Arizona Retirement: Tax-Friendly, Affordable Living & Senior Perks

Arizona retirement continues to attract older Americans thanks to its warm climate, low taxes, and affordable lifestyle. In this video, FinStream TV Co-Founder Bob Powell speaks with Erin Itkoe, CPA/PFS, CFP®, about why Arizona is a top destination for retirees — whether as full-time residents or seasonal “snowbirds.”

Why Retire in Arizona?

From sunny skies to vibrant communities, Arizona offers retirees more than just good weather. Key benefits include:

• Year-round outdoor recreation

• Active senior living communities

• Relatively low cost of living

• Tax advantages for retirement income

Affordable Cost of Living

Arizona’s overall affordability helps retirees stretch their budgets further. Highlights include:

• Moderately priced housing in both cities and smaller towns

• Reasonable transportation costs and access to public transit

• Affordable food and utilities, making daily living expenses manageable

Arizona’s Retirement Tax Benefits

Arizona’s tax structure is a major factor in its appeal to retirees. According to Erin Itkoe, director of financial planning at Tarbox Family Office:

Flat Tax Implementation

• As of 2024, Arizona uses a flat income tax rate of 2.5%

• Applies to wages, pensions, investments, and retirement account withdrawals

• Among the lowest flat tax rates in the U.S.

Retirement Income Tax Rules

• IRAs, 401(k)s, and private pensions: Fully taxable

• Public pensions (Arizona or federal): $2,500 annual deduction

• Military retirement pay: Fully exempt

• Social Security benefits: Not taxed at the state level

• Railroad Retirement: Tier I exempt; Tier II partially taxed

• Capital gains: Taxed at 2.5%, with a 25% deduction on qualifying gains

• U.S. government bond interest: State tax-exempt

• No Medicare surtax at the state level

Property and Sales Tax Details

Sales Tax

• Base state rate: 5.6%

• Local taxes may raise rates up to 11.2%

• Groceries and prescription drugs: Exempt from sales tax

Property Tax

• Average effective rate: 0.44% — among the lowest nationally

• Senior homeowners may qualify for the Senior Property Valuation Protection Program (aka “Senior Freeze”)

  • Locks in assessed value for residents age 65+

  • Must meet income and residency requirements

  • Must renew every three years

A Retirement-Friendly Climate — Financially and Otherwise

With a balance of lifestyle perks and financial advantages, Arizona retirement continues to be a compelling option. As Erin Itkoe notes, it’s important to weigh both cost and quality of life. For many, Arizona offers the right mix of both.

🎥 Watch the full interview with Erin Itkoe on FinStream TV.
👉 More videos featuring Erin Itkoe