How is Arizona for retirement?

When choosing the best state for retirement, you will want to balance affordability with quality of life, healthcare, social activity, and outdoor activities. One of the most popular states for retirees is Arizona. The Grand Canyon State has a growing community of older adults who are attracted to the state's year-round warm climate and plenty of sunshine.

Arizona is a good state for retirement, and it ranks second just behind Florida. The state offers a low cost of living, warm weather, plenty of sunshine, and good healthcare, and there are plenty of outdoor spaces like national parks, waterways, hiking trails, museums, etc. The state is moderately tax-friendly, and retirees don't pay state income taxes on Social Security benefits. However, withdrawals from retirement plans like 401(k) and IRA are subject to state income taxes.

Is Arizona tax-friendly for retirement?

Arizona is a moderately tax-friendly state, and retirees get to keep most of their retirement incomes. Arizona is one of the states with a gradual income tax, meaning that your state income tax rate increases with income. The state income tax ranges from 2.59% to 4.5% depending on the income level.

Arizona exempts Social Security benefits from income taxes; you will only incur federal income taxes on the benefits. However, if you receive distributions from retirement savings plans such as IRA and 401(k), you will pay state income taxes as regular income. You will be required to combine the retirement plan distributions with other incomes such as employment income to determine your total income.

If you receive pension income from the federal government, the state of Arizona, or the local government, you will be eligible for a deduction of $2,500 annually. However, pensions from other states (other than Arizona) and private pensions are not eligible for this deduction.

Arizona does not have an estate or inheritance tax. However, the state has a cumulative sales tax of 8.4% on average i.e. 5.6% state sales tax and 2.8% local sales tax. The state exempts prescription drugs and groceries from state sales taxes.

Are property taxes high in Arizona?

Arizona has one of the lowest property tax rates in the United States. The median annual property tax in Arizona is $1,707, which is nearly $1,000 below the national median property tax.

Homeowners may be eligible for the property valuation freeze, which freezes a home's value for property tax purposes and can limit increases in property taxes. The valuation freeze lasts three years and is renewable when the term expires if the property owner still qualifies. For 2023, the average total annual income must be under $43,872 for individual owners or $54,840 for homes with two or more owners.

If you are age 70 or older, you may be eligible to defer property taxes on your principal residence until when you sell your home or die. However, to be eligible for deferment, you must have lived in the home for at least 6 years (or 10 years in the state) and the total taxable income for all inhabitants must be under $10,000.

Pros of retiring in Arizona

Sunny warm climate

Arizona has many days of sunshine and high temperatures year-round, which allows retirees to explore the outdoors all year round. The warm dry weather makes Arizona attractive to seniors with health issues such as asthma, allergies, arthritis, and mobility issues. The warm sunny weather appeals to the millions of retirees who spent most of their working years in the colder northern states.

Low cost of living

The cost of living in Arizona is below the national average, and it is also cheaper than other states like California and Florida which are popular among retirees. The low cost of living, combined with the low income taxes make Arizona a popular retirement destination.

Great outdoors

The Grand Canyon may be the most popular national park in Arizona, but there is more to see in the state. The state hosts 22 national parks, 31 state parks, and more than 2000 hiking trails. Arizona is also home to the Tonto National Forest, which covers over three million acres of land. You can buy a National Park Senior Pass at $20 annually ($80 lifetime) to get unlimited access to all the parks in the state.

Golf paradise

With over 300 golf courses spread across the state, Arizona is a golfer's paradise. You will find daily-fee courses, municipal courses, private courses, and residential golf courses in 55+ communities.  You can pay top dollar in the upscale Desert Mountain in Scottsdale or try Sun City northwest of Phoenix where the daily fee is under $50. Apart from golf, Arizona also appeals to tennis players and pickleball players.

Plenty of company

Arizona has a growing senior population, and there are over 160 age-restricted communities across the state. Some communities start as young as age 45, but most communities accept seniors aged 55 or older. 

Most of these communities are spread in purpose-built communities like Sun City and Green Valley, and they provide all the facilities seniors require like golf courses, restaurants, swimming pools, fitness centers, libraries, hospitals, and churches.

Cons of retiring in Arizona

Hot climate

While the winter months offer a moderate climate for outdoor activities, the weather during the summer months can reach extreme temperatures of over 100 degrees. If you want to escape the hot climate, you may want to move further north where temperatures are moderate.

High crime rates

Arizona ranks as one of the states with a high crime rate of 484.8 per 100,000 individuals, according to data released by the Federal Bureau of Investigation (FBI). However, most retirement communities provide a safe environment for retirees and have put in measures to keep off intruders.

Air quality

Air pollution is generally worse on the west coast where Arizona lies. The air pollution is caused by the over two million motorists commuting daily, with the vehicle emissions creating a blanket of smoke over the state. The polluted air creates a health risk for children, older adults, and people with chronic and pre-existing conditions.

The snowbirds

During the winter, retirees from the northern states often flock to Arizona to escape the cold winters. While these tourists inject billions of dollars into the local economy, year-round residents resent these tourists because everything becomes busier, including restaurants, traffic, as well as national parks. The snowbirds visit Arizona between October and April, and they are at least 400,000 plus each season.

Best places to retire in Arizona

Sun City

When considering the best cities for retirement in Arizona, Sun City is arguably a top consideration. This city hosts a close-knit adult community, and it was master-planned to offer a leisurely and active lifestyle to seniors.

Within the city, you will find multiple recreation centers, sports amenities, golf courses, walking tracks, as well as manmade lakes where you can go fishing or kayaking. There is a seasonal farmer’s market where you can get fresh farm produce; you can also find grocery shops, clothing stores, pharmacies, restaurants, etc.

Phoenix

Some of the most popular retirement communities in Phoenix like Sun City, Cave Creek, and Litchfield Park are close to Phoenix, the capital of Arizona. This populous desert city provides residents with year-round warmth and plenty of arts and entertainment opportunities.

There are multiple museums, science centers, and the five-day fine art festival Art Detour. If you want to explore the outdoors, you can visit the Phoenix Zoo and the South Mountain Park and Reserve. Additionally, there are over 200 golf courses where you can practice your swing across the state.

Tucson

Tucson lies between Phoenix and Green Valley, and residents get to enjoy the best of both worlds. You can retire in Tucson to get close to the state’s capital, and still enjoy the spectacular mountain views.

Residents enjoy a good mix of entertainment, outdoor activities, and culture. The city hosts many museums, zoos, historic sites, and botanical gardens. You can tour the Saguaro National Park, Sabino Canyon, and Tohono Chul Park. If you want to spend your evenings out, the city has a thriving nightlife, and good dining spots that you can sample.

Prescott

Prescott sits in the middle of Arizona’s natural spaces, and you can enjoy beautiful scenery ranging from lakes, pine forests, rolling meadows, and granite boulders.

There are a variety of recreation opportunities nearby, and you can go hiking in the Coconino National Forest, Prescott National Forest, and Peavine National Recreation Trail. You can also explore the Smoki Museum, Sharlot Hall Museum, and the Tis Art Center and Gallery.

Though Prescott has a small-town feel, you can find retail stores, restaurants, medical centers, and golf courses in the city. You can also take a two-hour drive to Phoenix, which lies 100 miles from Prescott.