Year after year, experts consider Arizona one of the best states to retire in thanks to its year-round sunshine, warm climate, and low tax rate.
When it comes to picking your retirement destination, there are two things to keep in mind: your financial situation and your preferred lifestyle. The key to a happy retirement is to find a balance between the two. You want to make the most of your nest egg in a place that you enjoy.
With that in mind, this article will discuss the financial and lifestyle pros and cons of retiring in Arizona. Interested in getting a more customized opinion on whether you should retire in Arizona? Consider scheduling a free retirement planning consultation with a member of the ARQ Wealth team today.
Lifestyle Benefits of Retiring in Arizona
1. Great climate and cities
One of the most common reasons that people choose to retire in Arizona is because of its climate. Located in the American Southwest, Arizona boasts an average statewide annual temperature of just under 60°F. In other words, there’s really no winter anywhere in the state.
During the summer, average daytime temperatures range between 105° and 115°F. But, as you’ve probably heard people say, Arizona experiences a “dry” heat. This means you don’t feel as hot compared to the sticky humidity in other parts of the country.
As for rain, Arizona gets just 3 inches annually in the southwest in Yuma and around 40 inches in the White Mountains in east-central Arizona, according to the Arizona State Climate Office.
For people looking to retire in Arizona, there are plenty of popular cities to choose from, including:
- Phoenix
- Scottsdale
- Mesa
- Flagstaff
- Tucson
- Tempe
- Lake Havasu City
- Sedona
- Prescott
Each city offers a unique array of lifestyle benefits. Also, remember that Arizona is a large state with a lot to offer. So, be sure to research each city thoroughly before making the move to ensure that it’s the right choice for you.
2. Beautiful scenery and outdoor activities
Arizona boasts a combination of desert, mountains, rivers, and lakes that are a paradise for people who love the outdoors. TripAdvisor ranks the top five outdoor activities in Arizona as:
- The Grand Canyon’s South Rim
- Horseshoe Bend
- Antelope Canyon
- Desert Botanical Garden
- Chapel of the Holy Cross
Arizona is teeming with beautiful landscapes and is home to 22 National Parks, according to the National Parks Service. Additionally, Arizona is located strategically within striking distance of some of America’s most beautiful states including California, Colorado, New Mexico, Utah, and Nevada. If you haven’t spent much time in this part of the country then you’ll have plenty to explore during your golden years.
As far as activities that you can do in Arizona, the list is really only limited by your imagination. A few of the most common activities include boating, hiking, biking, off-roading, sightseeing, fishing, and golfing (Arizona is home to more than 300 golf courses).
3. Good sports teams
For sports fans, the good news is that there are plenty of sports teams to root for in Arizona (not that you have to stop rooting for your old teams). Phoenix is home to sports teams in five professional leagues:
- Arizona Cardinals (NFL)
- Phoenix Suns (NBA)
- Arizona Diamondbacks (MLB)
- Arizona Coyotes (NHL)
- Phoenix Rising (MLS)
There is also the University of Arizona (Tucson) and Arizona State University (Tempe), which both have their own respective sports teams.
4. Retiree-friendly
Thanks to its warm climate and sunshine, Arizona tends to draw plenty of retirees. Since there are so many people retiring within the state’s boundaries, Arizona is home to tons of 55+ retirement communities.
If you do end up making the move to Arizona for your retirement, then there’s a good chance you’ll find yourself surrounded by like-minded people.
Lifestyle Downsides of Retiring in Arizona
Some of the pros of living in Arizona can also be viewed as cons. For example, the warm, year-round climate turns into stifling heat in the summer. Let’s explore a few of the lifestyle downsides of retiring in Arizona.
1. Sweltering summers and crowded winters
Most of Arizona is desert. This means that summers can get unbearably hot and uncomfortable. For this reason, most people choose to visit Arizona in the winter when it’s a bit more temperate. However, the downside to this is that winters can feel especially crowded with lots of “snowbirds” flocking into the state hoping to avoid the colder regions of the country.
In other words, you can expect hiking trails, golf courses, and resorts to be more crowded once the temperature drops.
2. No seasons
If you’re used to having all four seasons then it can be a bit unnerving to live in a state that’s stuck in a perpetual summer. To some people, year-round summer might sound amazing. But, others might miss the leaves changing colors in the Fall, snow falling in the Winter, or other perks of living in a state that gets all four seasons.
Again, this all comes down to your personal preferences. But, it’s still something to consider when choosing whether or not to retire in Arizona.
3. No “major” cities
If you love the hustle and bustle of a big city then you might be disappointed after moving to Arizona. The state’s biggest city is Phoenix which has a population of 1,609,000 according to Arizona Demographics by Cubit. The other cities in Arizona have approximately 500,000 or fewer people.
If you’re used to cities like New York (8.6 million), Los Angeles (3.8 million), or Chicago (2.6 million) then you might be disappointed with the size and feel of many Arizona cities.
4. Poor public transportation
The downside to living in the desert is that the vast expanses of land make it hard to build public transportation. You might be able to find buses or trains within major cities. But, if you’re looking to travel around the state then you can expect to do a lot of driving.
Arizona’s public transportation is poor when compared to cities in the Northeast like New York or Philadelphia. However, it also depends on where you choose to live in Arizona. For example, there is a tram line that services downtown Tempe and Phoenix which helps make it easier to get around these areas.
With the lifestyle pros and cons out of the way, let’s talk about the financial aspects of retiring in Arizona.
Financial Benefits of Retiring in Arizona
1. Arizona charges a flat 2.5% income tax
If you plan on working during your golden years then you should be aware that Arizona has a 2.5% income tax, according to the latest data from the Arizona Department of Revenue. This is on the lower end when compared to most other states.
This 2.5% income tax rate will apply to your retirement accounts as well, which Arizona treats as regular income. So, if you make withdrawals from your 401(k), IRA, or similar retirement account then you’ll have to pay a 2.5% tax. The same goes for pension income.
2. There is no Social Security, estate, or inheritance tax
You will not have to pay taxes on Social Security retirement benefits that you receive while living in Arizona. This is highly attractive for many retirees, as almost all retirees use Social Security to help pad their retirement income.
Additionally, the fact that there is no estate or inheritance tax makes Arizona attractive for those looking to pass on any accumulated wealth to their children or grandchildren.
3. Military-friendly advantages
Arizona is a very tax-friendly state for members of the military. This is because Arizona does not tax active duty military or National Guard pay. It also does not tax benefits, annuities, and pensions received from the US armed services.
4. Fairly low property taxes
Arizona’s average sufficient tax rate is 0.51%, according to data from SmartAsset. This is well below the 0.99% national average.
However, keep in mind that your property tax rate will vary depending on home values and the county that you live in. For more information on your expected property tax rate, check out SmartAsset’s property tax calculator.
Certain counties within Arizona also allow their senior citizens to “freeze” the valuation of their property under the Senior Property Valuation Protection Option. This means that you can essentially stop your property from gaining value, which secures a stable property tax.
Financial Downsides of Retiring in Arizona
1. Sales tax of 5.6%
Since it influences your budget, sales tax plays a big role in your retirement planning. In this regard, Arizona falls in the middle of the pack with a sales tax rate of 5.6% per Rocket Money. For reference, this is lower than states like California (7.25%), Indiana (7%), Mississippi (7%), and Tennessee (7%). However, it’s significantly higher than states like Delaware, Montana, New Hampshire, and Oregon, all of which do not have any sales tax.
2. Cost of housing
According to data from Bankrate, the median sale price of a single-family home in Arizona was $435,300 as of November 2023. This is slightly higher than the national median price of an existing home—a home that was already standing, not a new construction—which Bankrate estimates was $387,600 as of November 2023.
However, keep in mind that this is a bit of an apples-to-oranges comparison as the price of your house depends heavily on where you buy. Additionally, as a retiree, there’s a good chance that you may not be looking to buy a traditional single-family home. You may be downsizing to something that’s easier to maintain. Or, you could be moving into a senior living community.
All of this is to say that you shouldn’t let the statewide cost of housing deter you from moving to Arizona. Instead, it’s best to speak with a retirement planning professional about the market where you’re looking to move.
3. Fairly high cost of living
On the same note, Arizona is not known for being overly cheap.
According to a study conducted by the Missouri Economic Research and Information Center, Arizona ranked as the 36th cheapest state to live in. Arizona is still fairly cheap compared to states in the Northeast and along the West Coast. But, it’s a bit pricier than many in the Midwest.
If exploring the great outdoors is important to you then this higher cost of living might be worth the price, since you’ll be surrounded by beautiful scenery. But, if you don’t plan on doing much hiking then moving to a cheaper state could help you stretch your retirement savings further.
Should You Retire in Arizona?
Many people consider Arizona as one of the best states to retire. But, this assumes that you love the sun, warm weather, and beautiful scenery.
If you love year-round warm weather, a nice sunny day, and a road trip to some of America’s most beautiful natural expanses then you should definitely consider retiring in Arizona. But, if you’re not a big fan of being outdoors and don’t like to get too hot then there are probably much better states to settle down in.
We hope that you’ve found this article valuable when it comes to weighing the pros and cons of retiring in Arizona. Interested in getting a more customized opinion about your financial planning? If so, please schedule a consultation with a member of the ARQ Wealth team today.
