Arizona Retirement – Tax-Friendly Affordable Living & Senior Perks

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