. Social Security benefits and most other pension payouts aren't subject to Hawaii's income tax, which can run as high as 11%.

Of course, tropical beaches, trade winds and near-perfect temperatures year round bolster Honolulu's appeal. Active retirees will want to pick up a water sport or hike scenic trails that crisscross the Hawaiian islands including Oahu, where Honolulu is located. A favorite destination for dining and shopping, popular with locals and tourists alike, is the sprawling Waikiki Beach Walk, one of our 10 Great Waterfront Destinations.

Virginia Beach is No. 9. (Photo credit: Phong Nguyen, Flickr. http://bit.ly/1cEiAlR)

9. Virginia Beach, Va.

City population: 447,021

Percentage of population age 45 to 64: 24.9%

Crime rate: 3.27 crimes per 100 residents

Cost of living: 6% above the national average

State's retiree tax picture: Mixed

The biggest city on this list is a small beach town at heart. During the summer, people-watch along the three-mile oceanfront boardwalk, gathering place for hordes of sunburned tourists. Quieter beach scenes can be found at Sandbridge and Chic's Beach. Golfers can delight in 11 courses, including the Virginia Beach National Golf Club, past host to the former Nationwide Tour. And year-round, you can explore the area's museums, theaters and historic sites, including Yorktown, Jamestown and Colonial Williamsburg, which are just an hour's drive away.

The overall cost of living in Virginia Beach is about on par with the national average, and the state offers retirees some financial benefits, as well. Prescription and nonprescription drugs are exempt from Virginia's sales tax. Also, the state does not tax Social Security benefits and has no inheritance or estate tax. Sales tax adds up to 6% once you factor in the 4.3% state tax, 1% local tax and special 0.7% regional tax for Hampton Roads, which includes Virginia Beach.

Midland is No. 8. (Photo credit: Spencer Blake, aka Spencereblake, Flickr. http://bit.ly/1cEisCD)

8. Midland, Texas

City population: 119,385

Percentage of population age 45 to 64: 24.1%

Crime rate: 4.03 crimes per 100 residents

Cost of living: 9% below the national average

State's retiree tax picture: Friendly

A West Texas boom town isn't a traditional retirement destination, but don't be too quick to dismiss the charms of Midland, childhood home of former president George W. Bush. It's sunny and dry most of the year, and the local economy is red-hot, thanks to fracking. Advances in technology have made it possible to tap previously untouched oil reserves, creating jobs and spurring growth. On the downside, Midland's resurgence has pushed real estate prices up a bit.

Still, the overall cost of living remains relatively low. And the Lone Star State is mighty friendly to retirees, at least in terms of taxes. Texas has no state income tax, so Social Security benefits and all retirement income are free of taxes. There is also no inheritance or estate tax.

Peoria is No. 7. (Photo credit: Jenny Lee Silver, Flickr. http://bit.ly/1cEizy3)

7. Peoria, Ariz.

City population: 159,789

Percentage of population age 45 to 64: 24.1%

Crime rate: 3.16 crimes per 100 residents

Cost of living: 9% below the national average

State's retiree tax picture: One of the most tax-friendly in the U.S.

Arizona is a prime destination for retirees of all ages, thanks to dry heat, ample sunshine and favorable tax laws. The personal income tax rate tops out at 4.54%. Social Security benefits, as well as up to $2,500 of some retirement income, are tax-exempt. And there is no state property, inheritance, gift or estate tax. The state sales tax, which does not apply to food meant for home consumption or prescription drugs, recently dropped a percentage point to 5.6%. But add in city and county sales taxes and the combined retail sales tax in Peoria rises to 8.1%.

Peoria comes with its own benefits. As a suburb of Phoenix, it gives you easy access to big-city amenities for just a fraction of the living costs. Housing is the most affordable of all the cities on this list at 17% below the national average — far less than in nearby Scottsdale, a retirement hot spot where housing costs are 30% above average. The median age in Peoria is seven years younger than in Scottsdale, which is a plus for early retirees.

Bellevue is No. 6. (Photo credit: Wonderlane, Flickr. http://bit.ly/1cEitql)

6. Bellevue, Wash.

City population: 126,439

Percentage of population age 45 to 64: 26.2%

Crime rate: 3.29 crimes per 100 residents

Cost of living: 16% above the national average

State's retiree tax picture: Friendly

If you're thinking of working in retirement, Bellevue should make for a good base of operations. The area's unemployment, at around 6%, is well below the national average. Seattle, a great city to start a business and possibly your encore career, is just a short Sound Transit bus ride away. A light-rail line that will connect Bellevue to Seattle is in the works.

While you'll enjoy the proximity of a bustling urban center, you can rest easy with the added safety of the suburban life. The crime rate in Bellevue is 3.29 crimes per 100 residents, about half of Seattle's rate. And the retiree tax situation is just as friendly: Washington has no state income tax, so Social Security and other retirement income are not taxed. Use the money you save to shop the high-end retailers of the Bellevue Collection or to explore one of more than 90 wineries in nearby Woodinville Wine Country.

Sioux Falls is No. 5. (Photo credit: Kris Horvath, aka krishorvath81, Flickr. http://bit.ly/1dchu5L)

5. Sioux Falls, S.D.

City population: 159,908

Percentage of population age 45 to 64: 23.9%

Crime rate: 3.19 crimes per 100 residents

Cost of living: 18% below the national average

State's retiree tax picture: Friendly

Retire to South Dakota. Really? Really. Yes, it's isolated, but the state's most populous city, Sioux Falls, has plenty to offer early retirees. And don't just take our word for it. Prevention.com named it one of the happiest, healthiest cities in America, noting that a paved bike trail that encircles the city helps keep residents mentally and physically fit. Forbes listed it as one of the best small places for business and careers in ten of the past 11 years, due in no small part to the state's lack of corporate income tax. And the Milken Institute, an economic think tank, dubbed Sioux Falls the best small metro area for successful aging.

The chamber of commerce can now add to its trophy case the honor of being named one of the best cities for early retirement. Sioux Falls is the most affordable of all the cities on this list, with living costs 18% below the national average. In addition to the lack of corporate income tax, South Dakota levies no individual income tax, so Social Security benefits and other retirement income go unburdened.

Sandy Springs is No. 4. (Photo credit: Mark Sinderson, Flickr. http://bit.ly/1dchfYa)

4. Sandy Springs, Ga.

City population: 99,419

Percentage of population age 45 to 64: 24.9%

Crime rate: 3.84 crimes per 100 residents

Cost of living: 5% above the national average

State's retiree tax picture: One of the most tax-friendly in the U.S.

The smallest city on this list offers direct access to the big-city scene. Using the local metrorail system, MARTA, you can get from Sandy Springs to downtown Atlanta's Five Points neighborhood in less than 40 minutes for just $2.50. Or if you opt to stay home in the relative safety of the Sandy Springs suburb, where the crime rate is about half that of Atlanta, you can still find plenty to keep you entertained. Heritage Sandy Springs — a community organization that manages the four-acre Heritage Green, the Sandy Springs Society Entertainment Lawn and the Heritage Sandy Springs Museum — hosts plenty of festivals, concerts and other events. Outdoor enthusiasts can also enjoy the more than 20 miles of shoreline along the Chattahoochee River.

The metro area can entertain your less-leisurely interests, too. Atlanta is a great city for starting a business, if your early retirement marks the start of an entrepreneurial second act. According to consulting firm KPMG, business costs are 3.8% below the national average. And the tax situation in Georgia is just as friendly to retirees: Social Security and, for people age 62 to 64, up to $35,000 (or up to $65,000 for people 65 or older) of most types of other retirement income are exempt.

Alexandria is No. 3. (Photo credit: jennifer yin, aka bittermelon, Flickr. http://bit.ly/1dr9olV)

3. Alexandria, Va.

City population: 146,294

Percentage of population age 45 to 64: 24.6%

Crime rate: 2.45 crimes per 100 residents

Cost of living: 21% above the national average

State's retiree tax picture: Mixed

Government shutdowns aside, Uncle Sam is a stable employer, buoying the local economies of the nation's capital and its suburbs. Alexandria, just south of Washington, D.C., boasts the lowest unemployment rate of all the cities on this list. The trade-offs for residents are above-average living expenses and so-so tax breaks. While Virginia doesn't tax Social Security income, it does tax other income, including federal and military pensions, at rates ranging from 2% to 5.75%. Someone 65 or older can deduct up to $12,000 of retirement income, subject to income-eligibility limits. Sales tax adds up to 6% once you factor in the 4.3% state tax, 1% local tax and special 0.7% regional tax for Northern Virginia.

Proximity to Washington means easy access to plenty of free attractions. Forget the usual suspects: monuments and memorials along the National Mall, as well as the Natural History and Air and Space museums. You've probably seem them a hundred times already. Instead focus on the rich cultural programs offered by the National Gallery of Art, which has a robust lineup of films, concerts and lectures. Two Metro lines offer direct service into the District. In Alexandria proper, many neighborhoods near Old Town and the King Street metro station are very walkable, meaning you can keep the car in the garage when you run errands. The Potomac River waterfront and the Mount Vernon Trail are prime spots bikers and joggers.

2. Cary, N.C.

City population: 145,693

Percentage of population age 45 to 64: 26.5%

Crime rate: 1.60 crimes per 100 residents

Cost of living: 2% above the national average

State's retiree tax picture: Mixed

At the heart of North Carolina's Research Triangle — between Raleigh, Durham and Chapel Hill — Cary is surrounded by powerhouse employers (not to mention college sports teams) that provide the area with a solid economic base. Along with a healthy job market, the region also boasts affordable living. Less than 20 minutes away, Raleigh is one of our best cities for cheapskates, thanks in part to its more than 40 free cultural attractions, including the North Carolina Museum of Art. It's also our most affordable big city for renters.

Besides whiling away your retirement rooting for the North Carolina State Wolfpack, the Duke Blue Devils or the University of North Carolina Tar Heels — you must pick one — sports fans can check out the USA Baseball National Training Complex in Cary. And trust that the action will stay on the field: Cary rests easy with the lowest crime rate of all the cities on this list. As for health care, Duke University Medical Center, in nearby Durham, is ranked one of the nation's best hospitals by U.S. News.

Naperville is No. 1. (Photo credit: Michael Kappel, Flickr. http://bit.ly/1dchse7)

1. Naperville, Ill.

City population: 143,684

Percentage of population age 45 to 64: 27.8%

Crime rate: 1.66 crimes per 100 residents

Cost of living: 3% above the national average

State's retiree tax picture: Mixed

While enjoying the safety of the suburbs — Naperville has the second-lowest crime rate on this list — you can still take advantage of all the urban offerings of nearby Chicago. In about an hour aboard the Metra commuter-rail system, you can reach Union Station with a $5.75 one-way ticket, reduced to $2.75 for seniors. Once in the city, relish everything that makes Chicago famous, including its food, bars, beach, architecture, sports teams and art scene.

Back in Naperville, early retirees will feel at home thanks to the highest percentage of residents ages 45 to 64 on this list. Meet new-found friends in the pedestrian-friendly downtown, which is packed with shops and restaurants as well as a 1.75-mile Riverwalk. But as you plan your entertainment budget, remember to account for the 7.25% sales tax (state and local rates combined). Though steep, it's actually less in Naperville than what you'd pay in other parts of Illinois, where combined rates can run much higher.



Methodology: City populations, population breakdowns by age, median household incomes and unemployment rates are from the U.S. Census Bureau. Cost-of-living figures are from the Economic Policy Institute. Crime rates are from the Federal Bureau of Investigation. Tax information is drawn from Kiplinger's Retiree Tax Map, which is based on information from state tax departments, CCH and the Tax Foundation.

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