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Alaska is the third best state for older workers to save money for retirement: Here are No.s 1 and 2

You have to “place a strong emphasis on cost of living.”

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Twenty/20

A lot of older Americans are staying in the workforce: More than 10 million people ages 65 years and older are actively employed, according to the Bureau of Labor Statistics, in part because the pandemic meant many could work from home or pick up a part-time job in a role such as bookkeeping.

While some of that group still works because they love their job, others are putting off retirement in order to save more money. And Alaska is one of the places that best enables residents to do that. 

That's according to new data from Seniorly.com, which analyzed numbers from the U.S. Census, Tax Foundation, and Centers for Disease Control and Prevention to determine what states had the lowest cost of living and taxes, the highest income, and good health care options.

While the Last Frontier doesn't rank first, it does offer an attractive economy for older workers since residents don't pay income tax. Landing at No. 2 is South Dakota, which doesn't levy income tax either and scores high in life expectancy. The top state on the list is Wyoming, which also has no income tax. Over half of the 65-and-older households there earn more than $50,000 per year.

If you think you may need to keep working to beef up your savings, "then you're going to have to place a strong emphasis on cost of living and keeping your expenses low," says Bankrate chief analyst Greg McBride. A solid reserve fund is "going to last longer in a low-cost area."

Here are the top five U.S. states where it's easiest for older workers to live and save, according to Seniorly.com's analysis, plus the median state income tax, percentage of senior residents with Medicare coverage, share of senior households that earn at least $50,000 a year, and the state's overall score (the lower the better).

5. Vermont         

Median state income tax: 7.1%
Residents 65+ with Medicare: 97.4%
Householders 65+ that earn at least $50,000 annually: 51.5%        
Overall score: 85

4. Washington    

Median state income tax: 0%
Residents 65+ with Medicare: 95.5%
Householders 65+ that earn at least $50,000 annually: 54.8%        
Overall score: 82

3. Alaska

Median state income tax: 0%
Residents 65+ with Medicare: 94.9%
Householders 65+ that earn at least $50,000 annually: 58.6%        
Overall score: 82

2. South Dakota 

Median state income tax: 0%
Residents 65+ with Medicare: 96.5%
Householders 65+ that earn at least $50,000 annually: 48.2%
Overall score: 69

1. Wyoming        

Median state income tax: 0%
Residents 65+ with Medicare: 98.2%
Householders 65+ that earn at least $50,000 annually: 50.2%
Overall score: 64

'It may be prudent to rethink' where you live as an older person

Americans spend about $50,220 a year after they retire, according to the Bureau of Labor Statistics' latest Consumer Expenditure Survey, and living in a low-cost-of-living state with no income tax and affordable health care options can help stretch your budget.

"For those who are closer to retirement, it may be prudent to rethink where they plan to retire," says Jonathan I. Shenkman, a financial advisor at Oppenheimer & Co. This strategy can boost savings even for boomers and older adults "approaching retirement who may have had their finances derailed due to the pandemic."

The states on the list with no income tax could be good options. Perhaps you might consider "moving close to family in the Midwest where housing costs are cheaper," he adds. "It may even be worth retiring overseas where costs are lower and long-term care is more affordable."

How to 'maximize your savings options' for retirement

One big reason older Americans delay retirement is to increase the amount in their Social Security checks when they do call it quits, notes Seniorly.com.

You can claim Social Security as early as age 62 but only at a permanently reduced rate. You're entitled to claim your full benefit once you reach retirement age, a milestone that varies by your birth year. After that, for every additional year you wait to claim benefits, until age 70, your benefit increases 8%. Hold out until age 70 or older to claim, and you could receive payments worth up to 132% your full monthly benefit, depending on your full retirement age.

Plus, the longer you keep working and leave your nest egg untouched, the longer any money you have put away in tax-advantaged retirement accounts could have to compound.

You're going to have to place a strong emphasis on cost of living and keeping your expenses low.
Greg McBride
Bankrate

Taking some basic budget steps now can help set you up for the future, in case you don't want to move. Aim to save between 10% to 20% of your monthly income in a 401(k), Roth IRA, or a traditional IRA while you're working. If you're closer to retirement age, try to bump that up, says McBride.

"It's the new look to maximize your retirement savings options," he explains. "But even if you don't have an employer-sponsored plan, you're eligible to contribute to an IRA. Utilizing any sort of tax-advantaged retirement plan helps your savings grow over time."

Whether you retire in the same state you work in or somewhere else, take time to envision how that choice will play out: "In terms of housing costs and medical care, those are probably going to be your two biggest expenses. Taxes are also a consideration [as well as] quality of life," McBride says. "However you measure that, you're going to want to evaluate it very closely."

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