How is Kentucky for retirement?

If you nearing retirement, one of the big decisions you must make is where you will retire. Apart from the weather, you must consider things like income taxes, property taxes, crime rate, cost of living, and recreation opportunities. One of the best states for retirement is Kentucky, also known as the Bluegrass State. Find out what to expect when you retire in Kentucky.

Kentucky has a friendly tax system for retirees. The state does not tax social security, while other retirement incomes like pension and 401(k) withdrawals are exempt up to $31,110. Excess income above this amount is subject to income taxes. Property taxes are also low, and you can expect to pay an average of $1,257 in property taxes. Retirees can expect to enjoy a relatively mild climate, low housing costs, low cost of living, low crime rates, and plenty of outdoor opportunities.

Is Kentucky a tax-friendly state to retire?

The Bluegrass state has a favorable tax system for retirees. The state exempts social security income from income taxes, but other forms of retirement income like pension and retirement distributions from retirement accounts such as 401(k) and IRA are exempt up to $31,110 per person. If your total retirement income exceeds $31,110, you will be required to pay an income tax of 5% on your additional income.

Kentucky imposes occupational taxes at the county and city levels on various types of income such as wages and salaries. If you decide to go back to employment in retirement, your wages will be subject to these taxes.  

Also, the state has a sales tax of 6% on goods and services. The 6% tax rate falls below the US national average. There are no sales taxes at the local government level since counties collect their own income taxes. Additionally, certain goods such as prescription drugs, most groceries, and prosthetic drugs are exempted from sales taxes.

Apart from the income taxes and sales taxes, Kentucky also collects capital gains tax and inheritance tax. Capital gains are taxed as normal income, and they are included when calculating your total taxable income.

Inheritance taxes are charged based on the relationship that an individual had with the deceased. If you are a child, spouse, brother/sister, grandchild, or other direct relatives of the deceased, you are exempted from inheritance taxes. Indirect relatives like uncles, aunts, in-laws, and cousins may get an exemption up to a specific limit, and the excess amount will be subject to income taxes.

Are property taxes high in Kentucky?

Homeowners in Kentucky can expect to pay a median property tax of $1,257. The average effective property tax rate in the state is 0.83%, which is below the national average. The low property taxes can be attributed to the low home values in Kentucky, with the median home value being $151,700.

Seniors above age 65 occupying their own homes in Kentucky may be eligible for homestead exemption. The exemption amount is adjusted annually, and it is deducted from the assessed value of a home before taxes are applied. For 2021 and 2022, the homestead exemption is $40,500.

Pros of retiring in Kentucky

Good climate

If you decide to retire in Kentucky, you will enjoy all four seasons. The climate tends to be moderate and mild subtropical. The summer can be relatively hot, while the winters are milder than in the southern states. The period between December to February records the lowest temperatures between 23F to 28F. In the summer, temperatures can peak at 85F to 92F.

Affordable housing

Whether you want to buy a home or rent a living space, you will find the housing prices in Kentucky to be affordable. If you are buying a home, you can expect to pay an average price of $146,400. Prices can be higher if you are buying a home near the big cities. If you plan to rent, you can expect to pay about $536 for a studio apartment or $1,190 for a four-bedroom house.

Low cost of living

If you consider the amount that you will spend on essential expenses such as food, housing, taxes, healthcare, and clothing, you will incur fewer costs than the national average. The greatest contributor to the low cost of living is housing, which has a rating of 63 against the national average of 100 points. Other areas of the economy where you can expect to save money on purchases include groceries, transport, utilities, and healthcare.

Plenty of outdoor fun

Although Kentucky is a landlocked state, there are plenty of outdoor opportunities for seniors. You can visit the Mammoth Cave National Park, go hiking in the Red River Gorge, or camp in the Daniel Boone national forest.

One event that you wouldn't want to miss is the Kentucky Derby, the most prestigious American horse race. The horse racing event happens every year in May at the Churchill Downs, and it stretches into several weeks of festivals and parties before the actual racing day.

Con of Retiring in Kentucky

Tornadoes and storms

As part of the Hoosier Alley, Kentucky can sometimes experience frightening tornadoes and storms. Eastern Kentucky is more vulnerable to extreme weather, and counties like Grayson and Louisville have experienced storms and floods multiple times in the last two decades.

The period between April to May is usually more prone to natural disasters, and you should watch out for floods, tornadoes, mudslides, and rockslides. Most states have adequate disaster preparedness resources, and there are emergency numbers to call for help during emergencies.

Best places to retire in Kentucky

Owensboro

If you want to retire in a city with a fun urban setting, you should consider moving to Owensboro. The city lies along the Ohio River, and there are plenty of parks to go for picnics, walks, or morning runs.

If you enjoy barbecues, you should not miss out on the annual International Barbecue Festival. The city is also home to the Owensboro Medical Health System Hospital, one of the biggest hospitals in Kentucky

Covington

Covington provides retirees with a tranquil urban retirement. The city is home to 170 churches, a diverse community, and 16 parks, and lies along the Ohio River. Its location as a Cincinnati suburb gives retirees access to important amenities and urban entertainment. Key outdoor activities include biking, hiking, fishing, golf, and museums.

Hopkinsville

If you prefer a rural retirement, Hopkinsville is a good place to retire. The city is located in southwest Kentucky in an agricultural community; you can find wheat, corn, cucumbers, and soybeans in the farmer’s market. Some of the top attractions you should visit include Casey Jones Distillery, Copper Canyon Ranch, and the Hopkinsville Art Gallery.

Ashland

Ashland is a small city, and it is viewed as the country music capital of Kentucky. The low crime rate coupled with affordable housing makes Ashland an attractive city for retirees. The city is home to the Camayo Arcade, the Highlands Museum, and the Discovery Center. Retirees can enjoy walking, hiking trails, playing golf, watching racing events, and going camping.