More than 71 million Americans rely on Social Security benefits, nearly 54 million of whom are 65 or older. As of June, the average retired worker receives a monthly payment of $1,837 — and, for many, benefits are more of a lifeline than a check.
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Among older Americans, 37% of men and 42% of women count on Social Security for at least 50% of their income. About 12% of men and 15% of women rely on their benefits for at least nine dollars out of every 10 that come in.
But, in the future, they might have to make do with less.
The program is on pace to deplete the trusts that fund it by 2034, leaving the SSA able to pay just 77% of scheduled benefits in roughly 10 years. To prevent that outcome, Congress will have to alter the program by increasing the retirement age, raising taxes, slashing delayed retirement credits or even by cutting benefits.
Although Social Security is a federal program and your location doesn’t determine your benefits, where you live might have a lot to do with how you fare. Here are the states in the best position to survive a benefit reduction with the least amount of pain.
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Utah, Alaska and Texas Have a Winning Formula
James Allen — certified financial education instructor, CPA and founder of Billpin.com — thinks residents of Utah, Alaska and Texas are best suited to endure potential cuts to Social Security.
“These states have a younger demographic profile, with fewer folks age 67 and up, according to the U.S. Census Bureau,” Allen said.
In fact, the Population Resource Bureau says Texas, Alaska and Utah are the three youngest states in America — with 13.2%, 13.1% and 11.7% of the population age 65 and older. By comparison, the oldest, Maine and Florida, are both over 21%.
“They also have a lower percentage of their population receiving Social Security benefits, as per the Social Security Administration,” Allen said. “But here’s the kicker: These states also have robust state-based aid programs for seniors. So, even if Uncle Sam tightens the purse strings, these states have a safety net in place. It’s like they’ve built their own financial bunkers against the potential Social Security storm.”
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Four States Don’t Tax Retirement Income
A handful of other states offer a different kind of hedge by exempting retirement income from taxation, which lets you keep more of your nest egg if your Social Security benefits take a hit.
Illinois
Illinois residents pay a flat state income tax of 4.95% — but all retirement income is exempt. Retirees in Illinois pay no state tax on distributions from 401(k)s and other qualified employer-based plans or self-directed plans, like IRAs and IRAs that were converted to Roth IRAs.
The state also keeps its hands off state and local government deferred compensation plans, U.S. retirement bonds and the federally taxed portion of Social Security benefits.
Iowa
Starting in 2023, Iowa residents 55 and up are not taxed on retirement income from 401(k), 403(b) and 457(b) plans. The law, which the governor signed in 2022, also exempts qualified annuity distributions, SEP, SIMPLE and Keogh plans, IRAs and Roth conversions.
Mississippi
According to the Mississippi Department of Revenue, “Generally, retirement income, pensions and annuities are not subject to Mississippi Income tax if the recipient has met the retirement plan requirements. Early distributions are not considered retirement income and may be subject to tax.”
Pennsylvania
According to the Pennsylvania Department of Revenue, “Commonly recognized retirement benefits are not taxable for Pennsylvania purposes if you retired and met the requirements for retirement under your employer’s plan.” However, the Keystone State’s policy is less generous than the others, because it does not exclude income from retirement annuities.
9 States Exempt All Income From Taxation
Most states — 38 plus Washington, D.C. — don’t levy state taxes on Social Security. But nine double up by excluding not just Social Security and retirement funds, but all income from state taxation:
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Alaska
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Florida
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Nevada
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New Hampshire
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South Dakota
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Tennessee
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Texas
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Washington
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Wyoming
Three States Offer Excellent Senior Benefits
Both SeniorStrong and SeniorAdvice agree that a few states are great places for retirees on a budget — and many more retirees will be, if benefits are cut — because of the wide variety of benefits they offer to older Americans.
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Virginia: The state is known for excellent healthcare options with an extensive network of hospitals and a high proportion of Medicare-registered doctors. It also stands out for its wealth of senior living and home care facilities, as well as for its low taxes and strong economy.
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Hawaii: Despite the state’s high cost of living, residents 65 and up enjoy an average household income that’s 33.8% higher than the national average. Also, healthcare costs are 11.4% lower. It also offers low property taxes and tax exemptions for Social Security income.
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Georgia: Georgia makes the list because of its exceptionally low healthcare costs, low taxes and senior-friendly policies.
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This article originally appeared on GOBankingRates.com: Social Security: States That Would Be Impacted the Least by Cuts